Los Calatos Project

Location and Access

The Los Calatos Project (“Los Calatos” or “the Project”) is located in southern Peru near, and in a similar geological setting to, three large operating copper-molybdenum mines, namely Cuajone, Toquepala and Cerro Verde (Figure 1).
 
Production from mines in this region exceeded 600,000 tonnes of copper metal in 2012.  With the proposed upgrade to the Toquepala, Cuajone and Cerro Verde mines and the development of the Tia Maria and Quellaveco projects, production from this belt is expected to increase to more than 1.3 million tonnes of copper metal per annum.  Molybdenum constitutes a significant by-product of copper mining from this belt.
 
Los Calatos can be accessed via the Pan American Highway from Moquegua, and a 50 kilometre unsealed road north of the highway to the Project.  The port of Ilo is located approximately 160 kilometres by road to the southwest of the project area (Figure 1).
 
Figure 1:  Locality Plan – Los Calatos Copper Project and neighbouring mines.

 
The project, which covers an area of 175 square kilometres, is located on state owned land approximately 80 kilometres to the southeast of Arequipa and 33 kilometres northwest of Moquegua, and occurs at an altitude of approximately 2,900 metres above mean sea level.
 
Following the conclusion of a Strategic Mining Study by Runge Pincock Minarco (RPM) in August 2015, Los Calatos is well placed for development as a low cost, long life, mining operation in an investment friendly jurisdiction.
 
Furthermore, the project is highly deliverable, with the designated status of a Project of National Interest by the Peruvian government that enables Hampton Peru (a 100% held subsidiary of Metminco) to acquire surface title for infrastructure by direct purchase from the State.  In addition, there is no competing land usage, seawater is planned to be used for metallurgical processing purposes, and power costs at 6 cents/kWh are low by comparison to similar operations in Chile.
 

Brief History

The Los Calatos Project was first claimed by Acuarios Minera y Exploradora S.R.L in the 1990’s.  Between 1995 – 1996, Phelps Dodge held an option on the project from Arequipa Resources (Acuarios’ affiliate), who in the interim had sold their assets (including the Los Calatos tenements) to Barrick Gold Corporation (Barrick).
 
Phelps Dodge completed geological, geochemical and geophysical surveys, which culminated in the drilling of 26 Reverse Circulation dill holes (4,188m) and 5 diamond drill holes (2,183m) in 1996.  They concluded that Los Calatos had a potential 20Mt of mineralised material at a grade of 1% Cu.
 
In early 1997, Barrick drilled 8 diamond drill holes (1,946m) on a 100 metre spacing over the main zone of mineralisation identified by Phelps Dodge. The results were reviewed for Barrick by Mr J David Lowell in March 1997, who concluded that the “deposit contains 20 to 40Mt of ±0.86% Cu which has a reasonably low stripping ratio and probably has good leaching characteristics”, “that a viable medium sized heap leach SX/EW copper mine could be developed”.
 
In November 2006, Minera Cerro Norte,a wholly owned subsidiary of North Hill Holdings (“North Hill”) entered into an option agreement with Barrick to acquire the Alpha, Gamma and Nelson tenements (which then comprised the Los Calatos Project) from Placer Dome Del Peru SAC, a wholly owned subsidiary of Barrick.
 
On 5 September 2007 Hampton Mining Limited (“Hampton”), a wholly owned subsidiary of Minera Hampton Peru SAC (“Minera Hampton”), entered into an option agreement with North Hill to acquire the Los Calatos Project.  Minera Hampton then completed two phases of diamond drilling (23 drill holes, totalling 15,485m) at Los Calatos for the period to July 2010.  The main outcome of this drilling suggested that a large porphyry system was evident at Los Calatos and demonstrated that the earlier view of a small copper leach project was misguided.
 
In December 2008 Metminco made a scrip offer for all the shares in Hampton.  The offer closed on 8 July 2009 with Metminco having acquired a 36.5% interest, and becoming the major shareholder in, Hampton.  Hampton was a public unlisted Australian company with a portfolio of six projects located in Chile and Peru.
 
