BHP-Lundin Vicuña JV’s copper-gold district potential hits $9B value

A new study for the Vicuña joint venture between BHP (ASX, LSE, NYSE: BHP) and Lundin Mining (TSX: LUN) that straddles the Argentina-Chile border positions the 70-year copper-gold-silver project in the global top tier by value and output for development projects. Production could start in 2030.

Using an 8% discount rate, the preliminary economic assessment (PEA) gives Vicuña a post-tax net present value (NPV) of $9.5 billion at price assumptions of $4.60 per lb. copper, $3,300 per oz. gold and $40 per oz. silver. Its internal rate of return (IRR) is about 15%.

That NPV ranks it second behind Ivanhoe Mines’ (TSX: IVN) planned Kamoa-Kakula expansion in the Democratic Republic of Congo, which carries a post-tax NPV of $19 billion, and before SolGold’s (LSE: SOLG) Cascabel project in Ecuador, with an after-tax NPV of $3.2 billion. Vicuña is about 700 km northeast of Santiago.  

‘Clear tier one asset’

“The study outlines a project that would rank among the top five copper, gold, and silver mines globally,” Lundin Mining CEO Jack Lundin said in a release. “A staged development approach provides a disciplined pathway to unlock the full value of the district, enabling sequenced capital deployment, effective risk management, and ongoing optimization while delivering substantial, long-life copper production growth over multiple decades.”

Lundin is fully funded for the initial stage of construction at Vicuña, after its credit facility was raised to $4.5 billion last week, the CEO added.

The JV applied to Argentina’s large investment incentives program, known as RIGI, in December and hopes to receive a response in the near future. RIGI, a creation of populist conservative President Javier Milei, is aimed at mining and energy projects with investments of more than $200 million.

District copper provider

Vicuña, located near the border with Chile, stands to help meet the world’s increasingly high demand for copper, a critical metal essential for electrification and other applications in the green energy transition. It’s also rare in development projects for being built from the start as a district, combining the Josemaria and Filo del Sol deposits, which are 10 km apart. 

Lundin shares fell 6% to C$32.67 apiece on Tuesday morning in Toronto, valuing the company at C$27.9 billion. The stock has traded in a 12-month range of C$8.94 to C$38.85. BHP shares gained 4% to A$52.74 on Tuesday in Sydney, for a market capitalization of A$267.8 billion. Its shares have traded in a year-long period of A$33.25 to A$54.20.  

If spot price assumptions of $6 per lb. copper, $5,000 per oz. gold and $80 per oz. silver are used, Vicuña’s NPV soars to $28.8 billion, with a payback period of 5.4 years.

#2 copper producer

The project is estimated to produce 400,000 annual tonnes of copper, 700,000 oz. of gold and 22 million oz. of silver in its first 25 years. Total life-of-mine production is pegged at 22.3 million tonnes of copper, 37.2 million oz. of gold and 763 million oz. of silver.

That output ranks Vicuña second again behind Kamoa-Kakula’s stage three and four expansions, which could pump out 620,000 tonnes of copper annually over 10 years, and then 600,000 tonnes for another decade.

Cascabel could produce 123,000 tonnes of copper per year, 277,000 oz. gold and 794,000 oz. silver over a 28-year life.

Mega cost project

But Vicuña also stands out for its costs, which put it in the category of global mega mining projects. The estimated capex across its three stages is $18.1 billion, a price tag that ranks it among the world’s five most expensive projects. Sustaining capital is pegged at $30.3 billion, including closure costs.

The PEA includes a resource update, which raised contained copper and gold in the measured and indicated categories by 12% to 14 million tonnes and 36 million oz., respectively, out of 4.1 billion tonnes. Grades come to 0.34% copper, 0.27 gram gold per tonne and 5.4 grams silver. Contained silver rose by 11% to 729 million oz. in the measured and indicated categories.

Inferred copper increased by 28% to 32 million tonnes, gold by 26% to 61 million oz., and silver by 30% to about 1 billion ounces, out of 10.6 billion tonnes. Inferred grades total 0.3% copper, 0.18 gram gold and 3.1 grams silver.