Report Sets Capital Cost for El Morro Copper-Gold Project at $2.5B

Development of the El Morro copper-gold project is expected to require more than $2.5 billion in capital
investment, according to a recent review of the project’s feasibility study. The project area and general
layout are shown in this photo. (Photo courtesy of Metallica Resources)
Metallica Resources has released details of a technical report issued by consulting firm Pincock Allen & Holt (PAH) following a review conducted by PAH of the feasibility study provided to Metallica by Xstrata Copper for the El Morro coppergold project in Chile. The El Morro project is operated under a joint venture agreement between Xstrata Copper (70%) and Metallica (30%). The main points of the review included:
• An initial capital investment estimate considered accurate to within 15% of $2.52 billion, including a contingency for price escalation of 13%.
• The project economic model, which is based on the capital cost and operating parameters set forth in the feasibility study and recreated and reviewed by PAH, shows a positive after tax internal rate of return of 14.7% and a Net Present Value of $1.09 billion when discounted at a rate of 8% and using long-term prices of $2.80/lb for copper and $625/oz for gold. Project payback occurs at 4.7 years.
• Operating costs are estimated at $10.55/mt of ore and a mine-site cash cost of $0.76/lb copper, after gold credits and production taxes at a longterm gold price of $625/oz. The operating costs are considered to be accurate to within 15%.
• Average annual metal production during the first five years has been projected to be 203,000 mt/y of copper and 302,000 oz/y of gold. The average annual LOM production over the currently estimated 14-year mine life is projected to be 172,000 mt/y copper and 313,000 oz/y gold.
• The feasibility study was based on the La Fortuna copper-gold deposit which contains proven and probable ore reserves totaling 450 million mt averaging 0.58% copper and 0.46 g/t gold with an average waste-to-ore ratio of 3.65:1. Average metallurgical recoveries are estimated at 88.5% for copper and 69% for gold.
• The ore reserves are contained within a larger economically constrained “mineral resource pit” consisting of measured and indicated resources totaling 558 million mt averaging 0.55% copper and 0.49 g/t gold, and inferred resources totaling 62 million mt averaging 0.34% copper and 0.18 g/t gold at a 0.3% copper-equivalent cut-off and based on metals prices of $1.25/lb copper and $500/oz gold.

Xstrata has also reported to Metallica that additional resources occurring outside the mineral resource pit include indicated resources totaling 52 million mt averaging 0.57% copper and 0.61 g/t gold, and inferred resources totaling 234 million mt averaging 0.51% copper and 0.48 g/t gold at a cut-off 0.3% copper equivalent. These additional resources were not included in the review by PAH, according to Metallica, because they are not integral to the feasibility study ore reserve.

Based on its review of the feasibility study, PAH recommended that the joint venture partners initiate detail engineering design work to optimize the project in areas such as water use, metallurgical processing, tailings disposal and possibly others. The report also recommended rerunning the pit optimization to develop a mine plan based on the most recent resource estimate completed in October 2007. The current resource estimate used for the feasibility study was completed in July 2007.

As featured in Womp 08 Vol 5 -