In September 2009, Metminco entered into an option agreement with Junior Investment Company (“JIC”) to acquire a further 31.9% interest in Hampton.  On 7 December 2009 the Company entered into a sale and purchase agreement to acquire North Hill from Highland Holdings Resources, conditional on exercise of the JIC Option. 
 
During the first half of 2010 Metminco raised funds through an AIM listing in London (granted on 1 April 2010), increased its holding in Hampton to 69.4% by exercise of the JIC Option, and completed the purchase of North Hill.  On 6 December 2010, Metminco completed the acquisition of Hampton’s minority shareholder’s interests resulting in Hampton becoming a wholly owned subsidiary of Metminco.
 
On 28 April 2011 the Company acquired Barrick’s conditional buy back right with respect to the Los Calatos Project.  Having secured a 100% interest in Los Calatos, Metminco embarked on a major drilling program at Los Calatos, completing a further 101,574m of drilling from December 2010 to late in 2012.
 
The following sequence of events summarise the key events that led to Metminco advancing the project from a potential resource of 20 to 40Mt at ±0.86% Cu to a mineral resource estimate of 352Mt at a Cu grade of 0.76% and a Mo grade of 0.032%.  Key to the substantial increase in the mineral resource was the recognition of the fact that Los Calatos is a typical Andean-type porphyry deposit, the geometry of which was constrained through the culmination of a comprehensive drill hole program using inclined diamond drill holes:
 
  • January 2009:  Phase 1 drilling completed (6,385m), with the realisation that Los Calatos potentially represents a major porphyry system.
  • July 2010:  Phase 2 drilling completed (9,100m), which confirms that Los Calatos is a typical (southern Peru) porphyry system.
  • October 2012:  Drilling Phases 3 and 4 completed, totalling 101,574m.
  • March 2013:  Mining Scoping Study completed by NCL Ingenieria Y Construccion S.A. (NCL).
  • August 2013:  Optimised Mine Production Study completed by RungePincockMinarco (RPM) as a low grade (0.37% Cu [open pit] to 0.56% Cu [underground]), high tonnage (24Mtpa), development option.
  • August 2013:  Mineral resource estimate of 493Mt amenable to open pit mining to a depth of 700 metres below surface  (0.15% CuEq cut-off grade), and 926Mt amenable to underground block caving below this depth (0.35% CuEq cut-off grade), totalling 1.4Bt at 0.47% Cu and 0.022% Mo.
  • June 2015:  Revised mineral resource estimate of 352Mt at 0.76% Cu and 318 ppm Mo at a 0.50% Cu cut-off grade.
  • August 2015:  Strategic Mining Study completed by RPM on Los Calatos as a high grade (0.89% Cu), low tonnage (6.5Mtpa), development option.
Importantly, and apart from the substantial increase in the estimated mineral resource, Metminco attained a very competitive discovery cost, as indicated below:
  • Discovery cost of 0.77 US ¢ per lb contained Cu (Measured, Indicated & Inferred Mineral Resources - June 2015 Statement).
  • Discovery and Acquisition cost of 1.89 US ¢ per lb contained Cu (Measured, Indicated & Inferred Mineral Resources - June 2015 Statement).
Note:  Based on a A$:US$ exchange rate of 0.71.
 

Ownership

Metminco, through its wholly owned subsidiary, Minera Hampton Peru SAC, holds a 100% interest in Los Calatos.

Project of National Interest

In July 2013 the Peruvian Government approved an increase in the area that Hampton Peru may purchase under the Project of National Interest designation from 2,800 ha to 12,700 ha to accommodate the surface infrastructure required to exploit the Los Calatos porphyry copper – molybdenum deposit.  The surface infrastructure required for the proposed mine includes the open pit and underground workings, waste and ore stockpiles, plant, mine and administration structures and a tailings dam.

In October 2014 the Company received notification that the Ministry of Energy and Mines, Perú, had passed Ministerial Resolution No. 416-2014-MEM / DM, which recommends that the National Superintendent of Public Assets or SBN, approve the reservation of 12,700 hectares of surface title for the planned development of Los Calatos.  The area, which incorporates sixteen mining concessions, is reserved for an effective term of six years from the date of issue of the Resolution, during which time the relevant surface title can be purchased.
 
