Positive feasibility study for Inca Pacific’s Magistral (December 03, 2007)

Vancouver – The feasibility study for Inca Pacific‘s (IPR-V) Magistral copper-molybdenum project in Peru has showed the project is robust despite a considerable capital cost increase compared to the preliminary feasibility study estimate.

The porphyry-skarn project, located 450 km northwest of Lima in the province of Ancash, has a net present value of US$146 million at an 8% discount rate. The internal rate of return is expected to sit at 14.9%, allowing for capital payback in 3.3 years.

Initial capital expenditure came in at US$402 million, 55% above the US$259.3 million for capital expenditure estimated in the prefeasibility study. A significant chunk of the increase came from indirect costs, initially priced in at US$15.5 million but increased to US$101 million in the new study.

An open pit with a strip ration of 2.2 to 1 will feed a 20,000-tonne-per-day mill. The operation is expected to run over a mine life of 15 years, with average annual production of 34,100 tonnes of copper and 2,860 tonnes of molybdenum, both in concentrates. Life of mine cash cost per lb. of copper is 28.

Project economics were calculated based on a copper price of US$2.76 in 2011 and 2012, then US$1.50 from 2013 to 2025. Similarly, the molybdenum price was projected at US$22.38 for 2011 and 2012 and then lowered to US$12 from 2013 to 2025.

Mineralization at Magistral occurs in two forms. Porphyry mineralization, characterized by stockwork and sheeted veins of quartz and calcite, occurs as a broad zone straddling the contact of the main intrusive body. Along steeply-dipping intrusive contacts the deposit also hosts skarn-style mineralization, characterized by disseminated, veined, and locally semi-massive to massive sulphides of chalcopyrite, pyrrhotite, and pyrite.

The new resource estimate for Magistral, based on 65,214 metres of core drilling in 286 holes, pegs measured and indicated resources at 195.5 million tonnes grading 0.51% copper and 0.023% molybdenum. Inferred resources contribute an additional 55.4 million tonnes grading 0.55% copper and 0.023% molybdenum.

Based on an internal net smelter return cut-off of US$5.25, the pit design defined proven and probable reserves for the project at 113.5 million tonnes grading 0.49% copper and 0.05% molybdenum.

Metallurgical testing of the sulphide ore showed average recoveries of 95% for copper and 79% for molybdenum. The copper concentrate produced will average 33.5% copper and 117 grams silver per tonne; the molybdenum concentrate will grade 53% molybdenum on average.

Magistral lies 260 km by road from the port of Salavvery, which will be utilized to ship concentrates to smelters. To allow the passage of 40 tonnes trucks, 77 km of the road will need upgrading and 28 km of new road needs to be built. A 51-km, 138 kV power line from the existing grid at Sihaus will provide electrical power to the project.

Magistral saw limited exploration by Cerro de Pasco Copper between 1969 and 1973, when the Peruvian government nationalized Cerro de Pasco’s assets along with those of other foreign mining companies. In December 1998 the government of Peru auctioned Magistral; Inca Pacific won the bid by agreeing to spend US$2.1 million and paying US$750,000 by January 2002. The company now owns the project 100%, aside from a government-held net smelter royalty estimated between 0.5% and 3% depending on current metal prices.

The project lies on lands owned by the community of Conchucos, whose members have voted to grant the company surface rights allowing for project development. The next step is to negotiate terms for the surface rights.

Inca Pacific expects it will take 12 months to obtain an approved Environmental Impact Assessment and all other permits needed prior to construction. Construction itself is expected to take 2 years, with production anticipated in the first quarter of 2011. Under Inca Pacific’s agreement with the government of Peru, the company must initiate commercial production at Magistral by the end of 2011.