Sierra Gorda scoping study paints promising picture for Quadra

Vancouver – A strong scoping study for the large Sierra Gorda copper-gold-molybdenum project in Chile gave Quadra Mining‘s (QUA-T) share price a nice lift.

The study investigated the economics of an open pit operation processing 111,000 tonnes of mill feed daily to produce 300 million lbs. copper, 16 million lbs. molybdenum, and 36,000 oz. gold each year. The mine’s measured and indicated resources support a 25-year mine life and the average cash cost to produce a pound of copper is US79¢.

Molybdenum production is concentrated in the first eight years of operations, during which time the mine would churn out 33 million lbs. moly annually. In those years the molybdenum by-product credit reduces the cash cost of producing a pound of copper to US34¢.

It would be a big operation and, fittingly, it carries a big net present value: US$622 million, using a 10% discount rate and based on long-term metal prices of US$2 per lb. copper, US$12 per lb. molybdenum, and US$800 per oz. gold. The project should generate a 16% internal rate of return.

“This study clearly demonstrates the potential value that Sierra Gorda can bring to Quadra as a large, long-term project,” said Paul Blythe, Quadra’s president and CEO, in a conference call. “It actually compares well to some of the largest projects developed this decade, in terms of overall production, mine life, and cash cost. And it’s somewhat unusual in that it’s not in the hands of a major…and it’s in a low-risk jurisdiction.”

The downside of a big operation is a big development price tag and Sierra Gorda is no different. Capital costs are estimated at US$1.7 billion. Blythe says the company is in talks with potential project partners and is looking to sell a interest in the property – ideally 40% – to a partner that would bring with it access to debt financing.

For an investment of that size, a mine at Sierra Gorda would be able to process close to 1 billion tonnes of ore during the mine’s lifespan. The 111,000 tonnes of ore mined each day would be processed via several stages of crushing, followed by ball mill grinding. Most modern operations use a semi-autogenous mill to start, rather than several stages of crushing, but Quadra thinks this flowsheet is appropriate for Sierra Gorda’s ore. It also requires less energy, which is an important consideration in Chile where there is considerable competition for energy.

The other resource that ignites fierce battles in Chile is water, and no where is the fight harder than in the Atacama Desert. The Atacama is a major copper-producing area but it is also the driest desert in the world.

“Over the years we’ve concentrated almost as many resources on securing water as we have on expanding the resource and securing ownership of the project,” said Blythe. The company’s efforts have not been in vain – Quadra owns rights to 475 litres per second of water flow, primarily from underground aquifers. But since the company is not yet permitted to use that water for mining, the scoping study assumed the use of seawater, piped in from the coast 140 km away and desalinated at a specially-built plant.

“Because the water rights we own are not yet permitted we prefer to assume seawater use for the scoping study,” said Blythe. “That’s not to say we don’t think the rights can be permitted but this is a sensitive issue – we don’t want to take anything for granted.”

Even if Quadra can permit its 475 litre-per-second source, it would not be enough to sate the mine’s thirst – the mine needs almost 700 litres of water per second. The company will look for additional water rights; if it cannot find enough it will develop a hybrid system, combining seawater and fresh water.

Quadra signed option agreements for the claims that comprise Sierra Gorda in 2004 and by 2008 owned the project outright. The company has completed almost 100,000 metres of drilling in that time. The initial plan was to evaluate and potentially develop the property’s established oxide resource.

“But we also recognized, right from the beginning, that there had been no focused drilling for an underlying sulphide deposit,” said Blythe. “In 2006 we initiated a specific program looking for sulphides and soon hole 281 returned a substantial zone of sulphide copper, gold, and molybdenum mineralization.”

Since that first hit Quadra has established a significant resource at Sierra Gorda. The measured and indicated sulphide resource now stands at 1.35 billion tonnes grading 0.42% copper, 0.025% molybdenum, and 0.067 gram gold per tonne. Inferred sulphide resources add 456 million tonnes grading 0.38% copper, 0.012% moly, and 0.044 gram gold.

Oxide resources are not insignificant: in the measured and indicated categories Sierra Gorda hosts 251 million tonnes grading 0.33% copper and in the inferred category the oxide resource is 26.8 million tonnes grading 0.28% copper.

In the current mine plan the oxide resource, which overlies the sulphide deposit, is stripped as waste. Blythe says that copper prices do not current support any other option but the company is considering all options, including processing material at nearby solvent-extraction-electrowinning (SXEW) facilities.

With this scoping study now in hand, Quadra plans to advance Sierra Gorda to pre-feasibility studies. Over the next two years the company plans to spend US$40 million on conducting further metallurgical testwork to better define molybdenum recovery and concentrate grade, preparing and submitting the environmental impact assessment and associated permit applications, evaluating all water supply options, completing infill drilling to upgrade inferred resources, and conducting optimization studies on project economics.

On news of the scoping study pleased investors lifted Quadra’s share price $1.41 or 16.8% to $9.80. The company has a 52-week trading range of $1.97 to $20.64 and has 100 million shares outstanding.

Vancouver-based Quadra also owns and operates the Robinson copper-gold mine in Nevada, the copper-cathode Carlota mine in Arizona, the commissioning-stage Franke SXEW heap leach project near Sierra Gorda in Chile, and the Malmbjerg molybdenum development project in Greenland.