In accordance with Supreme Decree No. 007-2008-VIVIENDA, the SBN, acting on behalf of the Peruvian State, and at the request of the relevant Peruvian Department (in this case the Ministry of Energy and Mines), is required to identify and approve the reservation of property to be allocated to projects of National Interest.
 

Geology

The Los Calatos Porphyry Complex intruded a structurally prepared (brittle) zone that extended into a dioritic to monzo-dioritic plutonic body ("pre-cursor pluton") that had intruded a sequence of older, sub-horizontal, lithologies of the Toquepala Group.

The porphyry complex at Los Calatos is similar to other Andean type porphyry systems found in Chile and Peru, with copper and molybdenum mineralisation being associated with both the porphyry and adjacent wall rock (Figure 2).

Figure 2:  Plan view - Simplified geology of Los Calatos Porphyry Complex with copper and molybdenum isograde lines (1,900mRL).



Evolution of Los Calatos Porphyry Complex

The Los Calatos Porphyry Complex is the product of five magmatic phases consisting of ten discrete magmatic pulses (intrusive events), each with their own lithotype:

Phase 1:
  • Emplacement of a series of pre-mineralisation fine- to medium-grained sub-volcanic igneous intrusives of varying composition, collectively termed the "pre-cursor pluton".
Phase 2:
  • First porphyritic phase (PDI-1) with associated Cu mineralisation.
  • Second porphyritic phase (PDI-2), devoid of mineralisation, which intruded prior stocks and intrusives.
Phase 3:
  • Polyphase intrusion of porphyritic dacites (PDA-1), which constitutes the most important mineralisation phase in the development of the porphyry complex.  The first phase of porphyrtic dacites was accompanied by de-volatilisation, which led to the formation of extensive, vertical, anhydrite breccias with high Cu and Mo grades.  As the dacite porphyry evolved, it became coarser and was accompanied by several violent de-volatilisation events that resulted in the formation of a multi-staged diatreme breccia.
  • Some late stage porphyrtic dacites rose sufficiently close to the paleosurface to the extent that the de-volatilisation fluids exceeded the paleo-lithostatic pressure culminating in phreatomagmatic events with the formation of maar diatremes.
Phase 4:
  • Late stage intrusive event (PDI-3) consisting of a porphyritic diorite that occurred during the waning stages of the development of the porphyry complex, and is largely restricted to the diatreme breccia. Minor development of mineralised anhydrite breccias.
Phase 5:
  • Final magmatic phase characterised by the intrusion of sub-vertical andesitic and minor mafic dykes.
Phase 6:
  • Intrusion of a flow banded rhyolitic sub-volcanic intrusive stock.


Mineralisation Stages

Four main stages of Cu and Cu-Mo mineralisation have been identified at Los Calatos, namely:

Stage 1:  Porphyritic diorite mineralisation (PDI-1)
  • Potassic core of the PDI-1 unit is consistently mineralised at 0.2% to 0.4% Cu
Stage 2:  Porphyritic dacite mineralisation (PDA-1)
  • Development of high grade Cu-Mo anhydrite breccias that are rooted within elongated PDA-1 stocks
  • Formed in response to dilational brecciation caused by trans-tensional shearing
Stage 3:  Porphyritic diorite mineralisation (PDI-3)
  • Cu-Mo mineralisation is hosted by small anhydrite breccia bodies flanking the PDI-3 dykes
Stage 4:  Supergene enrichment
  • Supergene enrichment only impacts on the anhydrite breccia bodies that either reach surface, or are near to the surface
  • The vertical extension of the supergene zone varies between 150m and 250m


Mineralised Breccias

The anhydrite breccias consist of 50 to 600m wide elongated bodies in excess of 1,500m in vertical and lateral extent.  They comprise crackle to jigsaw breccias with monolithic clasts from pre-existing lithologies with little displacement, and are rooted within dacitic dyke swarms.

The breccias cross-cut earlier litho- and alteration types, and tend to be poorly developed in those rocks that have undergone potassic alteration with strong to moderate secondary biotite, for rheological reasons.

Three main breccia zones have been identified, namely a north-eastern zone, a central zone and a south-western zone, of which the central zone is the most extensive (Figure 3).

