Peru Copper sees Toromocho NPV of $814-million (U.S.)
2006-02-09 10:39 ET - News Release
Mr. Patrick De Witt reports
PERU COPPER ANNOUNCES RESULTS OF PRE-FEASIBILITY STUDY
Peru Copper Inc. has completed a prefeasibility study on the Toromocho project. In the opinion of Peru Copper, the results confirm an economically viable, world-class copper and molybdenum mining operation at Morococha, Peru, under various development options.
With At an estimated average annual production rate of 272,788 tonnes of copper and 5,387 tonnes of molybdenum for 21 years, the project prefeasibility study estimates a net present value (NPV) of $814-million (U.S.) from commencement of construction and an after-tax internal rate of return (IRR) of 16.0 per cent.
Company's chairman J. David Lowell said: "We are extremely pleased that the prefeasibility study has confirmed Peru Copper's view of the robust economics of the Toromocho project. As we now begin work on a full feasibility study, we will continue to consider several options available to us to further reduce the capital and operating costs of the project. We believe that the positive results of the prefeasibility study prove that Toromocho is one of the best, large, economically viable copper deposits available in the world today."
Project economics
In the opinion of Peru Copper, the prefeasibility study's discounted cash flow analysis indicates that the Toromocho project's economics are excellent. Using base assumptions of a copper price of $1.10 per pound; a molybdenum price of $10 per pound; a silver price of $6.50 per ounce; and a discount rate of 8 per cent, the project has an estimated net present value of $814-million (U.S.) and an estimated after-tax IRR of 16 per cent. Recent metal prices are considerably higher than those used in the prefeasibility study. On Feb. 3, 2006, copper was $2.31 per pound, molybdenum was $36 per pound (based on a molybdic oxide price of $24 per pound) and silver was $9.74 per ounce.
The project is levered to increases in the price of copper as shown in the following matrix of estimated financial outcomes at various assumed prices and discount rates.
COMMODITY PRICE ASSUMPTIONS
Cu ($/pound) $0.95 $1.10 $1.25
Mo ($/pound) 10.00 10.00 10.00
Ag ($/ounce) 6.50 6.50 6.50
IRR 12.4% 16.0% 19.3%
Real
discount Net present value
rate (million of U.S. dollars)
7% $556 $994 $1,430
8% 418 814 1,208
9% 299 658 1,015
Further sensitivity matrices are contained in the prefeasibility study report.
Capital costs
Total capital expenditures for the project are estimated (to an intended overall level of accuracy of minus 10 per cent to plus 25 per cent) at $1,524-million (U.S.), and are segmented as follows:
(million of
U.S. dollars)
Mine capital cost $231.8
Direct capital cost 784.2
Indirect capital cost 242.8
Owner, tailings and
SX-EW capital cost 265.2
-------
Total $1,524.0
This implies a total construction cost of $5,587 per tonne of estimated average annual copper production.
Operating Costs
The prefeasibility study results indicate that the Toromocho project will be a low-cost copper producer. Pretax operating costs for Toromocho are estimated to be 51.4 cents per pound ($1,133 per tonne) of copper produced over the life of the mine. The cost including worker's participation, government royalties and income taxes is estimated to be 68.3 cents per pound ($1,508 per tonne) of copper produced.
The prefeasibility economic study assumes a Peruvian income tax rate of 30 per cent, a worker's participation payment of 8 per cent of pretax profits, and a flat exchange rate of 3.31 soles to the U.S. dollar.
Project description and prefeasibility outcomes
Resources
The prefeasibility study contains mineral resource estimates estimated by Independent Mining Consultants Inc. IMC's estimate of the mineral resource for Toromocho is 1,834 million tonnes of measured and indicated mineral resources, and an additional 241 million tonnes of inferred mineral resources. Within this mineral resource is a central core of measured and indicated mineral resources of 967 million tonnes at a grade of 0.60 per cent Cu, 0.023 per cent Mo and 8.1 grams per tonne Ag, resulting in a copper equivalent of 0.88 per cent Cu, using a 0.60 per cent Cu equivalent cut-off grade.
