New projects ensure Chile’s top-tier status

Although the pace of development has slowed since the mid-1990s, when several large copper mines entered production, new bulk-minable deposits are helping Chile maintain its position as the world’s largest copper producer, while, at the same time, boosting the country’s importance as a major gold producer.

Last year, Chile’s copper production hit a record 4.3 million tonnes, representing 40% of global world output. The South American country is also expected to enter the ranks of the world’s top 10 gold producers as a new gold district takes shape within the El Indio belt, north of Santiago.

In 2000 alone, mining companies will spend approximately US$2 billion on project development and expansion in the country.

One of the largest copper projects scheduled to come on-stream in the next few years is the Spence deposit, owned by Rio Algom (ROM-T). The project is currently at the feasibility stage and will soon be under new ownership following Billiton’s US$1.15-billion purchase of Rio Algom.

Billiton won control of Rio by beating a previous takeover offer by Noranda. The Noranda deal would have allowed Chile’s state copper corporation Codelco (Corporacin Nacional del Cobre de Chile) to purchase half of Rio Algom’s assets, which include the Cerro Colorado copper mine and the Spence project in Chile, the Alumbrera copper-gold mine in Argentina, and the Antamina copper-zinc project in Peru.

Spence was a blind discovery made by Rio Algom’s exploration team in 1997. The deposit, which contains resources of about 400 million tonnes averaging 1% copper, is in northern Chile, about 1,700 metres above sea level, and is close to roads, mine infrastructure and sources of labour.

Because Spence is rich in both oxides and sulphides, Rio Algom has been examining the option of combining solvent extraction-electrowinning (SX-EW) for processing the oxide ore, with milling and flotation reserved for the sulphide material.

Recent metallurgical work suggests that the entire middle layer of the deposit, containing about 200 million tonnes of enriched sulphide grading 1.2% copper, is amenable to either processing technique, allowing the project greater flexibility.

If the feasibility study is followed by a production decision, construction at Spence could begin as early as 2002. Development and capital costs are estimated to be US$1 billion. The operation would produce a projected 500 million lbs. (227,000 tonnes) copper per year starting in 2004.

Meanwhile, London-based Antofagasta (ANFGF-O) has already started construction at the smaller El Tesoro copper mine, also in northern Chile. The deposit has been extensively explored, including three major drill programs since 1981. Reserves stand at 153 million tonnes grading 0.96% copper.

El Tesoro is expected to produce about 165 million lbs. (75,000 tonnes) of copper per year over an 18-year life. Cash costs are estimated to be US40 per lb. over the first five years of operation, whereas capital costs are forecast to total US$296 million.

The feasibility study for El Tesoro proposes processing 482 million tonnes of combined waste and ore over the life of the mine at an average stripping ratio of 2.03-to-1. Antofagasta is aiming for a May 2001 startup of the open-pit mine. The London-based operator has a 61% interest in the project, with the remainder held by Australia’s Equatorial Mining.

Further exploration around the mine will focus on the nearby Esperanza copper-gold porphyry deposit, where resources stand at 10 million tonnes of oxide mineralization grading 0.62% copper, plus 150 million tonnes of sulphide material averaging 0.81% copper and 0.46 grams gold per tonne.

Antofagasta, a tightly held British company, is also enjoying the first year of commercial production at its 60%-owned Los Pelambres mine, near the Argentine border. The mine is on-track to produce 542 million lbs. (246,000 tonnes) copper per year from an open-pit reserve of 934 million tonnes averaging 0.77% copper and 0.023% molybdenum.

Los Pelambres is expected to become a low-cost producer, with cash operating costs forecast to average US43 per lb. over a 30-year mine life. A consortium of five Japanese companies owns the remaining 40% of the mine.

Also situated along the main porphyry copper belt in northern Chile is the West Fissure project, where Asarco (AR-N) is earning a 51% interest from junior Southwestern Gold (SWG-T) by spending US$1 million on exploration over two years. In August, Asarco completed a 4,000-metre drilling program, which outlined copper deposits in areas of extensive gravel, using geophysical survey results as a guide.

The latest copper-gold project to pass the feasibility stage is Cerro Casale, a deposit held by Bema Gold (BGO-T), Arizona Star Resource (AZS-C) and Placer Dome (PDG-T), about 800 km north of Santiago, near Bema’s Refugio mine. The study concludes that the copper-gold deposit contains proven and probable reserves of 1.035 billion tonnes grading 0.69 gram gold per tonne and 0.26% copper, using a gold price of US$350 per oz. and a copper price of US95 per lb.

