Piedras feasibility tweaked for higher costs, prices

Consultants for Frontera Copper (FCC-T) have updated the feasibility study for the Piedras Verdes copper project in Sonora state, Mexico, reflecting increases in capital and operating costs and in metal prices.

The new figures show a capital cost of US$90 million, up US$14 million from the previous feasibility study tabled last April. Higher prices for diesel fuel, electrical power and sulphuric acid combined to bring estimated operating costs about 36% higher, to US$1,740 per tonne or US79 per lb.

Balanced against that is the increase in the copper price, and Frontera’s consultant, M3 Engineering & Technology, has estimated the average historical and forward price of copper at US$2,890 per tonne (US$1.31 per lb.). The previous study had used a copper price of US$2,090 per tonne (US95 per lb.).

A revised discounted cash flow analysis puts the net present value of the project at US$101 million, using a discount rate of 8%. The previous study had estimated the net present value at US$61 million, using the same discount rate. The project’s internal rate of return rises to 23.1% from 20.4% using the old cost and revenue estimates.

At current copper prices of US$4,400 per tonne (US$2 per lb.) the net present value of the project is US$371 million, with a 68% internal rate of return.

Frontera raised $60 million in an offering of shares and unsecured notes in June 2005, and under the terms of that offering can raise another $15 million (US$12.9 million), which would largely cover the increase in the capital cost.