NGEx’s Los Helados PEA comes with hefty capex

VANCOUVER — There’s a lot of low-grade copper at NGEx Resources’ (TSX: NGQ; US-OTC: NGQRF) Los Helados project, situated 77 km northwest of Copiapo, Chile. But a newly released preliminary economic assessment (PEA) calls into question whether the deposit will be viable as a stand-alone operation, given current copper prices.

The PEA is based on an updated resource that includes adjustments to block modelling to continue block-cave underground mining. More metallurgical test work allows for recoveries in the copper-equivalent formula.

Los Helados hosts 2.1 billion tonnes grading 0.38% copper, 0.15 gram gold per tonne and 1.37 gram  silver per tonne for 17.6 billion lb. contained copper, 10.1 million oz. gold and 92.5 million oz. silver. All resource figures assume a 0.33% copper-equivalent cut-off grade.

An underground mine was picked over open-pit and hybrid scenarios, while metallurgical work led to the assumption of a single conventional semi-autogenous grinding (SAG) mill and process that would operate at 65,000 tonnes per day. NGEx also modelled a 130,000-tonne-per-day scenario that would use a double SAG mill configuration. The company notes that the resource features a high-grade core “ideally suited” for a high-tonnage block-cave scenario.

Despite competitive projected by-product cash costs that would rank in the lowest quartile of the copper industry, NGEx’s model features rather lean economic returns due to hefty development costs. The 65,000-tonne-per-day operation at Los Helados would carry a US$3.1-billion capital expenditure (capex), and produce 81,000 tonnes of copper, 93,000 oz. gold and 474,000 oz. silver annually over a 37-year mine life. By-product cash costs are pegged at US$1.13 per lb. copper sold.

The smaller operation would feature a US$324-million after-tax net present value (NPV) at an 8% discount rate, along with a 9.2% internal rate of return (IRR). Metal prices assumed in the model include US$3.25 per lb. copper, US$1,300 per oz. gold and US$21.50 per oz. silver.

Meanwhile, the US$4.3-billion, 130,000-tonne-per-day mine would annually produce 115,000 tonnes of copper, 133,000 oz. gold and 675,000 oz. silver over a 26-year mine life at by-product cash costs of US$1.10 per lb. copper sold. Assuming the higher throughput, Los Helados carries a US$429-million after-tax NPV and 9.4% IRR.

“The PEA builds on that strong base with a suggested mining and processing solution that indicates that Los Helados has the potential to become a large, low-cost mine producing a highly desirable, clean, gold-silver rich copper concentrate,” CEO Wojtek Wodzicki noted in the release. “In addition to working on Los Helados, exploration remains an important aspect of the NGEx business model, and we are confident that we can continue to add to our resource base.”

One of NGEx’s challenges for a stand-alone operation at Los Helado is US$990 million in required infrastructure development. The company would have to tap into a desalination plant using a 200 km pipeline that supplies water to an operation 3,300 metres above sea level. Power for the site would be supplied by a 180 km powerline, while concentrate would have to be trucked 200 km.

The company says Los Helados’ economics could benefit from synergies with nearby deposits. One such opportunity lies with 40% partner Pan Pacific Copper, which is a joint venture between Japan’s JX Nippon Mining & Metals and Mitsui Mining & Smelting. Pan Pacific hit full production at its nearby Caserones copper mine in September, which required a US$4.2-billion investment by the Japanese companies. The mine could produce 180,000 tonnes  copper annually, and took eight years to develop. Electrolytic copper production started in March 2013, followed by copper concentrate production in May 2014.

NGEx closed a $35-million private placement in June wherein it placed 17.4 million shares for $2.01 per share. The company has traded within a 52-week window of $1.26 to $2.38, and closed at $1.51 per share at press time. NGEx has 186.5 million shares outstanding for a $282-million market capitalization.