Second Time’s The Charm At Boyongan

Vancouver–The Boyongan copper- gold project’s second prefeasibility study this year has come to a different conclusion than the first.

After disagreeing with metal prices and costing assumptions used by Anglo American (AAUK-Q, AAL-l) in a prefeasibility that rendered the Philippine project a no-go for the major early this year, Philex Gold (PGI-V, PHXGF-o) has released more positive results in its own study using less conservative parameters.

In February, Anglo, who then had a 50% stake in the project, on the northeastern tip of Mindanao Island, announced that based on its study, it didn’t believe the economics were good enough to warrant investment. Anglo had set the price of copper at US$1.50 per lb. and the price of gold at US$600 per oz.

After the results came out Philex Gold countered that, among other conservative assumptions on capital costs, those metal prices were overly stringent and essentially neutered the project from the get-go.

“Anglo increased the basic capital expenditure estimate by 24 per cent to cover engineering and owners’ costs and by another 25 per cent for contingency provisions. . . but in the opinion of the company, the above amounts are excessive in the Philippine context,” Philex said in a July press release.

Likewise, the company argued Anglo had set metal prices too far below what were then high prices of copper and gold. In the same press release it said: “Currently, copper is priced at US$3.65 per pound and can be hedged for as long as five years for at least US$2.50 per pound. At this time, gold can be hedged at approximately US$950 per ounce.”

In view of its more bullish outlook on metal prices, Philex sent the Boyongan project back to the drawing board.

Although prices of both copper and gold have decreased substantially since then, in the base case of its now released prefeasibility study, Philex says Boyongan is economically viable.

The study considered resources of 67.8 million tonnes grading 0.87% copper and 1.37 grams gold per tonne accessible by open pit. Setting the price of gold at US$700 per oz. and the price of copper at US$2.75 per lb., the project returns a net present value of US$150 million and a payback period of 3.5 years.

Projected capital costs for the 5- million-tonne-per-year operation come in at US$737 million and include prestripping. The mine life is estimated at 14 years and, to remain economic, the respective prices of copper and gold need to average more than US$2.12 per lb. and US$470 per oz.

Following Anglo’s dim assessment of the project, the details of which were not released, Anglo and Philex sparred over what should happen to Anglo’s 50% stake. Earlier this year, Philex asserted Anglo should return the stake to it, a view the major contested.

Since, however, Philex Gold and Anglo have reached an agreement. In September, Philex announced that, with the help of its parent company, Philex Mining, it would purchase Anglo’s 50% stake in the project for US$55 million. If the agreement is finalized, that will give it a 100% interest in Boyongan.

Philex Mining has an 81% stake in Philex Gold.

On news of the positive prefeasibility study, Philex Gold’s share price held even at 20.5. It has about 40.6 million shares issued.