 | 
 
COPPER - MOLYBDENUM PORPHYRY/SKARN DEPOSIT
Pincock, Allen & Holt-Due Diligence - Executive Summary
MAGISTRAL PROPERTY FEASIBILITY STUDY - JAN 17 - 2008 (PDF 4.87 Mb
INTRODUCTION
The Magistral copper-molybdenum property is located 450 Kms north-north west of Lima in the department of Ancash. A Final Feasibility Study has been completed as of Dec 2007.
HISTORY
Cerro de Pasco explored a limited portion of the skarn aureole at Magistral between 1969 and 1973. In the 1970's the assets of Cerro de Pasco were nationalized and exploration abruptly ceased at Magistral. In December 1998 the Government of Peru auctioned Magistral. Inca Pacific successfully won the bid by agreeing to spend US $2.1 million and paying US $750,000 by January 2002. Inca Pacific has until December 31st 2007 to complete a feasibility study and until December 31st 2011 to bring the deposit into production. The government will retain a net profits royalty, estimated to equate to a 0.5-3.0% Net Smelter Royalty depending on metal prices at that time. In October 1999 Inca Pacific entered into an option agreement with Anaconda Peru, a leading copper producer in Chile. Anaconda Peru earned a 51% interest by completing a defined work program of US $5.75 million over 3 years. In March 2004 Inca Pacific S.A., a wholly owned subsidiary of Inca Pacific Resources Inc., acquired Anaconda Peru's 51% interest in the Magistral Project for US $2,100,000 thus increasing its interest to 100%. On March 3, 2005 Quadra Mining Ltd. and Inca Pacific signed an agreement for the development of the Magistral project. On October 25th 2005, after spending US$4 million, Quadra withdrew from the agreement stating that the project did not meet its investment criteria. In 2006 and 2007, Inca Pacific advanced the project through Pre-feasibility to Final Feasibility.
GEOLOGY
Two distinct but overlapping styles of mineralization occur at Magistral:
Porphyry-style mineralization, characterized by stockwork and/or sheeted veins of quartz ± calcite. The dominant sulphides are pyrite, chalcopyrite and molybdenite. Porphyry-style mineralization characterizes the Chavin Zone, but is also dominant below the valley. This style of mineralization occurs as a broad zone, commonly 100 metres wide, that straddles the contact of the main intrusive body.
Skarn-style mineralization, characterized by disseminated, veined, and locally semi-massive to massive sulphides of chalcopyrite, pyrrhotite, and pyrite, ± molybdenite and local semi-massive to massive magnetite. Sulphide mineralization was deposited during retrograde alteration, in association with epidote and later chlorite. This style of mineralization is best developed in the San Ernesto Zone where it reaches a maximum of eighty metres true width in the vicinity of the underground workings. Skarn-style mineralization is preferentially developed close to steeply dipping intrusive contacts and includes most of the zones on the south and southeast sides of the Magistral valley (San Ernesto, Arizona, El Indio and La Gringa).
MINERAL RESOURCES
The current independent Mineral Resource estimate by Mine Development Associates ("MDA") for the Magistral deposit, at the 0.4% Copper Equivalent* cut-off, are presented below by category:
Resource Category |
Tonnes
Millions
| Grade
(%Cu)
| Copper
Millions lbs
| Grade
(% Mo)
| Molybdenum
Millions lbs
|
Measured |
108.8 |
0.52 |
1237 |
0.055 |
133 |
Indicated |
86.7 |
0.51 |
974 |
0.047 |
90 |
Measured & Indicated |
195.5 |
0.51 |
2,211 |
0.052 |
223 |
Inferred |
55.4 |
0.55 |
673 |
0.023 |
28 |
*Copper Equivalent calculation of 5 to 1 reflects base case metal prices (Cu-US$1.50/lb, Mo-US$12.00/lb) with an adjustment for metallurgical recoveries and relative processing and smelting costs.
The Mineral Resource estimate is based on assay results from 65,214 metres of core drilling in 286 holes. Steven Ristorcelli, C.P.G., a qualified person as defined by NI 43-101, was responsible for the Mineral Resource estimate.
FINAL FEASIBILITY STUDY (DEC 2007)
A Final Feasibility Study (FFS) has been completed by Inca Pacific. This study involved reserve estimation, mine layout and open pit design, metallurgical testing, geotechnical analyses, tailings studies, environmental base line studies, and socio-economic studies. The FFS has confirmed the technical and economic viability of the Project. Highlights of the study are as follows (all dollar figures in US dollars).