The prefeasibility study's financial model assumes a 21-year period of operation beginning in 2010 and is based on measured and indicated resources. The additional inferred resources of 241 million tonnes are not included in the prefeasibility study mine plan.
Independent Mining Consultants resource estimate (as of Oct. 5, 2005)
Measured mineral resource
Total
Equivalent (million Cu Mo Ag
Cu cut-off tonnes) (%) (%) (g/t)
Plus 0.60% 209 0.66 0.025 6.7
0.27% to 0.59% 89 0.33 0.012 5.0
----- ---- ----- ---
Total plus
0.27% 298 0.56 0.021 6.2
----- ---- ----- ---
Contained metal
Equiv- Cu Mo Ag
alent (mill- (mill- (mill-
Equivalent Cu ion ion ion
Cu cut-off (%) lbs) lbs) oz)
Plus 0.60% 0.95 3,041 115 45
0.27% to 0.59% 0.45 647 24 14
---- ------ --- ---
Total plus
0.27% 0.80 3,688 139 59
---- ------ --- ---
Indicated mineral resource
Total
Equivalent (million Cu Mo Ag
Cu cut-off tonnes) (%) (%) (g/t)
Plus 0.60% 758 0.58 0.023 8.5
0.27% to 0.59% 778 0.32 0.009 5.3
----- ---- ----- ---
Total plus
0.27% 1,536 0.45 0.016 6.9
----- ---- ----- ---
Contained metal
Equiv- Cu Mo Ag
alent (mill- (mill- (mill-
Equivalent Cu ion ion ion
Cu cut-off (%) lbs) lbs) oz)
Plus 0.60% 0.86 9,692 384 207
0.27% to 0.59% 0.45 5,489 154 133
---- ------ --- ---
Total plus
0.27% 0.65 15,181 538 340
---- ------ --- ---
Measured and indicated
mineral resource
Total
Equivalent (million Cu Mo Ag
Cu cut-off tonnes) (%) (%) (g/t)
Plus 0.60% 967 0.60 0.023 8.1
0.27% to 0.59% 867 0.32 0.009 5.3
----- ---- ----- ---
Total plus
0.27% 1,834 0.47 0.016 6.8
----- ---- ----- ---
Contained metal
Equiv- Cu Mo Ag
alent (mill- (mill- (mill-
Equivalent Cu ion ion ion
Cu cut-off (%) lbs) lbs) oz)
plus 0.60% 0.88 12,733 499 252
0.27% to 0.59% 0.45 6,136 178 147
---- ------ --- ---
Total plus
0.27% 0.68 18,869 677 399
---- ------ --- ---
Inferred mineral resource
Total
Equivalent (million Cu Mo Ag
Cu cut-off tonnes) (%) (%) (g/t)
Plus 0.27% 241 0.41 0.010 8.3
----- ---- ----- ---
Contained metal
Equiv- Cu Mo Ag
alent (mill- (mill- (mill-
Equivalent Cu ion ion ion
Cu cut-off (%) lbs) lbs) oz)
Plus 0.27% 0.57 2,178 53 64
---- ------ --- ---
Source: Independent Mining Consultants Inc.
For further information concerning the mineral resource estimate, including key assumptions and parameters, please refer to news reported in Stockwatch on Oct. 5, 2005.
Additional drilling and resource analysis work has been completed since the resource calculation used in the prefeasibility study was completed. The company expects that the additional drilling information and updated mineral resource estimates will be used by Independent Mining Consultants in Tucson, Ariz., to prepare an updated mineral resource model in the first quarter of 2006. Mineral resources which are not mineral reserves do not have demonstrated economic viability.
Mining
The company believes that the mining process will be typical of a large hard rock porphyry open pit operation. The production schedule is estimated to deliver a nominal 150,000 tonnes per day (54.75 million tonnes per year) of sulphide mill ore to the primary crushers, while other material is stockpiled or leached.
The Toromocho project has the advantage of a waste-to-ore stripping ratio which, in the opinion of IMC, is very low over all at about 0.57:1. In addition, premine stripping is only about 63 million tonnes and can be easily accomplished in the year before milling operations begin.
