First Quantum preps Sentinel for production

First Quantum Minerals (FM-T) — which has several copper projects in its development pipeline — has a new reserve and resource estimate in hand for its Sentinel copper project in Zambia. 

The project is part of the company’s Trident project located 150 km west of its chief Kansanshi copper-gold mine asset. The 2,300-sq.-km property also includes the Enterprise nickel project. 

Reserves at Sentinel now stand at 3.9 million tonnes copper from 774 million tonnes grading 0.5% copper. Measured and indicated resources are 5.2 million tonnes  copper from 1.03 billion tonnes grading 0.51% copper. 

Both estimates use a 0.2% copper cut-off grade and a US$3-per-lb. copper price. They were derived from more than 172,000 metres of drilling completed in 514 holes since the company’s February 2010 acquisition of Kiwara. 

“We view the development at Sentinel — from acquisition to shovel-ready in two years — as very positive, highlighting the company’s ability to add significant value to its acquisitions in a short time frame,” Scotiabank analyst Tom Meyer comments. He maintains a “sector outperform” rating on the stock, and has a one-year target of $40.

But analyst Matt Murphy of UBS Investment Research says Sentinel’s resource grade was 25% below what he expected, at 0.67% copper. He says the lower grade and 2.2-to-1 strip ratio boosts his life-of-mine, cash-cost estimate from US$1.15 per lb. to US$1.35 per lb. He notes this makes the project an “upper third-quartile, cash-cost producer when it comes online in 2014E.” 

He has reduced his 12-month price target to $23 per share from $25.50, but has kept a “buy” on the stock, given the company’s “strong production growth at below-average capital intensities.”  

The project would produce 300,000 tonnes of copper in concentrate a year, with initial annual production of 150,000 tonnes, over at least 15 years.

Philip Pascall, First Quantum’s chairman and chief executive, says the miner is developing the project while building a new copper smelter at Kanshansi for Sentinel’s production. This will  eliminate the need to export concentrate to offshore smelters.

Construction at Sentinel is slated to begin mid-year with commercial production targeted in 2014, depending on First Quantum meeting commercial terms with the government, including power-tariff terms. Discussions are underway. 

The initial costs to build Sentinel and the smelter project exceed US$2.4 billion, Pascall notes, saying that on the positive side, it could create 2,400 direct jobs for Zambians. 

Cash costs for Sentinel are estimated between US$1.10 and US$1.20 per lb. copper, which some analysts believe is a bit low.  

The producer aims to increase the mine’s life by drilling its inferred resource and pushing exploration. Sentinel has another 165.6 million tonnes at 0.42% copper in inferred. 

First Quantum is targeting at least 450,000 tonnes of company-wide copper production by 2015, and up to 1 million tonnes once Sentinel and Haquira — in Peru — swing into full gear, says Haywood Securities analyst Kerry Smith. 

Resource updates at Haquira are due late next year, and production is tentatively scheduled for 2016.  

First Quantum anticipates full commercial production from its Kevitsa nickel-sulphide  deposit in Finland by mid-year. It should initially churn out 10,000 tonnes of nickel and 20,000 tonnes of copper annually. Looking to beef up its numbers, the miner plans to bump its throughput rate to 7.5 million tonnes in 2013. This could boost production to 15,000 tonnes nickel and up to 30,000 tonnes copper per year. The mine could run for over 20 years at this increased rate. 

Also by mid-year, the company plans to complete a 7.2-million-tonne annual oxide expansion at Kansanshi, which could ramp up to 14.5 million tonnes by mid-2013. 

Following the March 26 news, Smith reiterated his $22.50 target price on the stock and gave it a “sector perform” rating.