NPV (After Tax & 8% Discount Rate) |
$152.0 million |
IRR (After Tax) |
15.2 % |
Capital Payback |
3.3 years |
Initial Capital Expenditure (before IGV) including a 14% contingency |
$402 million |
LOM C-1 Cash Costs (net of Mo & Ag by-product credits) |
$0.28/lb Cu |
Mill Capacity (nominal) |
20,000 tpd |
Annual Throughput |
7 million tonnes |
Mine Life |
15 years |
Strip Ratio (including pre-production waste) |
2.2:1 |
LOM average annual copper-in-concentrate production |
34,100 tonnes |
LOM average annual molybdenum-in-concentrate production |
2860 tonnes |
*LOM = Life of Mine, IGV = Value Added Tax
The FFS was managed by MTB Project Management Professionals Inc ("MTB") and included work by Samuel Engineering Inc. ("SE"), Mine Development Associates ("MDA") and Vector Peru ("Vector"). Richard Kunter, Neil Prenn, Steve Ristorcelli and Scott Elfen from SE, MDA, MDA and Vector respectively were the Independent Qualified Persons responsible for the preparation of the FFS.
Project Economics
A project specific market study by H&H Metals Corporation, a metals trader, was conducted to provide pricing, treatment and refining charges, and freight for Magistral's concentrate production and grades. The results of this market study are the basis for the economic evaluation model. MTB developed a cash flow valuation model for the Project based upon the geological and engineering work completed to date. The base case was developed using the following metal prices:
YEAR |
Copper Price per lb in US$ |
Molybdenum Price per lb in US$ |
Silver Price per troy oz US$ |
2011 & 2012 |
2.76 |
22.38 |
12.00 |
2013 to 2020 |
1.50 |
12.00 |
12.00 |
These price forecasts are considerably lower than current prices which, as of November 29, 2007, were $3.08/lb for copper, $33.00/lb for molybdenum and $14.20/oz for silver. The first year of production is assumed to be 2011. Copper concentrate treatment charges and copper concentrate refining charges were assumed to be $80.00/tonne and $0.08/lb respectively. The following table shows the NPV of the base case at various discount rates:
Discount Rate (Real) |
NPV |
0% |
$596.5million |
5% |
$267.1 million |
8% |
$152.0 million |
10% |
$ 96.0 million |
12% |
$ 51.9 million |
The following chart in millions of dollars shows the sensitivity of the base case's NPV (at an 8% discount rate) to various long term copper and molybdenum prices but keeping the metal prices in 2011 and 2012 the same as the base case. The impact of silver pricing changes is not significant and therefore sensitivities are not presented.
Metal Price/lb |
Cu $1.00 |
Cu $1.25 |
Cu $1.50 |
Cu $1.75 |
Cu $ 2.00 |
Mo $ 16.00 |
$77.5 |
$166.5 |
$256.0 |
$344.2 |
$432.3 |
Mo $14.00 |
$25.7 |
$114.7 |
$203.9 |
$292.8 |
$381.1 |
Mo $12.00 |
-$26.2 |
$62.7 |
$152.0 |
$241.2 |
$329.9 |
Mo $10.00 |
-$73.9 |
$10.4 |
$100.0 |
$189.5 |
$278.4 |
Mo $8.00 |
-$96.6 |
-$41.8 |
$47.7 |
$137.5 |
$226.8 |
The following chart in millions shows the sensitivity of the base case's IRR to various long term copper and molybdenum prices but keeping the metal prices in 2011 and 2012 the same as the base case:
Metal Price/lb |
Cu $1.00 |
Cu $1.25 |
Cu $1.50 |
Cu $1.75 |
Cu $ 2.00 |
Mo $ 16.00 |
11.8% |
15.8% |
19.6% |
23.1% |
26.5% |
Mo $14.00 |
9.3% |
13.5% |
17.4% |
21.1% |
24.5% |
Mo $12.00 |
6.6% |
11.1% |
15.2% |
19.0% |
22.5% |
Mo $10.00 |
3.8% |
8.5% |
12.8% |
16.8% |
20.5% |
Mo $8.00 |
2.3% |
5.8% |
10.4% |
14.5% |
18.4% |
Mineral Reserves
Using Whittle (Lerchs-Grossman) optimizations of potential economic pit limits on only the Measured & Indicated Resource, MDA determined the mine plan and production schedule. The estimate of mineral reserves within the pit phases was reported using an internal NSR cut-off value of $5.25. The table below shows the Mineral Reserves within the designed ultimate pit based on the MDA resource model. Proven and Probable Mineral Reserves have been estimated as of today's date to be:
Reserve Category |
Tonnes
Millions
| Grade
(% Cu)
| Copper
Millions lbs
| Grade
(% Mo)
| Molybdenum
Millions lbs
|
Proven |
76.1 |
0.48 |
805 |
0.051 |
86 |
Probable |
37.4 |
0.51 |
421 |
0.047 |
39 |
Proven and Probable |
113.5 |
0.49 |
1226 |
0.050 |
125 |
Mining & Milling
The Project will utilize conventional mining and milling processes. The open pit is scheduled to deliver a nominal 20,000 tonnes per day (7 million tonnes per year) of sulphide ore to the primary crusher for 15 years. The processing plant is forecast to produce, on average, 34,178 tonnes (75.2 million lbs) per year of copper in concentrate, 2,860 tonnes (6.3 million lbs) per year of molybdenum in concentrate and 380,000 ounces per year of silver in copper concentrate. Average LOM metallurgical recoveries have been estimated to be 95% for copper and 79% for molybdenum, producing a copper concentrate grading on average 33.5% copper and 117g/t silver and molybdenum concentrate grading 53% molybdenum. The copper concentrate will attract minor penalties for arsenic. In all years the arsenic content will average less than 0.5% except in year 12 when it will average 0.74%.