The open-pit mine would produce 975,000 oz. gold and 287 million lbs. (130,000 tonnes) copper per year over an 18-year mine life. Total costs, including operating expenses and ongoing capital costs, would be US$203 per oz. gold. The stripping ratio would average 2.7-to-1 over the life of the mine. Placer Dome retains the right to earn a 51% interest in the Aldebaran property, which includes Cerro Casale, by arranging up to US$1.3 billion to finance mine construction.

Another Canadian junior increasing its presence in the copper belt of northern Chile is Aur Resources (AUR-T). The Toronto-based miner recently announced a $30-million equity financing to complete the funding required to buy the Quebrada Blanca heap-leach mine in northern Chile from Cominco (CLT-T) and Teck (TEK-T). The US$155-million acquisition is expected to close in November.

This year, Quebrada Blanca is forecast to produce 165 million lbs. (75,000 tonnes) copper at a cost of US50 per lb. from reserves of 150 million tonnes grading 0.91% copper.

Aur also has a 70% interest in Andacollo, an open-pit heap-leach copper producer near La Serena in north-central Chile. In 1999, the mine produced 48 million lbs. (21,773 tonnes) copper at a cost of US51 per lb.

Despite activity in the copper sector, the highest-profile Chilean project at the moment is not a copper deposit but a bulk-minable gold deposit. Barrick Gold‘s (ABX-T) Pascua-Lama project, on the Chile-Argentina border, north of Santiago, is the anchor of a new district that promises to boost, by 50%, Chile’s annual gold production of about 40 tonnes.

Starting in 2003, Pascua-Lama is expected to produce an average of 900,000 oz. gold and 37 million oz. silver for the first 10 years of an 18-year mine life, at a cash cost of about US$100 per oz.

Proven and probable reserves stand at 263 million tonnes grading 2.22 grams gold per tonne and 66 grams silver, and exploration is under way on several satellite properties within the El Indio belt. Barrick is bankrolling juniors working on both sides of the border, including IMA Exploration (IMR-C) and Viceroy Resource (VOY-T).

The El Indio gold district had humble beginnings. In 1967, prospectors exploring a remote section of the Andes Mountains in central Chile stumbled across some high-grade copper ore. They mined what is now known as the El Indio deposit, transporting their copper bounty down the mountain by mule.

But it wasn’t until 1973, when the gold price was climbing, that a similar group of pirquineros (high-graders) mined the deposit for its gold content. At the time, Chile’s gold production was only 3-4 tonnes per year.

But changes to Chile’s mining code in 1974 acted as a catalyst for increased exploration and production. Intrigued by the possibilities, a Canadian mining company, St. Joe Minerals, sent one geologist to the country on a scouting mission. The samples he collected from El Indio returned values of close to 100 grams gold per tonne.

Further exploration led to the discovery of a bonanza-grade vein averaging 3,543 grams per tonne. Mining began almost immediately, making El Indio the first modern-day mine in Chile to have gold as the major component of production. The mine is scheduled to close next year.

Encouraged by its success at El Indio, St. Joe assembled an extensive land package along the gold belt, including the Nevada (Pascua) property, about 50 km to the north. But lack of interest from majors (including joint-venture partner Anglo American) stalled exploration at Nevada for years. Eventually, Lac Minerals acquired St. Joe and launched a major drilling program at Nevada.

In 1994, Barrick acquired Lac and assumed ownership of what is now called the Pascua-Lama project. At the time of the takeover, the property had gold resources of 2.3 million oz. Today, Pascua-Lama hosts proven and probable reserves of 17.1 million oz. gold and may well become Latin America’s largest gold producer, a title now held by Newmont Gold‘s (NGC-N) Yanacocha mine in Peru.

Farther north, closer to the copper mines near Antofagasta, lies El Penon, a new gold mine owned by Meridian Gold (MNG-T). At full production, El Penon is expected to produce an average of 250,000 oz. gold and 3.5 million oz. silver per year, at cash costs of about US$100 per oz. gold.

At the end of 1999, the estimated proven and probable reserves at El Penon were 4.8 million tonnes averaging 8 grams gold and 126 grams silver per tonne. The mine started commercial production at the beginning of 2000.

But the weak gold price has taken its toll on higher-cost mines in Chile. Dayton Mining (DAY-T) recently suspended mining and crushing at the Andacollo open-pit operation in central Chile because of low gold prices and lower-than-expected production. Residual leaching will continue, allowing Dayton to produce about 39,000 oz. gold from the mine over the next 15 months.

When Andacollo opened in 1996, the mine’s economics were based on a gold price of US$400 per oz. Gold has averaged US$270-280 per oz. for the past 18 months.