Kalukundi copper deposit shows strong economics

Another Congolese copper project has received a positive feasibility study, this time the Kalukundi deposit in the Kolwezi area of Katanga province.

The Kalukundi study, piloted by South African consulting firm MDM Engineering, proposes development of multiple open pits and a solvent extraction and electrowinning plant.

Project operator Africo Resources, a private company in which Rubicon Minerals (RMX-V, RBY-X) holds a 39.6% interest, is providing the $6-million study as part of its option obligations on Kalukundi. Africo can earn a 75% interest in the project, with the rest held by state mining agency Gnrale des Carrires et des Mines (Gcamines).

The pits would hold a reserve of 7.8 million tonnes grading 2.37% copper and 0.69% cobalt, part of a resource of 12 million tonnes grading 2.42% copper and 0.61% cobalt. There is a further inferred resource of 15 million tonnes at average grades of 2.63% copper and 0.58% cobalt. The stripping ratio of the pits is near 4.

The Kalukundi deposit is a string of near-surface zones — North and C5 are the largest — in steeply dipping carbonate host rocks. Most of the mineralization is made up of oxidized copper and cobalt minerals, amenable to leaching and solvent extraction.

The property has a series of surface prospects, grouped in Kalukundi West and C5 East, that appear to be fragments of favourable carbonate stratigraphy. Africo plans about 2,500 metres of diamond drilling to assess those resources as possible additional pits.

Another 3,000 metres of drilling has been proposed to convert resources below the designed pits into reserves, a project that would also require some metallurgical work to test mixed oxide-sulphide material.

The mine would produce 16,400 tonnes copper and 3,400 tonnes cobalt annually, out of about 800,000 tonnes of ore. That rate of production gives the mine a 10-year life.

Cash production costs, estimated for copper and cobalt as co-products, rather than crediting cobalt revenues against copper costs, rang in at US$1,410 per tonne copper or US64 per lb. (Estimating costs with cobalt as a byproduct brings the production costs below zero.)

The study used prices of US$2,750 per tonne (US$1.25 per lb.) for copper and US$12 per lb. for cobalt. It assumed the pits would be contract-mined.

Capital costs totalled US$167 million, plus another US$7 million in pre-stripping.

Based on a financing structure of 70% bank debt, the project has a net present value of US$163 million at a 10% discount rate. The economic analysis used an income tax rate of 30%, a withholding tax rate of 10% and duties of 2% to 5%. The project is also subject to a 2.5% royalty held by Gcamines and a 2% royalty reserved to the state.

After taxes, the project’s internal rate of return is 28.5%. If it were entirely financed from equity, the net present value falls to US$44 million and the rate of return to 14.7%.

At the end of January, Africo had paid US$775,000 under the option deal. A further US$250,000 was due on May 22 and the remaining US$1.2 million was to be paid once the feasibility study was complete.

Meanwhile, Rubicon plans to spin its interest in Africo out to its shareholders, under an agreement the two companies reached in March. The deal commits the two companies to work toward having Africo go public and to arrange a distribution of Rubicon’s shares to the company’s shareholders. The Kalukundi feasibility study is to be a cornerstone for Africo’s plan to raise money via a public share offering.

The feasibility study follows another on the larger Kamoto copper-cobalt deposit, also near Kolwezi, held by Katanga Mining (KAT-V, KATFF-O) and Gcamines. That study concluded the mine that operated there until the early 1990s could be reopened at a cost of about US$427 million, plus US$231 million in sustaining capital (T.N.M., April 21/06). Kamoto, with a reserve of 48 million tonnes grading 3.2% copper and 0.26% cobalt, would have a net present value of US$649 million, but that figure was calculated at a discount rate of 6%, much lower than that for the Africo project.

As well, Simberi Gold (SAU-V, SIBIF-O) is updating an earlier feasibility study on the Kakanda copper-cobalt deposit near Likasi.

T.N.M. Nugget

AFRICO RESOURCES — KALUKUNDI COPPER PROJECT

LOCATION

Near Kolwezi, Democratic Republic of Congo

OWNERSHIP

75% Africo (owned 40% by Rubicon Minerals), 25% Gcamines

RESOURCE

Measured and indicated 12 Mt, 2.4% copper, 0.6% cobalt, plus inferred 15 Mt, 2.6% copper and 0.6% cobalt

RESERVE

7.8 Mt, 2.4% copper, 0.7% cobalt

MINE AND PLANT

Three to four open pits, SX-EW plant

CAPITAL COST

US$167 million

PRODUCTION COST

US$1,410/t or US64/lb copper

ECONOMICS

IRR 28%, NPV US$163M (at 10% discount rate)