Inca Pacific wins environmental permit for Magistral

Fifteen months after submitting its environmental and social impact assessment to the government of Peru, Inca Pacific Resources (IPR-V) has finally received environmental approval for an open-pit mining operation at Magistral, about 450 km northwest of Lima.

The Magistral project involves developing a 20,000-tonne-per day open-pit mine and concentrator operation that will produce separate copper and molybdenum concentrates over a 15-year period.

The news sent the junior’s shares up 3¢ or 12% to close at 28¢ per share. (The company has a 52-week trading range of 12¢-$1.61 per share with 56.5 million shares outstanding.)

“There are very few projects that aren’t already developed that have this major environmental approval so we feel like we’re ahead of the pack,” James Rothwell, Inca Pacific’s president and chief executive, said in a telephone interview from his Vancouver office.

“It is very important for Peru that the Magistral project moves forward,” Clara Garcia, head of the Mining Environmental Bureau of  Peru’s Ministry of Mines, said in a statement. “The approval of the ESIA is a big step in this sense, as it will help the development of one of the most interesting copper deposits with moly contents in Peru.”

Rothwell noted that the next step is to complete negotiations with the government for an extension of the development timetable. Under the current timetable Magistral is scheduled to be in production by the end of 2011. But the global economic downturn has turned those plans upside down, drying up funding opportunities at the same time as metal prices have collapsed. Rothwell hopes to get  an extension until the end of 2014.

“Fortunately the copper market is showing some life and there is a bit of pulse coming back into the moly market as well so those are positive developments,” Rothwell said. “We need to conclude this additional negotiation with the Peruvian government and then we’ll have a project that is essentially fully permitted and ready to go.”

Inca Pacific advanced the project through pre-feasibility and final feasibility in 2006 and 2007. Highlights of the final feasibility study included a net present value of US$152 million at an after tax 8% discount rate, and an internal rate of return after tax of 15.2%, with capital payback in 3.3 years.

Initial capital expenditures, with a 14% contingency, were estimated at US$402 million, while life-of-mine cash costs net of molybdenum and silver byproduct credits were forecast at 28¢ per lb. copper.

Prices used to calculate the final feasibility study were conservative, Rothwell notes, adding that the company will be updating some of the financial analysis of the project to reflect the current environment.

The final feasibility used a copper price of US$2.76 per lb. in the first two years of the project (2011 and 2012) and a longer term price of US$1.50 per lb. copper for 2103-2020.

The molybdenum price used in the final feasibility was US$22.38 per lb. in 2011 and 2012 and US$12 per lb. in years 2013-2020.

The processing plant was forecast to produce on average 75.2 million lbs. per year of copper concentrate, 6.3 million lbs. per year of molybdenum in concentrate and 380,000 ounces per year of silver in copper concentrate.

Metallurgical recoveries for the life of mine were estimated at 95% for copper and 79% for molybdenum, producing a copper concentrate grading on average 33.5% copper and 117 grams silver per tonne and molybdenum concentrate grading 53% molybdenum.

Magistral, about 260 km east of the city of Trujillo in northern Peru, has measured and indicated resources of 195.5 million tonnes grading 0.51% copper (for 2.21 billion lbs copper), and 0.052% molybdenum (for 223 million lbs. molybdenum).

The deposit has an inferred resource of 55.4 million tonnes grading 0.55% copper (for 673 million lbs. copper) and 0.023% molybdenum (for 28 million lbs. molybdenum).

Magistral has two distinct but overlapping styles of mineralization. Its porphyry style mineralization is characterized by stockwork and or sheeted veins of quartz, with or without calcite. Its skarn-style mineralization is characterized by disseminated, veined, and locally semi-massive to massive sulphides of chalcopyrite, pyrrhotite, and pyrite, with or without molybdenite and local semi-massive to massive magnetite.