Noranda wraps up El Morro drilling

Noranda (NRD-T) has wrapped up its summer drilling program on Metallica Resources‘ (MR-T) El Morro copper-gold project in Chile, with some more encouraging results.

Collared on the La Fortuna deposit, hole 41 cut 484 metres (from 120 metres below surface) of primary mineralization running 0.66% copper and 0.91 gram gold per tonne, including 268 metres (from 198 m) of 0.78% copper and 1.12 grams. Higher in the hole is a 10-metre section of the secondary copper blanket averaging 1.62% copper plus 0.46 gram gold.

Metaliica’s CEO, Ritch Hall, describes the hole as, “a very pleasant surprise,” in that it didn’t encounter a low-grade dike in the heart of the Fortuna deposit until a depth of more than 450 metres, confirming the consistency of the deposit’s grade.

Hole 32, about 300 metres to the northwest, returned 116 metres (from 284 m) of secondary mineralization grading 0.42% copper and 0.1 gram gold. A 274-metre interval (from 400 m) of primary mineralization runs 0.42% copper and 0.26 gram gold. About 200 metres northeast of that, hole 43 yielded 94 metres (from 428 m) of 0.78% copper and 0.27 gram gold from the secondary zone.

In May, hole 39, a 970-meter deep vertical core hole on La Fortuna averaging 0.65% copper and 0.53 gram gold per tonne along its entire length.

In all, Metallica says that this year’s 40-hole, 15,368-metre drilling program at El Morro has extended the high-grade zone by about 800 metres to the north and at depth. The zone now measures about 1.4 km in length. The drilling also expanded the secondary copper blanket to the north and northwest of the high-grade zone bringing its area to about 1 km by 300 to 600 metres. The blanket averages about 50 metres in thickness.

Based on drilling in 2001, the deposit’s inferred resource is pegged at 410 million tonnes grading 0.61% copper and 0.56 gram gold, based on a cutoff grade of 0.4% copper. The resource consists mostly of primary sulphides. About 60 million tonnes, running 0.76% copper and 0.27 gram gold, sit in a zone of supergene enrichment formed in the deposit’s core.

An updated resource estimate including drilling so far in 2002 is due in August.

An independent scoping study suggests that La Fortuna could support the production of 4.5 billion lbs. copper and 332,000 oz. gold over 15-year lifespan for a net present value (NPV) of US$345 million and an internal rate of return (IRR) of 19.6%. The study employed a 10% discount rate, a US$1-per-lb. copper price and a US$300-per-oz. gold price.

At a copper price of US$1.25 per lb. and a gold price of US$325 per oz., the NPV jumps to US$694 million and the IRR to 27.6%.

Cash operating costs are pegged at US33 per lb. copper (net of gold credits). Capital costs would be about US$800 million, to be covered solely on an equity basis.

La Fortuna is one of three deposits at El Morro. The others are the El Morro and El Negro deposits. A fourth prospect, Cantarito, is a high-sulphidation, epithermal gold zone that is related to the La Fortuna system.

Noranda, the project operator, can earn a 70% stake in El Morro by spending US$10 million on work and paying Metallica US$10 million by Sept. 1, 2005. In addition, Noranda must complete a bankable feasibility study on the project by Sept. 1, 2007.