Candente Resource completes PEA for Canariaco Norte

A long-awaited preliminary economic assessment of the Canariaco Norte project in Peru may bring Candente Resource (DNT-T) a step closer to finding a partner or participating in a buy-out.   

“We do have several parties that have been in discussions with us and several waiting for a PEA,” Candente’s president and chief executive, Joanne Freeze, told analysts and investors during a conference call today. “We’re flexible on a deal that does the best for our shareholders moving forward…[But] We will make sure we don’t lose this asset or give it away at a price that doesn’t make sense.”

With collapsing commodity prices and the ongoing credit crisis, Candente’s $3-4 million in cash will carry it into, if not through, the end of 2010. Between now and then, the immediate goal is “survival” Freeze said, adding that the company already has reduced staff “drastically” to three full-time employees in Vancouver and to a very small group in Peru.

The copper-gold porphyry certainly looks attractive, however, judging by the numbers in the PEA. Cash flow analyses were performed at copper prices ranging from US$1.75 per lb. to US$2.50 per lb.

At $1.75 per lb. copper for instance, the project would yield a pre-tax internal rate of return of 7.4%; at $2 per lb., 12.4%; at $2.25 per lb., 16.9%, and at $2.50 per lb., 21.2%.

The project’s break-even copper price is US$1.45 per lb. copper. (At press-time, the spot price for the metal was US$1.42 per lb.)

 

But Sean Waller, vice president development, said he was confident copper prices will recover. 

 

“We feel very confident that the long-term copper price will be higher than what it is today [and] our sense is that most people still feel that way,” Waller said during the conference call.

 

“These projects are 20-plus years and we’re confident that copper prices will get back to a level that would make this project very appealing.”

 

The PEA forecasts a minimum mine life of 19 years and calculates that it will take about four years to move the project from development into production after the completion of a full feasibility study.

 

The process plant would have a throughput rate of 75,000 tonnes per day and yield a copper concentrate grade of 27%.

 

Recoveries would be in the range of 90% for copper, 55% for gold and 65% for silver.

 

Average copper concentrate production would reach about 350,000 to 400,000 tonnes per year, with average annual copper production of about 100,000 tonnes — or 220 million lbs.

 

Over the life of the mine, copper in concentrate production would be about 4.16 billion lbs. 

 

The downside is that there is arsenic in the ore at high enough levels to trigger penalties from smelters for treatment, but this was factored into the study’s cash-flow analysis, Waller said. “We have to find a method to get our arsenic levels down,” he explained.

 

Initial capital costs for the project are believed to be in the range of about US$1.17 billion, including US$118 million for mine pre-production development, US$984 million for a process plant and tailings containment facility, and US$68 million for infrastructure.

The capital cost estimate is largely based on third quarter costs.

 

In addition, there will be pre-production costs and working capital of US$73 million as well as sustaining capital and closure costs of US$186 million.

 

Mine-site cash operating costs would be roughly US$5.62 per tonne processed, or US$0.72 per lb. of payable copper produced.

 

Concentrate transportation plus off-site smelting and refining costs (including smelter penalties) are projected to be US$0.44 per lb. of payable copper.

 

Candente will rely on the main power-grid but will still have to put in 60 km of power-line first, as well as improve its road access. The site is about 50 km from the nearest paved highway.

 

Infrastructure costs are expected to come down. The economic crisis is driving down the cost of material and equipment like grinding mills and crushers.

 

“The price of steel is coming down and the backlog of orders for large mills is clearly dropping off and the pricing power major mills and foundries have had is certainly going to be eroded so we see opportunities there to reduce operating costs,” Waller says.

 

Canariaco Norte belieges its operating costs are in the lower range of the spectrum when compared with similar projects because of very attractive power costs in Peru, the relatively soft rock in its deposit, and a very low, life-of-mine strip ratio of waste to ore, of about 0.54:1.

 

The capital cost estimate includes the price the company will have to pay to build a concentrate storage shed and load-out equipment at an existing port.

 

Canariaco Norte has measured and indicated resources of 480 million tonnes, but the PEA also uses 38 million tonnes of inferred resource, approximately 7% of the total tonnage for the life of the mine.    

 

Using a 0.2% copper cut-off grade, Canariaco Norte has measured and indicated resources of 821 million tonnes grading 0.42% copper, 0.06 gram gold per tonne and 1.66 gram silver per tonne containing 7.59 billion lbs. copper, 1.68 million oz. gold and 43.7 million oz. silver.

 

In the inferred category there are 230 million tonnes grading 0.35% copper, 0.05 gram gold per tonne and 1.35 grams silver containing 1.77 billion lbs copper, 0.35 million oz. gold and 10 million oz silver.

 

In Toronto at presstime, Candente was trading at about 16.9¢ per share, but has traded in a 14¢-$2.04 per share range over the last 52 weeks.

 

Candente has 80.9 million shares outstanding.