Positive feasibility study for Inca Pacific’s Magistral (January 07, 2008)

Vancouver — The feasibility study for Inca Pacific Resources’ (IPR-V, IPRFF-O) Magistral copper-molybdenum project in Peru shows the project is robust, despite a considerable capital cost increase compared with 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 at 14.9%, allowing for capital payback in 3.3 years.

Initial capital costs are now estimated at US$402 million, 55% above the US$259.3 million for capital spending outlined 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 ratio of 2.2:1 will feed a 20,000-tonne-per-day mill. The operation is expected to have 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 US28.

Project economics were calculated based on a copper price of US$2.76 per lb. in 2011 and 2012, then US$1.50 from 2013 to 2025. Similarly, the molybdenum price was projected at US$22.38 per lb. 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 cutoff 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 is 260 km by road from the port of Salaverry, which will be used to ship concentrates to smelters. To allow the passage of 40-tonne trucks, 77 km of the road will need upgrading and 28 km of new road needs to be built. A 51-km, 138-kilovolt power line from the existing grid at Sihuas will provide electrical power to the project.

Magistral saw limited exploration by Cerro de Pasco Copper from 1969 to 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 pay US$750,000 by January 2002. The company now owns the project outright, aside from a government-held net smelter return royalty of 0.5% to 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 a year to obtain an approved environmental impact assessment and all other permits needed prior to construction. Construction is expected to take two years, with production anticipated in the first quarter of 2011. Under Inca Pacific’s agreement with the government of Peru, the company must begin commercial production at Magistral before 2012.