Figure 3:  Geological plan and section of anhydite breccias.


 

The percentage matrix present in the breccias is typically 20% to 50% of the breccia volume, with anhydrite filling most of the interstitial space.  Further, the full mineralogical sequence within the breccia is as follows:  Tourmaline, Quartz, Molybdenite, Chalcopyrite/Pyrite, Anhydrite, Late Quartz and Carbonates.

The re-logging program completed in early 2015 focused on mapping lithologies, alteration types and structures (viz. anhydrite breccias), the results of which were then incorporated into a detailed geological model, which formed the basis of a block model and a revised mineral resource estimate by SRK Consulting (Chile) S.A. in June 2015.

A comparison between the mineral resource estimate for the entire Los Calatos Porphyry Complex and that for the breccia systems at a 0.70% Cu cut-off grade indicate that the breccia systems host 98% of the base metal mineralisation.  This in turn presents Los Calatos as a potential high grade development opportunity which focuses on the selective mining of the breccias (Figure 4).

Figure 4:  Distribution of copper mineralisation - breccia units.



 

Exploration

Extensive, regional scale mapping, geochemical and geophysical programs have historically been undertaken by Metminco over the project area, which identified 8 targets.
 
The Company re-evaluated the prospectivity of the broader project area in August 2014, which resulted in the definition and refinement of several exploration targets.  These targets have been classified into those targets which are drill-ready, and those which require further exploration to better constrain the targets for follow-up drill testing.
 
Four drill-ready targets (TD 1 to TD 4) were identified, all of which are located within two kilometres of the known extent of the main Los Calatos deposit.  In addition, four target areas were identified which require further exploration work (TE 1 to TE 4) in the form of geochemical sampling, geophysical surveys and geological mapping in order to better define the extent of these targets prior to drill testing.  These areas are located up to 7 kilometres from the existing main Los Calatos deposit but, importantly, lie along the same northwest-southeast trending corridor which is known to control the main elements comprising the Los Calatos Porphyry Complex (Figure 5).
 
Of the four drill ready targets, target TD 2 has the highest priority, whereas of the four exploration targets, TE 2 has the highest priority.  A site inspection in October 2014 of the TD 3 and TE 2 targets, would suggest that the Los Calatos Porphyry Complex may extend in a south-easterly direction (Figure 5) into these two target areas.

Figure 6 shows the structural setting for both the main Los Calatos desposit, and the TD 2 Target.
 
Figure 5:  Location of exploration targets relative to the main Los Calatos Cu-Mo Porphyry Deposit (size of circle depicts relative importance of target).


 
 
Figure 6:  Structural setting of Los Calatos deposit and the TD2 Target.




In August 2015, and in preparation for a planned drilling program, the TD 2 Target was mapped in detail to determine the strike extent of a quartz tourmaline breccia identified at surface, and its relationship with the surrounding host rock (pre-cursor pluton and intrusive dacites).  The mapping confirmed that the breccia, which has visible copper oxides and is similar in many respects to the breccias intersected by drilling into the main porphyry complex at Los Calatos, has a strike extent in excess of 250 metres with a near vertical orientation. Further, a large portion of the breccia is overlain by younger Miocene volcanic cover. 
 
The Company plans to explore the identified targets on a systematic basis using soil geochemistry and geophysical (Titan) surveys to better constrain drill targets for follow-up drilling.  Targets occuring in close proximity to the main Los Calatos deposit will have a higher order of priority, particularly if such targets have the potential to contribute near-surface resources to the current, planned, development option.  


Mineral Resource

Following the completion of the detailed re-logging program by Metminco in early 2015, and the completion of a revised geological model, SRK Consulting (Chile) S.A (SRK) were requested to prepare an updated mineral resource estimate for Los Calatos, which was finalised in June 2015 (Table 1).  This follows an earlier mineral resource estimate completed by SRK in February 2013 that was announced on 4 March 2013, which was the subject of a mining study completed by NCL and RPM in March 2013 and August 2013 respectively.

