Minera Andes pegs Los Azules’ NPV at US$2.9B

Vancouver – Metal prices can make or break a project, and in the case of Minera Andes’ (mai-t) Los Azules copper project in Argentina, a stronger copper price has dramatically increased the potential mine’s value.
An updated preliminary economic assessment (PEA) for Los Azules has boosted the project’s pretax net present value (NPV) to US$2.9 billion, up from US$496 million calculated in an early 2009 PEA. The increase stems in part from a slightly larger resource but flows primarily from a significantly better copper price: the old report used US$1.90 per lb., while the new report uses US$3 per lb.
Minera Andes is working towards developing an open-pit mine at Los Azules, which is in San Juan province near the Chilean border. Last June the company updated the resource estimate for Los Azules, growing the porphyry deposit to 137 million indicated tonnes grading 0.73% copper, 0.07 gram gold per tonne, and 1.7 grams silver per tonne, plus 900 million inferred tonnes averaging 0.52% copper, with the same gold and silver grades.
The new estimate increased the metal count only slightly, bringing contained copper to 12.5 billion lbs. from 11.2 billion lbs. It primarily increased the resource confidence, as the previous estimate classified the entire deposit as inferred.
The new PEA assessed a conventional mill and sulphide flotation operation churning through 100,000 tonnes of ore daily, sourced from a pit with an average strip ratio of 1.37-to-1. With copper recovery expected to average 93%, the operation would produce 169,100 tonnes of copper annually for 25 years. During its first five years the mine’s yearly production would be higher, averaging 226,500 tonnes of copper in concentrate.
To build the project will cost US$2.9 billion. For that investment Minera Andes would be able to produce a pound of copper for just US96¢, net of gold and silver credits.
Using the new and improved copper price and an 8% discount rate, the new Los Azules PEA pegs the project’s pretax NPV at US$2.9 billion, and estimates the project should generate a 21.4% internal rate of return. The mine should be able to repay its capital investment in three years.
“We are advancing the engineering studies on Los Azules to systematically de-risk the project,” said Minera Andes’ chairman and CEO Rob McEwen. “The field season is just getting underway and we are currently mobilizing the first two of five drill rigs to the project.”
Los Azules is a typical porphyry copper system, comprising a leached cap that is essentially barren of copper covering a high-grade secondary enrichment blanket. Underneath the enrichment blanket primary sulphide mineralization extends to at least 650 metres depth. The deposit is about 4 km long and 1 km wide and remains open in several directions.
In the upcoming field season Minera Andes will continue with infill drilling to upgrade more of the resource to indicated status and step out drilling to expand the zone. In addition the company plans to start testing some newly identified deep geophysical targets scattered around the property.
The project is road accessible and sits at 3,500 metres above sea level. It is part of a belt of porphyry deposits that hosts some of the biggest copper mines in the world, including Codelco’s El Teniente mine, Anglo American’s (aal-l) Los Bronces mine, Antofagasta’s (anto-l) Los Pelambres mine, and Xstrata’s (xta-l, xraf-o) El Pachon project.
Minera Andes also owns a 49% stake in the operating San Jose mine, also in Argentina’s Santa Cruz province. Last November Minera Andes and partner Hochschild Mining (hoc-l) increased the resource count at San Jose, after discovering nine new veins and extending several other known veins during the year.
San Jose is now home to 3 million measured and indicated tonnes of 6.81 grams gold and 462 grams silver, plus 4.6 million inferred tonnes averaging 4.87 grams gold and 317 grams silver. Combined, the measured, indicated and inferred resources contain 1.4 million oz. gold and 90.6 million oz. silver. The partners attribute their exploration success in 2010 to an increased budget – they spent roughly $6.5 million on exploration at the mine.
The San Jose mine achieved commercial production in early 2008. In 2009 the operation produced 4.9 million oz. silver and 77,000 oz. gold, at average cash costs of US$5.84 per oz. silver and US$368 per oz. gold. A mine expansion, which triggered a legal dispute between the partners that was only resolved recently, is increasing production; in the third quarter of 2010, the mine produced 1.48 million oz. silver and 22,000 oz. gold.
Minera Andes’ share price gained 21¢ on the Los Azules PEA news to close at $2.94. The company has a 52-week trading range of 67¢-$3.24 and 266 million shares outstanding, or 288 million fully diluted.