Amerigo secures new resource in old tailings

Amerigo Resources (TSX: ARG; US-OTC: ARREF) hasn’t lost much time since it cut a deal with Codelco in April 2014 to treat a new source of tailings from the miner’s El Teniente mine — the world’s largest underground copper operation — near Santiago, Chile.

Until now, the Vancouver-based company had processed fresh tailings from El Teniente and historic tailings from the mine’s Colihues tailings deposit. But on Sept. 24, after half a year of construction, Amerigo’s Chilean subsidiary, Minera Valle Central S.A. (MVC), started processing historic tailings from El Teniente’s Cauquenes storage area, next to Colihues, at a rate of 30,000 tonnes per day.

That number should rise to 60,000 tonnes per day, management predicts, after expanding the processing facility in the first phase for US$71 million, scheduled for this year’s fourth quarter.

The company’s annual production from all three tailings sources at El Teniente will increase to 70 million lb. copper, Klaus Zeitler, Amerigo’s chairman and CEO, tells The Northern Miner.

“The agreement on Cauquenes and the extension of the fresh tailings contract is a game changer for Amerigo, because it allows MVC to double production and due to higher metal grades reduce operating costs to well below US$2 per lb. copper,” Zeitler writes in an email.

Cash costs are expected to decrease from US$2.08 per lb. in 2014 to US$1.75 per lb., according to a corporate presentation in July. (MVC trimmed cash costs from US$2.48 per lb. in 2012 to US$2.08 per lb. in 2014.)

After all phases of the expansion, the company estimates that annual copper production could rise to 90 million lb. at cash costs of US$1.50 per lb.

Over the next 15 to 20 years, Zeitler says, Cauquenes could add value to the company, which can process tailings from El Teniente until Dec. 31, 2037.

The MVC operation, in Region IV, 90 km south of Santiago and 8 km east of the city of Rancagua, produces copper and molybdenum concentrates by reprocessing El Teniente’s tailings.

The operation has generated positive cash flow every year since the plant was built in 1992.

Cauquenes contains 338 million tonnes grading 0.3% copper, which is higher grade than the nearby Colihues’ tailings, which average 0.2%. Cauquenes’ material is also higher grade than the mine’s fresh tailings, which average 0.1% copper.

The Cauquenes expansion project is fully funded by a debt financing from a syndicate of banks led by Banco Bilbao Vizcaya Argentaria (a multinational group providing financial services in over 31 countries), and Export Development Canada. The financing, completed in March, held up to US$64.4 million for construction, and another US$9 million in a value-added tax loan in Chilean pesos.

“The financing is a major achievement in the present market environment, and was done without diluting Amerigo’s shareholders,” says Zeitler, who resigned as CEO on Oct. 1, but remains the company’s executive chairman.

Raymond Goldie of Salman Partners has a 95¢-per-share target price on the stock, which he says is “based on the assumptions that Amerigo produces 16.2 million lb. copper in the first half of 2015 from fresh tailings and 49.6 million lb. copper in 2016 from fresh tailings and from Cauquenes, reaching a full-year rate of 70 million lb., only by 2017.”

Goldie conceded in a research note that “these assumptions now look conservative, but we are retaining them to allow for possible hiccups, as Amerigo learns how to cope with a new orebody.”

At press time Amerigo’s shares traded at 26.5¢, within a 52-week range of 22¢ to 45¢ per share.