Metallica adds ground, drilling to resume at El Morro

Metallica Resources (MR-T) has added two properties totalling about 3 sq. km in and around the La Fortuna area of the El Morro copper-gold project in Chile.

Noranda (NRD-T) prepaid the final US$1.2-million payment for the Cantarito and Tronquito properties on Metallica’s behalf. The payment was originally due by June 4, 2002. Metallica now has a 100% stake in the properties subject to a 2% net smelter return royalty, which Metallica can reduce to 1% by paying US$500,000 to the property vendor before June 4, 2003.

Cantarito is a high-sulphidation, epithermal-gold system related to La Fortuna. So far, exploration at El Morro has turned up three principal zones of copper-gold, porphyry-style mineralization (El Morro, La Fortuna, and El Negro). The El Morro project lies at the southern tip of the 300-km-long Chilean Oligocene porphyry copper belt, within a 16-km-wide, north-south-trending graben fault structure.

Drilling at El Morro is slated to resume this week. Noranda plans to sink at least 7,500 metres of core drilling and 5,000 metres of reverse circulation rotary drilling with two core drills and one rotary drill. More drills are available if results warrant.

Noranda can earn a 70% stake in El Morro by spending US$10 million on exploration and paying US$10 million to Metallica by September 2005. The major may be required to provide 70% of Metallica’s share of development costs at an interest rate of Noranda’s cost of financing plus 1%. Also, Noranda must complete a bankable feasibility study on the project by September 2007.

The two companies recently tabled a positive independent scoping study on the La Fortuna copper-gold deposit. Inferred resource in the La Fortuna area currently total 410 tonnes averaging 0.61% copper and 0.56 gram gold per tonne, based on cutoff grade of 0.4% copper. The deposit consists mostly of primary sulphides. Some 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.

The study envisages La Fortuna churning out 4.5 billion lbs. copper and 332,000 oz. gold over 15 years to yield a net present value of US$345 million and an internal rate of return 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 net present value jumps to US$694 million and the rate of return to 27.6%. Cash operating costs are pegged at US33 per lb. copper (net of gold credits). Capital costs ring in at US$800 million, to be covered solely on an equity basis.