Teck completes feasibility study at Petaquilla

The price of copper must rise before the Petaquilla copper project in Panama can be considered feasible, says Teck (TEK-T) President Norman Keevil.

According to a bankable feasibility study commissioned by Teck, the initial capital cost of the project will be US$1.1 billion. The major has until May 14 to decide if it will bring the project into production.

According to the contract between the Republic of Panama and the joint-venture partners, mine development must begin by May 2001. Teck holds the right, however, to defer development by one month for every month that the price of copper remains below US$1.15 per lb., for up to five years.

Adrian Resources (Adl-T) and Inmet Mining (IMN-T) hold 52% and 48% shares of the Petaquilla project. To complete its 26% earn-in at Petaquilla, Teck is required to fund Adrian’s share of production costs.

The feasibility study, prepared by H.A. Simons, states that measured and indicated minable reserves at the Petaquilla, Botija and Valle Grande deposits weigh in at 1.11 billion tonnes grading 0.5% copper, 0.0097% molybdenum and 0.09 gram gold per tonne with cutoff grades based on contained metal values between US$5.10 and US$6.50 per tonne. This translates into a recoverable, payable metal content of at least 9.4 billion lbs. copper, 1.37 million oz. gold, 24.1 million oz. silver and 131.1 million lbs. moly.

The study assumes an average concentrate grade of 27.3% copper and a stripping ratio of 0.97 to 1. The initial capital costs assume a throughput rate of 120,000 tonnes per day. At that rate, the known minable reserves will support a mine for 23 years.

During a conference call to mining analysts, Keevil said, “[Petaquilla] clearly does not justify a billion-dollar capital cost at 70cents copper. At some higher price of copper it’s a good project, and at some lower capital cost — if we can reduce that through third-party power generation — it’s worth working on still.”

The basic study assumed the construction of an owner-operated diesel-fired generating plant. An alternate third party power supply could reduce capital costs by about US$135 million.

Currently the leading candidate for power supply is Enron International, a large, integrated natural gas and electricity company. During December of last year Enron purchased approximately 8.5% of the issued shares of Adrian.

The total revenue expected from the mine is US$11.5 billion, with an after-tax cash flow of US$2.1 billion. The internal rate of return was set at 14.2%.

The net present value of the deposit is expected to be about US$335 million, using a debt-to-equity ratio of 60 to 40 and a 10% discount rate. Metal prices used in the calculation were US$1.10 per lb. copper, US$375 per oz.

gold, US$3.50 per lb. moly and US$4.50 per oz. silver.

A comparative analysis using a throughput rate of 90,000 tonnes per day lowered the capital cost to US$1.03 billion. Revenue, in turn, dropped to US$11 billion, with an after-tax cash flow of US$1.6 billion. The payback period increased to 6.2 years from 4.8 years, and the internal rate of return dropped to 11.1%.

The mining schedule would see higher-grade material processed from the starter pits at Botija and Petaquilla during the first six years of production. Valle Grande would be brought online in year eight.

An alternate case study that includes the Molejon epithermal gold deposit states that Molejon could be mined during year five of the Petaquilla project as a stand-alone operation with a separate mill complex. Molejon would generate a cash flow of US$70.4 million and yield a net present value of about US$24.7 million using a 10% discount rate.