Coro takes a second swing at San Jorge

Vancouver — One week after the successful re-negotiation of a purchase agreement on the San Jorge copper-gold porphyry project in Argentina’s Mendoza province, Coro Mining (COP-T) will take another shot at getting the government permits it needs to proceed with mine development.

Under the new conditions Coro will pay Franco-Nevada (FNV-T) US$1.25 million per year over the next 10 years. When taken in context of the previous agreement — valued at US$9.25 million and due over the next 15 months — the new conditions serve to extend the project’s payment timeline due to lingering questions over the mine’s short-term political prospects.

Coro continues a battle against provincial legislation — passed by the Mendoza government in 2007 — banning the use of “toxic chemicals” in mining operations, including the sulphuric acid necessary for heap-leach processing at San Jorge. Despite successful environmental permitting and feasibility studies at the federal level, Coro’s sulphide-only bid was defeated by Mendoza’s Lower House in August 2011. 

The project has been a focal point for environmental groups and non-government organizations, which staged protests outside the provincial legislature in February 2011.  

Mendoza remains a political hot spot for mining companies with the province’s focus on tourism that includes wine-tours and skiing, as well as an agricultural industry that relies on the Uspallata water basin, which flows into the surrounding river system. The company maintains the project will connect to the separate Yalguaraz hydrological basin, and have no impact on neighbouring water sources.

Coro’s new development proposal will attempt to side-step Mendoza’s legislation by locating a heap-leach processing plant 22 km north in the pro-mining province of San Juan, where Yamana Gold (YRI-T, AUY-N) operates its Gualcamayo open-pit, heap-leach mine.

The new off-site infrastructure would carry a US$64.1-million price tag, including a US$23.5-million railway to transport ore, and a US$23.6-million acid and co-generation plant in southern San Juan. 

According to Coro and Chilean-based consultants Process and Pipeline Projects the new proposal should encounter “no legal impediment to the transport of ore between Mendoza and San Juan.”

In theory, since Mendoza does not have laws against rock quarrying or open-pit operations, the transportation of ore out of province by the new railway system should avoid existing legislation, and allow Coro to go ahead with a production plan that incorporates feasibility and engineering studies filed in April 2008.

The new heap-leach development proposal would carry initial capital costs of US$184.5 million, including US$5 million in project contingency, and US$8.2 million in working capital. Average cash operating costs over the first five years would be US$1.26 per pound copper, with a projected 10-year mine life.

The details of the off-site plan have impacted the value of the project. The new economic assessment establishes an internal rate of return (IRR) of 29.3% with a net present value (NPV) of US$132.7 million assuming a 10% discount rate and US$2.80 per lbs. copper price. Gold and primary resources would be unrecoverable under the leach-only proposal.

The rejected float-only on-site proposal projected an IRR of 28.6% and a NPV of US$220 million with a 10% discount rate and US$2 per lb. copper price.

The jump in copper prices helps to off-set rising production costs that increased from US69¢ per lb. under original conditions to US$1.26 per lbs. under the off-site plant proposal.

According to technical reports filed in 2008, San Jorge has proven and probable reserves of oxide and enriched ores totalling 48 million tonnes grading 0.61% copper or 342,600 contained tonnes copper.

After shares tumbled 54% or 31¢ following the announcement of the provincial permit denial in August 2011, Coro spent eight months discussing legal action against the Mendoza legislature as well as creating the alternate production plan. Canadian business investors are protected by an Argentina-Canada bilateral investment treaty that could offer the company legal recourse under international law — a route the company reportedly intends to go pending results on its new proposal.

Coro shares have risen with improving base metal prices and heightened-Argentinean demand for non-imported resources over the first two months of 2012. Shares have jumped 20¢ or 80% this year, to a high of 49.5¢. Coro has 132 million shares outstanding and a market cap of $63.5 million with a 46¢ share price at presstime.