The 2015 mineral resource estimate incorporates the drilling results from 138 drill holes totalling 125,393 metres, of which 127 drill holes intersected the interpreted mineralised unit.  Of the 138 drill holes, 112 drill holes were diamond drill holes (121,204 metres), and 26 were reverse circulation drill holes (4,189 metres).  Assay samples were analysed for copper and molybdenum by the certified ACME Laboratory in Santiago, Chile.
 
In order to establish a regular sample support length for modelling purposes, samples were composited to 2 metres with a total number of 12,560 composites (100,938 samples) having been used to interpolate the model.  The block model provided for a block size of 10 x 5 x 10 metres, and densities for the mineralised unit were based on 65 drill holes and 5,652 density determinations.

Table 1:  Mineral Resource Estimate (June 2015).

Resource Category Tonnes
(million)
Cu
(%)
Mo
(%)
Measured 73 0.73 0.051
Indicated 63 0.73 0.034
Total Measured & Indicated 136 0.73 0.043
Inferred 216 0.78 0.024

i) Based on SRK Consulting (Chile) S.A. June 2015 Mineral Resource Statement.
ii) Mineral Resource Estimate reported at a 0.50% Cu cut-off grade (JORC Code 2012).

Mining Scoping Study - NCL (March 2013)

In October 2012 Metminco commissioned NCL, an independent Chilean based engineering group with substantial experience in underground block cave design, to conduct a conceptual mining study on Los Calatos.
 
The work undertaken by NCL involved an assessment of a number of different mining scenarios for the exploitation of the Los Calatos deposit, in addition to conducting a Mining Scoping Study (“the Study”) on the resulting Preferred Mining Scenario.  As part of the Study, NCL derived estimates of operating costs and capital costs (mining works, process plant, and infrastructure) consistent with accuracy levels normally ascribed to scoping studies.
 
The Study was based on the 3-D block model provided by Metminco, with related economic information being sourced from both Metminco and NCL for similar projects in the Region.  In estimating the Life of Mine tonnes milled, Measured, Indicated and Inferred Mineral Resources were considered, with 23% of the tonnes reporting into the mining plan having been derived from Inferred Mineral Resources.
 
On 4 March 2013 the Company announced the results of the Study which concluded that the Preferred Mining Scenario comprises a combination of an open pit with a life of 7-years and an underground block cave operation with a life of 24-years at a mining and processing rate of 21.9 million tonnes per annum (60,000 tonnes per day).
 
Following the completion of the Study by NCL, the Company commissioned RPM to review the work completed by NCL with the objective of further optimising production rates, operating costs and capital expenditure.  The results of this work were announced by the Company on 12 August 2013, and presently constitute the reference base for the project going forward.
 

Mine Production Study - RPM (August 2013)

As mentioned above, RPM focussed primarily on optimising operating costs and capital expenditure.  To this effect, they evaluated the opportunity to increase production rates from the open pit and underground block cave operations, as well as the opportunity to delay underground development until such time as production from the open pit had commenced.
 
Accordingly, RPM reviewed the pit optimisation work conducted by Metminco post the conclusion of the NCL Study, as well as the underground production schedule developed by NCL.  Based on the results of their Mine Production Study, RPM concluded that production rates of 75ktpd and 70ktpd are achievable for the open pit and underground block cave operations respectively, as does the opportunity exist to delay underground development until such time as production has commenced from a larger open pit operation (“Optimised L3_Model”).   Furthermore, RPM adjusted prior operating and capital cost estimates to accommodate the increased production rates and resultant ‘ore flow’.
 
The key operating parameters for the Optimised L3_Model are summarised in Table 2.

Table 2: Life of Mine - Key operating parameters Optimised L3_Model.
 
Parameter Optimised L3_Model
Total tonnes milled (millions) 811
Average annual tonnes milled (millions) 23.9
Average annual copper in concentrate (kt) 98.4
Average annual payable molybdenum (kt) 4.8
Strip Ratio (Open pit) 3.36:1
Mining costs (US$/t) 7.72
Processing costs (US$/t) 4.58
G & A costs (US$/t) 0.51
By - product credit (US$/lb payable Cu) 0.73
Cash operating costs net of credits (US$/lb copper) 1.12
Pre-production capital (US$ millions) 1,320
Unlevered Free Cashflow - Post Tax (US$ million) 5,548

Note:
  1. Cash operating costs exclude government royalties, but include all other costs and royalties.
  2. By-product credits based on commodity prices Cu = US$2.95/lb, Mo = US$12.78/lb, Au = US$1,348/oz, Ag = US$25.00/oz and Re = US$5,773/kg.
 
