Zaruma picks up $22M to build Luz del Cobre

Vancouver — Zaruma Resources’ (ZMR-T, ZMRAF-O) Luz del Cobre copper deposit in Sonora state, Mexico, just took a major step towards production with the company closing a US$22-million senior debt financing.

The money will come from a subsidiary company in the Glencore International Group. In return, Glencore has acquired the right to purchase all copper production from Luz del Cobre, based on London Metal Exchange prices. Zaruma will have to enter into forward sales contracts for up to 80% of forecast production until such a time when 85% of the expected net cash flow from operations is projected to suffice to repay the loan. Cumulative repayments must not be less then US$4 million by July 2009, US$11 million by January 2010, US$18 million by July 2010, and US$25 million by January 2011.

Luz del Cobre hosts proven and probable reserves of 1 million tonnes grading 0.67% copper in the oxide zone of the deposit. The mixed and sulphide regions host an additional 3.2 million tonnes proven and probable reserves grading 1.1% copper.

Based on a solvent extraction-electrowinning plant processing solution from 2,800 tonnes of mined ore per day, Luz del Cobre is expected to produce 15 million lbs. copper cathode annually. Using a selling price of US$2.235 and an operating cost of US92 per lb., the project is estimated to have a net present value of US$39 million (at a 5% discount rate) and expected to run a 60.5% pretax internal rate of return. Payback of capital, estimated at US$24.4 million, is expected to take 1.9 years.

Zaruma and Glencore also worked out a financing agreement for the exploration and development of the Trion area, a mineralized target zone 1 km west of Luz del Cobre. Glencore will provide up to US$1.5 million, also to be repaid out of the proceeds of copper sales. A 3,300-metre drill program at Trion got under way on Oct. 1.

Lastly, Glencore will also finance an exploration program in the 10-sq.-km Sapo-Carrizo region, some 8 km southwest of Luz del Cobre along the western portion of Zaruma’s more than 110 sq. km of mining titles. Glencore has the right to earn a 51% interest in the project area by spending US$2.25 million on exploration and making a US$2-million cash payment to Zaruma.

Zaruma moved up a few pennies on news of the financing, to close at 17.5 on 7 million shares traded. The company has 109.4 million shares issued and a 52-week trading range of 10.5-22.5, reaching its peak in mid-June, when Zaruma first announced Glencore’s intent to finance Luz del Cobre.