Quadra’s Franke In Home Stretch

Quadra Mining (QUA-T, QADMF-O) is banking that it is the right company to finally get the Franke copper project in Chile into gear.

And with the mine slated to go into production in the third quarter of this year, it may soon succeed in doing what the project’s previous owner, Centenario Copper, couldn’t.

Like many smaller miners, the economic downturn and the credit freeze took a toll on Centenario. After starting development of the project in 2007, by the beginning of this year the startup date for the mine was in doubt.

Quadra, with its $897-million market cap, stepped in in April, taking over Centenario in an all-stock transaction that saw it exchange 0.28 of each of its shares for one Centenario share.

And with a US$37.5-million loan finalized on June 19, the company says it has the funds needed to finish building the project. The loan came at a cost of LIBOR plus 5.75% and required Quadra to hedge 43 million lbs. of copper.

The hedge comes in the form of a zero-cost collar with a floor price of US$1.80 per lb. and a maximum price of US$2.16 per lb. for 28 million lbs. of copper sold between the fourth quarter of 2009 and next year’s second quarter.

Put option contracts were also acquired at a cost of $5 million and give Quadra a minimum floor price of US$1.80 per lb. for 15 million lbs. of copper during the third and fourth quarter of 2010.

In acquiring Centenario, Quadra also took on the former operator’s long-term debt of $39 million, but was able to repay the amount in full in May.

Franke will be an open-pit mine, taking oxide copper from a volcanic- hosted hydrothermal stock-work. The deposit has 41.7 million tonnes in proven and probable reserves with an average grade of 0.75% copper.

Over the estimated 8.6-year mine life, cathode copper will be produced onsite from a heap leach with a solvent extraction-electrowinning plant at a rate of 30,000 tonnes per year.

And while Quadra’s deeper pockets and better operational experience have been a boost to development, one sticking point for the project remains — the massive amounts of sulphuric acid required at the site.

The mine needs 50 kg of sulphuric acid per tonne of ore due to the high levels of carbonates in the rock. That figure is 10 times the amount Quadra uses at its Carlota mine in Arizona.

But an agreement with Chile’s state-owned copper company Codelco to provide 50% of Franke’s acid gave Quadra enough confidence to make the deal with Centenario. The company says it is working on securing the remaining 50%.

While getting all the sulphuric acid it needs will be challenging, other aspects of the project are much simpler.

Situated in Region II, in the Altamira district of Chile, near the southern limit of the Antofagasta region, the project is blessed with access to solid infrastructure.

A 60-km gravel road links the project to the Pan American highway and it is also connected to the local rail system. Franke is 65 km north of the town of Diego de Almagro.

And while water is a scarce commodity in one of the world’s driest regions, the company has secured supply from a Codelco project 70 km away for the entire mine life.