Inmet advances Cobre Panama (April 01, 2010)

Vancouver – A new front-end engineering and design (FEED) study on Inmet Mining‘s (IMN-T) Cobre Panama project has brought one of the largest known copper porphyry deposits in the world one step closer to production.

Inmet has been advancing Cobre Grande towards a development decision since 1998, when the project saw its first feasibility study. In 2006 the feasibility study was updated and in 2008 Inmet produced an interim FEED study. In the less than three years since Inmet has completed enough drilling to more than triple the project’s measured and indicated resources, allowing the new FEED assessment to expand the project’s output by 25%.

The Cobre project, which is in the Donoso district of Panama, is home to 3.27 billion measured and indicated tonnes grading 0.36% copper, 0.06 gram gold per tonne, 1.3 grams silver per tonne, and 0.007% molybdenum. Inferred resources add 3.19 billion tonnes averaging 0.24% copper, 0.04 gram gold, 1 gram silver, and 0.005% moly.

From that massive resource the FEED study assessed a proven and probable reserve of 2.14 billion tonnes grading 0.41% copper, 0.07 gram gold, 1.43 grams silver, and 0.008% moly. The reserve contains 20 billion lbs. copper and 5 million oz. gold.

The current mine plan for Cobre is based on a 30-year mine life, though Inmet expects operations to continue beyond that point. During its initial 30 years, a Cobre Panama mine would produce an average of 255,000 tonnes of copper, 90,000 oz. gold, 1.51 million oz. silver, and 3,200 tonnes of molybdenum annually, though rates would be slightly higher in the first 15 years.

The mine plan envisions three open pits, known as Botija, Colina, and Valle Grande. In 30 years earth-moving machinery would mine 3.4 billion tonnes of material from the three pits, according to a strip ratio of 0.61 to 1. For the first third of its life the mill would process 150,000 tonnes of ore daily; in year 10 an expansion would increase daily throughput to 225,000 tonnes.

Based on a conventional process circuit including crushing, grinding, differential flotation, and filtration the mine is expected to achieve recoveries of 85.9% for copper, 54.3% for gold, 45.8% for silver, and 59% for molybdenum. The circuit would produce a copper concentrate, which would also carry the gold and silver, and a molybdenum concentrate.

Copper concentrate would be pumped as a slurry through a pipeline to the port site for filtration, storage, and transport. The moly concentrate would be dewatered on site and bagged, for delivery to the port site by truck.

The FEED study estimates it would cost Inmet US78¢ to produce a pound of copper at Cobre Panama in the first 16 years of operation, or US90¢ on average over 30 years. Including financing costs, the average life-of-mine cash cost increases to US$1.31 per lb. copper.

Not surprisingly, to build an operation of this scale will not be cheap. The mining fleet will cost US$510 million, the process plant requires US$799 million, the site and services including access road add US$597 million, and the port site will need US$320. As such the total direct capital requirement comes to US$2.23 billion.

Adding in indirect costs, owner’s costs, engineering, procurement and management costs, and a contingency brings the total capital cost estimate to US$4.32 billion.

Based on metal prices of US$2.10 per lb. copper, US$885 per oz. gold, US$13.50 per oz. silver, and US$13 per lb. molybdenum, Cobre Grande carries an after-tax net present value of US$1.7 billion, using an 8% discount rate, and is expected to generate a 15.5% internal rate of return. The calculations also assumed a US$2.16-billion debt load, representing half of the project’s capital cost.

Inmet has spent US$86 million on Cobre Grande since 2007, including US$29 million for engineering, US$42 million for drilling, and US$15 million for environmental and social impact assessments.

Those engineering and impact studies included two transmission lines from a new but independently-owned 300-megawatt coal-fired power station, one to the mine and one to the port, as well as a new access road with three buried pipelines running alongside. One pipeline would pump copper slurry to port, a second would pump diesel fuel to the mine, and a third would return dewatered concentrate and fly ash from the power plant back to the tailings management facility at the mine site.

Contingent on the receipt of permits, Inmet envisions completing heavy earthworks by mid-2013, finishing the road by early 2014, and completing the process plant by late 2015. If this timeline is met, Inmet could be producing concentrate at Cobre Panama by early 2016. The next key step in this process is delivery of the environmental and social impact assessment to the Panamanian authorities, which Inmet plans to do within a few months.

Inmet plans to finance the project through half debt, half equity contributions. The company expects to have US$1 billion in cash on hand by the time development funding is needed and recently announced a US$500-million financing aimed at Cobre Panama construction funding. The Korea Panama Mining Company holds an option to acquire a 20% stake in Cobre Panama that, if exercised, would bring in US$625 million. With another US$375 million in equity from somewhere, those sums add up to US$2.5 billion or more than half the capital requirement.

The other half will come from debt. Inmet has already signed preliminary agreement with global customers representing 400,000 tonnes of annual off-take production; those agreements could provide up to US$1 billion in debt. And the company says it is in discussion with other off-takers in Asia for similar commitments.

On news of the FEED study and the US$500-million private placement, Inmet’s share price gained $3.51 or 6.3% to close at $59.01. The company has a 52-week share price range of $29.32 to $78 and has 56 million shares outstanding. The company operates five mines and in 2009 produced 83,600 tonnes copper, 78,000 tonnes zinc, 228,400 oz. gold, and 383,900 tonnes pyrite to bring in earnings of US$269.2 million.