Production
Based on the assumed mine plan, the prefeasibility study estimates annual average production of 258,514 tonnes of copper in concentrate and 14,274 tonnes of copper in cathode for a total of 272,788 tonnes, or 601 million pounds, over an estimated 21-year mine life. Metallurgical testing has been successful in producing copper concentrates using a traditional flotation process. Using locked cycle flotation test results on representative rock type composites and estimates of percentage contribution of the rock types to the mineable resource, average recoveries to final concentrate of copper, silver and molybdenum are estimated to be 89.5 per cent for copper, 56.5 per cent for silver and 52.3 per cent for molybdenum at an estimated average copper grade of 26.5 per cent.
Infrastructure
The Toromocho project is adjacent to Peru's paved central highway and a railway operating between the La Oroya smelter and Lima, both of which connect the Morococha mining district to Lima and the port of Callao. Substantial additional infrastructure is in place, with water, power and skilled labour available in the vicinity of the project.
Next steps to development
Peru Copper is committed to developing Toromocho on a fast-track basis. However, the company also recognizes that, as a world-class deposit, it may be of more value for a major company to develop, or assist in developing, the Toromocho project. Consequently, Peru Copper has retained UBS Investment Bank as its financial adviser to review strategic alternatives and has contacted a number of parties that have expressed an interest in exploring alternatives with the company.
Mr. Lowell said, "Given its size, grade, low stripping ratio, long life and excellent economics, Toromocho is clearly one of the best undeveloped copper projects in the world and we look forward to seeing the mine fully developed."
Peru Copper will host a conference call and webcast on Thursday, Feb. 9, 2006, at 11 a.m. PT (2 p.m. ET) to discuss the results. Call-in and webcast information is provided below.
The prefeasibility study identifies several preinvestment activities, which are required prior to proceeding to the construction phase of project implementation. A full feasibility study will commence immediately to confirm and further refine key assumptions, conclusions and recommendations from the prefeasibility study, including further metallurgical testing to confirm process parameters.
The prefeasibility study comprises several studies prepared by Independent Mining Consultants (mining and mining plan), Minerals Advisory Group (MAG) (metallurgy), Montgomery Watson Harza (tailings impoundment), Errol L. Montgomery & Associates (hydrology) and SNC-Lavalin Chile SA (Cu-Mo process plant, infrastructure and environmental and permit issues). SNC-Lavalin Chile also compiled the conclusions of the above studies along with the preliminary capital and operating cost (incorporating costs estimated by Peru Copper and the other consultants named above). SNC-Lavalin Capital Inc. conducted an initial economical evaluation, which was incorporated in the prefeasibility study.
Peru Copper intends to file a National Instrument 43-101 technical report regarding the prefeasibility study within 45 days. John Marek of IMC, a professional engineer, is the independent qualified person within the meaning of NI 43-101 who prepared the updated mineral resource estimate. He has reviewed and approved the content of this press release. For sampling and assaying information, please refer to the IMC technical report dated Aug. 25, 2004.
J.W. Gulyas of SNC-Lavalin, a professional engineer, is the independent qualified person, within the meaning of NI 43-101, who reviewed the engineering report on the process plant. He has reviewed and approved the content of this press release. Dr. Martin C. Kuhn, PE, of MAG, is the independent qualified person, within the meaning of NI 43-101, who prepared the report of metallurgical investigations. He has reviewed and approved the disclosure of applicable metallurgical data.
Conference call and webcast
Details for the conference call are:
Date: Feb. 9, 2006
Time: 11 a.m. PT (2 p.m. ET)
Phone No.: 416-644-3431
Toll-free: 1-800-814-4860
Webcast participants are invited to take part in the question and answer period that will follow the company's presentation, by e-mailing questions to the company. Please identify your e-mail as a webcast question in the subject line. Peru Copper will attempt to answer as many questions as possible, but if your question is not answered during the webcast event, it will be addressed directly as promptly as possible following the event.
A replay of this conference call will be available from Feb. 9 to Feb. 23, 2006, and will be posted on Peru Copper's website. The replay numbers are:
Phone No.: 416-640-1917; 1-877-289-8525
Passcode: 21176751, followed by the number sign
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