Preliminary economics on Marathon positive (July 05, 2006)

A preliminary economic assessment of the Marathon copper-palladium-platinum deposit in the Coldwell intrusive complex near Marathon, Ont., shows an open-pit mine could be profitable at redent metal prices.

The study, commissioned by Marathon PGM (MAR-V) and done by P&E Mining Consultants, showed an internal rate of return of 21% using 18-month averages for metal prices and the Canadian/U.S. dollar exchange rate. A discounted cash flow analysis, using a 7% discount rate, put the net present value of the project at $156 million.

Using those averages to calculate a gross-value cutoff grade also increased the size of the Marathon deposit’s measured and indicated resource, to 49.3 million tonnes grading 0.31% copper, 0.91 gram palladium, 0.24 gram platinum and 0.09 gram gold per tonne. A resource estimate announced in February calculated the measured and indicated resource at 40 million tonnes, with average grades of 0.36% copper, 1.07 gram palladium, 0.29 gram platinum and 0.1 gram gold per tonne.

The inferred resource also expanded, to 8.7 million tonnes averaging 0.29% copper, 0.92 gram palladium, 0.28 gram platinum and 0.11 gram gold, from 4.6 million tonnes grading 0.31% copper, 1.06 gram palladium, 0.33 gram platinum and 0.12 gram gold per tonne.

The expansion in the resource came from using a cutoff gross value of $7.56 (Canadian) per tonne at metal prices of US$4,255 per tonne (US$1.93 per lb.) for copper, US$234 per oz. for palladium, US$949 per oz. for platinum, and US$485 per oz. for gold. Those represent an 18-month trailing average of market prices for those metals. The February resource calculation had used two-year averages for the same metal prices, and set the cutoff gross value at $12 per tonne.

The proposed mine would produce an average 17,000 tonnes copper and 195,000 oz. of precious metals annually for the first four years of production, during which the operation would pay back capital costs, and the pit would have a life of just over 9 years. Capital costs were estimated at $248 million.

The study pegged cash production costs at US$91 per oz. of precious metals, over the life of the mine. In the four-year payback period, costs would be around US$88 per oz.