Baja finally gets to build Boleo mine (March 10, 2011)

After a false start in 2008, Baja Mining (BAJ-T) now has funding fully secured and is moving ahead with building its 70%-owned Boleo copper-cobalt-zinc project in Mexico’s Baja California Sur state.

The company had actually started construction in 2008, with the debt documentation done and the security agreements in place. But as John Greenslade, president of Baja Mining explains, it was not to be.

“In August 2008, we were in London,” says Greenslade. “We signed the security documentation and copper was at US$3.35 (per lb.). We went back to sign the loan documentation on October 1st and copper was at US$1.50, and the deal collapsed.”

The company had already ordered the long-lead items for the mine, so continued to make necessary payments thanks to the roughly $105 million it had in the bank, but construction was most definitely on hold. 

Now, with a US$858-million financing secured last October from several major banks, the company is back on track and targeting production for the first quarter of 2013.

“We gave the official restart of construction to the contractor on Nov. 15,” says Greenslade. “It’s approximately 24-26 months from there to first copper.”

Reserves at Boleo stand at 85 million tonnes grading 1.33% copper, 0.08% cobalt, 0.55% zinc, and 2.92% manganese. When Baja gets the mine fully up and running, it expects to produce 125 million lbs. copper, 3.7 million lbs. cobalt and 25,400 tonnes zinc sulphide a year for 23 years.

Using US$2.91 per lb. copper, US$26.85 per lb. cobalt and US$1,175 per tonne zinc sulphate, an early 2010 technical update projected a negative cash cost of US29¢ per lb. copper, net of byproducts. 

The same study found the project has an after-tax internal rate of return of 25.6% and an after-tax net present value (NPV), with an 8% discount, of US$1.3 billion. After-tax average annual cash flow would come in at US$302 million. Using January 2011 spot prices, the after-tax NPV is US$2.3 billion.

Capital costs are estimated at US$890 million, a big increase from the initial US$572-million estimate in a 2007 study. Greenslade says it was caused by a general rise in commodity prices.

“You just saw costs automatically go up because all the materials you were using, most of those went up,” says Greenslade. He points out that the mine requires about 100 km of copper wire, which the original study had factored in a price of US$1.25 per lb.

Included in the capital costs, however, is an agitated vat leaching plant and full hydrometallurgical plant, with the company producing refined metals. The acid plant, meanwhile, will have cogeneration capacity to produce 42 megawatts of the 54 to 64 megawatts needed onsite.

The processing plant will be using a high-rate thickener for solid liquid separation. The thickener is key because the deposit is clay-based and proved difficult to mine and refine in the past. 

“It was the solid-liquid separation, separating the metal-rich aqueous solution away from the clay, that is the reason this project was still here,” says Greenslade. “Up until the mid-1990s, the technology didn’t adequately exist to make that separation.”

Since 1995, Greenslade says, about 22-24 projects around the world have been using the technology. He suggests the best parallel is the Sepon copper project in Laos, currently controlled by China Minmetals.

“Every place they’ve used this technology, it’s worked at or above design capacity,” says Greenslade.

As to the mining method, it is equally proven elsewhere but still unusual for a base metal deposit. The company plans to use high-rate continuous mining machines, similar to those used for potash or coal. 

“This is effectively soft-rock mining,” says Greenslade. “The difference of course is that while the orebody is clay, it contains copper, cobalt and zinc.”

With the continuous mining, Baja will be mining seven flat-lying ore beds that sit close to surface, and which testing so far has indicated will be cost-comparable to open-pit methods.

The resource contained within those ore beds currently stands at 265 million measured and indicated tonnes grading 0.76% copper, 0.06% cobalt, 0.64% zinc, and 3.23% manganese, with a further 159 million tonnes of 0.47% copper, 0.05% cobalt, 0.7% zinc and 2.93% manganese.

While the company obviously has faith in the project, it has had to conduct some fairly dilutive financing to make it happen. 

Last November, the company raised $184 million by issuing 167.3 million shares at $1.10 apiece, about where it is still trading. This represents a great improvement compared to the 14¢ per share Baja was trading at in late 2008, but far lower than the $2.50 the company’s shares hit in 2007 when the mine was advancing. The financing brought the company’s total shares issued and outstanding to 334
million or 393 million fully diluted. 

The financing did, however, when combined with the project debt financing, allow Baja to fully fund building the project.

“We had to make a decision,” says Greenslade, “were we going to build this project or not? If we were going to build it, the market price was what the market price was.”

With all funding, permits and plans now in place, Baja can now move ahead with actually building a mine. Greenslade says staff will increase from about 300 at the end of 2010 to about 2,500 at year-end, while early mining will also begin this year to get staff trained.

After seeing its well-laid plans fall to pieces in 2008, Baja looks set to have a much better year in 2011.