South Koreans join Baja at El Boleo

A South Korean consortium has agreed to kick in US$435 million to help develop Baja Mining’s (BAJ-T) El Boleo copper project in Mexico, where development costs have risen about 45% to US$991 million.

Led by Korea Resources Corp. (Kores), the consortium will buy a 30% interest in the project by acquiring a 30% interest in Baja’s Mexican subsidiary, Minera y Metalurgica del Boleo.

Baja president John Greenslade says the deal has put the company in a much more comfortable financial position going forward, with $967 million now available to develop the project. Baja expects to reach production by 2010, and at full production will produce 55,750 tonnes of copper cathode, 1,535 tonnes of cobalt cathode and 6,300 tonnes of zinc contained metal per year over the first four years of operation.

“At this point, assuming we can close the transactions, we are almost 100% funded,” Greenslade says. “We are pushing hard to have it done by the end of May — that’s a very optimistic deadline but I think it’s doable.”

State-owned Kores has a mandate to look for resource development opportunities to supply the country’s industrial economy, and has already been in the process of signing off-take agreements with Baja.

The financing package from Kores will consist of: an up-front cash payment; reimbursement of agreed project expenditures since completion of a definitive feasibility study; payment of the group’s share of the project capital consists; and a package of senior and subordinated debt financing in conjunction with a Korean lending agency.

In March, Baja decided to review costs after seeing other, similar projects incur significant development cost increases.

Greenslade says he knew costs were off since numbers being used varied between 2006 and 2007 because a processing plant was de- signed nearly one year before a final resource estimate and feasibility study were completed.

“Drilling took a lot longer than we anticipated,” Greenslade says. “In 2006, the ability to get drill rigs was very bad, and we had expected originally to put six or seven drills on the project and drill off the resource in a few months.”

On top of that, the numbers being used by the equipment suppliers were from 2005.

He says the cost of acid-plant equipment rose significantly, but noted that the company simultaneoulsy decided to increase the size of the plant and added on some extra equipment to make it more efficient. This enlargement means that a cogeneration power plant attached to it will be able to produce 41-46 megawatts of power, up from about 34 megawatts of power.

“While it increased our capital costs in that area, if we should achieve 46 megawatts of power off the acid plant, it would be all the power for the operation — we wouldn’t need any diesel” Greenslade says. “Therefore we have a fairly significant cost savings in operating costs.”

About 60% of the orders for process equipment have been made, representing 23% of the construction cost.

The company says there is low risk for further cost increases because a detailed review done by the construction contractor.

The rest of the required funding will be provided by cash on hand, and a Baja equity contribution or a combination of a equity plus financing related to metal off-take contracts.