Capital Costs
SE developed capital cost estimates for the proposed mining and processing operation at Magistral. The following table summarizes the capital cost estimates in the FFS for the Project:
Direct Capital Costs |
$258 million |
Indirect Capital Costs |
$109 million |
Owner’s Direct and Indirect Capital Costs |
$34 million |
Closure Cost-Annual Advance Payment |
$1 million |
Total (Base Case) |
$402 million |
Upfront Working Capital |
$2 million |
LOM Sustaining Capital |
$169 million |
The total (Base Case) Capital Cost estimates contain a contingency of $50 million (14%) and excludes IGV. The estimates have been compiled with an accuracy level of -4% to +14%.
There has been a material increase in capital costs since the publication of our Preliminary Feasibility Study (PFS) in October 2006. The following table summarizes the increase in capital cost estimates from the PFS to the FFS:
Item Description |
PFS
Millions
| FFS
Millions
| Increase
(Decrease)
|
Direct Costs |
|
|
|
- Mining
|
$54.3 |
$21.4 |
(61%) * |
| Process |
$86.4 |
$137.0 |
59% |
| Infrastructure |
$81.2 |
$107.7 |
33% |
| subtotal Direct Costs |
$221.8 |
$266.1 |
20% |
Indirect Costs |
$15.5 |
$101.0 |
552% |
Owner's Costs |
$22.0 |
$34.2 |
56% |
Total Capital |
$259.3 |
$401.3 |
55% |
* Owner mine equipment purchases were deferred due to contract mining being employed in years minus one and minus two (pre-production).
Operating Costs
The results of the FFS show that a mine at Magistral will be a low cost operation. The FFS estimates that the cash costs (net of Mo & Ag by-products) over the life of the mine will average $0.28 per pound of copper payable. Cash costs include mining, processing, mine site administration costs, all costs associated with delivery of concentrates to smelters and all treatment and refining charges. The LOM operating cost estimate is $8.31 per tonne, not including contingency. Operating costs in the cashflow include a 10% contingency on estimated cost.
Infrastructure
Magistral is 261 kms by road from the port of Salaverry from which concentrate will be shipped to smelters. Seventy seven kms of the road will require upgrading and 28 kms of new road will need to be constructed to allow the passage of 40 tonne trucks. Electrical power for the Project will require the construction of a 51 kms power line (138kV) from the existing grid at Sihuas to Magistral. Water will be sourced locally from the Magistral valley and also recycled from the tailings impoundment.
Environmental
The Project will utilize World Bank Guidelines for environmental management practice, development and design. Preliminary baseline studies completed to date have included initial surface water quality sampling, archaeological studies, socio-economic reviews and biological and re-vegetation studies. A water treatment plant will be constructed to process discharges from the tailings impoundment.
The Environmental and Social Impact Assessment ("ESIA") for the Magistral Project forms the principal input for identifying baseline conditions and evaluating the impact of the project. Mitigation and closure plans, community relations policies and planning, as well as socioeconomic analysis have also been implemented in the ESIA to assist in promotion of the project. The ESIA is the basic document provided to the Ministry of Energy and Mines ("MINEM") for evaluation and permitting.
The ESIA has been designed to satisfy requirements of Peruvian legislation and to comply with internationally accepted guidelines of social and environmental protection, such as the Equator Principles, followed by such organizations as the World Bank, International Finance Corporation.
The ESIA, was submitted to the Peruvian Ministry of Energy and Mines on March 28th, 2008.
Employment and Taxes
The project will create 1,200 temporary construction jobs and 231 permanent jobs. Over the life of the mine, the project should generate US $278 million in taxes and US $90 million in royalties.
PHOTOS
MAPS
| |
