Spanish acquisition would boost Inmet’s copper output

Inmet Mining (IMN-T) plans to produce more copper as a result of acquiring a 70% interest in the Las Cruces project, 20 km northwest of Seville, Spain.

Inmet has negotiated to buy a stake in the project by issuing 5.6 million shares to MK Resources (MKRR-O), of which Cobre Las Cruces, the project’s owner, is a unit.

The acquisition will involve MK’s merging with Leucadia National (LUK-N), which already owns 72% of MK. MK’s directors have approved the deal and Leucadia has agreed to the merger. If shareholders give their consent, MK would become a wholly owned subsidiary of Leucadia. Shareholders of MK would receive 0.0317 share of Leucadia for each MK share.

Once the merger is complete MK will sell 70% of the Las Cruces project to Inmet.

Last summer, Las Cruces was estimated to contain a proven reserve of 13.9 million tonnes grading 6.9% copper, plus 1.4 million tonnes grading 6.4% copper in the probable category. The estimates are based on a cutoff grade of 1% copper and a copper price of US76 per lb.

Plans call for an open-pit mine, with ore processed on site. The ore would undergo atmospheric leaching and solvent extraction-electrowinning to form copper cathode.

Construction is estimated to cost US$369 million, not including interest, reclamation costs, and bonding requirements. Initial engineering work is about to begin, and following construction, US$67.4 million in government subsidies are expected.

Starting in 2008, the mine is expected to produce 66,000 tonnes copper cathode annually over a lifespan of 15 years. Cash costs are pegged at US42 per lb.

Inmet would pay its share of development expenditures retroactively to April 1, 2005. If the agreement falls through because of a competing bid for the project, a compensation fee of at least US$3 million would be payable to Inmet by Leucadia.

In other news, Inmet reported earning $27.6 million in the first quarter, reflecting higher prices for gold, copper and zinc.

The profit was $5.7 million greater than that of a year earlier, despite an $8-million increase in smelting and freight charges, a $5-million hike in operating costs, a $6.6-million charge for redeeming a convertible debenture, and a $4-million loss due to foreign exchange rate changes.

The company realized metal prices of US$1.49 per lb. for copper, US61 per lb. for zinc, and US$396 per oz. for gold, compared with US20, US11 and US$25 a year earlier. The higher prices boosted revenue by $15 million.

Inmet produced 20,800 tonnes copper, 17,200 tonnes zinc, and 75,300 oz. gold in the recent quarter.

Inmet owns 18% of the OK Tedi copper-gold mine in Papua New Guinea. BHP Billiton (BHP-N) owns 52%, and the PNG government, 30%. Inmet’s share of earnings from the operation totalled $21.4 million, accounting for about 40% of lnmet’s total operating earnings. That’s up $14.6 million from the first quarter of 2004.

The company’s share of production from the mine was 45,600 tonnes copper and 133,400 oz. gold, compared with 36,000 tonnes and 112,400 oz. a year earlier. OK Tedi processed 6 million tonnes grading 0.93% copper and 0.94 gram gold per tonne, compared with 5.3 million tonnes at 0.86% and 0.85 gram in the January, February and March of 2004, when a grinding mill was out of commission for an extended period.

Inmet’s earnings from the Cayeli copper-zinc mine in Turkey amounted to $14.2 million, compared with $22.5 million in the first three months of 2004. Inmet bought the Turkish government’s 45% stake in the mine last September, thereby securing a 100% interest.

Cayeli produced 6,800 tonnes copper and 8,700 tonnes zinc, compared with 9,500 tonnes and 9,700 tonnes a year earlier. The mill processed 190,000 tonnes grading 4.2% copper and 6.1% zinc, compared with 250,000 tonnes at the same coppper grade but only 5.5% zinc.

The cash cost of producing a pound of copper rose to US89 from US59.

The Pyhasalmi mine in central Finland contributed $10.7 million to Inmet’s coffers, down from $13.2 million a year earlier.

Pyhasalmi produced 3,700 tonnes copper, 8,500 tonnes zinc, and 200 million tonnes pyrite as a result of processing 340,000 tonnes of ore grading 1.1% copper, 2.7% zinc and 41% sulphur. In the first quarter of last year, 336,000 tonnes were processed at 1.3% copper and 2.9% zinc.

The cash cost of producing a pound of copper at Pyhasalmi fell by US2, to US29, thanks to higher revenue from byproducts.

The Troilus mine in Quebec produced 51,300 oz. gold and 2,100 tonnes copper, compared with 37,300 oz. and 1,400 tonnes in the initial three months of 2004. Average daily throughput increased to 19,400 from 15,700 tonnes. In the recent quarter, Troilus processed 1.7 million tonnes grading 1.13 grams gold per tonne and 0.1% copper. Gold was produced at a cash cost of US$279 per oz.

Troilus earned $5.6 million, up from $3.1 million a year earlier.

Inmet has 41.4 million shares outstanding. The stock recently traded in the range of $16.40-16.75.