Rapu Rapu passes muster

Southeast Asia may not be attracting as much exploration interest as it once did, but that hasn’t deterred Australian-listed Lafayette Mining from advancing its Rapu Rapu polymetallic project in the Philippines.

The company’s determination recently paid off in the form of an independent feasibility study which concludes that the project can produce, over a 6-year period, 60,900 tonnes copper, 89,200 tonnes zinc, 293,000 oz. gold and 3.6 million oz. silver. Production could begin as early as 2002.

The report comes as good news to TVI Pacific (TVI-T), which holds a 2.5% net smelter return royalty in the project. It was TVI that sold Rapu Rapu to Lafayette (minus an 11.25% stake held by a local company) in exchange for a combination of exploration expenditures, cash and equity. Lafayette has one year in which to decide whether to buy TVI’s royalty for US$2.7 million, so long as it pays US$280,000 in quarterly instalments until such a decision.

The study, headed up by Signet Engineering, calls for 820,000 tonnes to be mined annually from the Ungay surface deposit. Just over 4.9 million tonnes grading 1.38% copper and 2.43% zinc, plus 2.71 grams gold and 30.39 grams silver per tonne, would be extracted in all.

A preliminary assessment of an adjacent underground resource has been obtained as well. Situated at the western end of the proposed pit, the deposit hosts 1.1 million tonnes grading 1.33% copper, 1.98% zinc, 2.71 grams gold and 24.92 grams silver, and could be tapped from the pit.

A geotechnical study and detailed mine plan are required to convert the underground resource to reserve status. Metallurgical tests, drilling and other studies suggest that the extention would enhance project economics.

Based on the feasibility report, an open-pit operation would generate net revenue of US$222.9 million and net operating cash flow of US$101.6 million. The difference between the two, US$121.3 million, represents the net operating cost.

Capital costs are pegged at US$37.8 million, which, assuming a 10% discount rate, generates a net present value of US$28.6 million. The internal rate of return is estimated at 30%, assuming the capital costs are financed entirely through equity.

The study assumes average metal prices over the project’s life to be: US92 per lb. for copper; US51 per lb. for zinc; US$275 per oz. for gold (to result in a realized price of US$303 through means of forward sales); and US$5.10 per oz. for silver. Similarly, smelting and refining charges are expected to be higher than current rates.

Lafayette has submitted an environmental impact study to the Philippine government as part of its application for a development permit. Also, discussions with Standard Bank of London, which provided a US$3-million bridge financing last July, are continuing. The amount, which was to have been drawn down by Jan. 1, was expected to be rolled over into a new, larger loan.