The envisaged life of mine for the Optimised L3_Model can be summarised as follows:
  • The project development schedule allows for construction of the surface infrastructure and the metallurgical plant to be undertaken simultaneously with the development of the open pit operation.
  • The life of the open pit is estimated to be 14-years during which time a stockpile will be established, which will supplement production from the underground operation during the underground ramp-up stage (Years 11 to 19).
  • The annual contained copper and molybdenum metal in concentrate is expected to average 98.4kt and 4.8kt respectively over the life of mine.
  • Cash operating costs, net of by-product credits, are expected to average US$1.12/lb of copper over the life of mine, and compare favourably with global cash costs, ranking the project in the lowest quartile of global producers.
  • The initial capital requirement for the establishment of the open pit, surface infrastructure and metallurgical plant is estimated at US$1,320 million, which includes a contingency of 25% by virtue of the current developmental status of the project.  Sustaining capital will be funded from cashflow while the development of the underground mining operation may well be financed through a combination of debt and equity to maximise project returns and free up cashflow from the operation.
  • The underground mine infrastructure will consist of a twin decline system, one for personnel and equipment, and an adjacent conveyor system for ore extraction.  Four vertical raise-bored ventilation shafts will support the underground operation.  Ore will be crushed through a primary crusher to be located underground.
  • The tonnes mined and treated over the life of the mine total 811 million tonnes, which will be processed through a conventional sulphide flotation plant using seawater for flotation purposes.  Copper and molybdenum recoveries into separate concentrates are estimated to be 87% and 68% respectively based on initial metallurgical testwork.

Strategic Mining Study - RPM (August 2015)

Following the completion of the re-logging program by Metminco, and the revised mineral resource estimate by SRK, RPM were provided with a scope of work relating to an assessment of Los Calatos as a high grade development opportunity, using as its basis the 3D Block Model developed by SRK in support of their June 2015 mineral resource estimate.

RPM were provided with specific guidelines by Metminco in as far as the target product is concerned, namely a copper in concentrate annual production rate of 50,000 tpa at a milling rate of 6.0 to 6.5Mtpa.  By implication, this required the application of a high cut-off grade of 0.70% to 0.75% Cu, and a more selective mining method - by comparison to the underground block caving method proposed for the larger mining scenario developed by RPM in August 2013.

Having evaluated a number of mining methods, RPM recommended the application of a sub-level cave mining method, the design criteria of which are summarised below:

  • 25 metre sub-level spacing.
  • 25 metre long stopes.
  • Minimum stope width of 10 metres.
  • Maximum stope width of 50 metres.
  • Minimum waste pillar width of 10 metres.
  • Minimum footwall / hangingwall angle of 60 degrees.
These criteria, in combination with defined mining, processing, realisation and capital costs, as well as metal recovery factors and long term consensus commodity prices, formed the basis of a stope optimisation process using Vulcan Stope Optimiser at Cu cut-off grades of 0.70% and 0.75%.  This process in turn identified a spectrum of sub-level cave stopes over the depth interval 2,850mRL to 1,125mRL.

RPM then applied their High-level Underground Evaluation (HUGE) process, which interfaces with Vulcan Stope Optimiser, for scheduling purposes as well as for economic modelling to define mining limits.  As a consequence, and using sub-level caving, the economic depth to which underground mining could take place for the 0.70% Cu cut-off was the 1,300mRL, whereas in the case of the 0.75% Cu cut-off, it is the 1,550mRL.  The sub-level cave stopes were thus trimmed to these mining levels.

In order to derive an estimated mineable quantity, modifying factors were subsequently applied to the sub-level cave tonnes and grade, as indicated below:
  • Mining losses:  10%
  • Dilution:  20%
Due to the level of the mining study, RPM applied a 20% dilution factor to the sub-level cave stopes based on their experience in modelling sub-level cave mining operations.  The dilution was ascribed a constant grade of 0.43% Cu and 317ppm Mo based on the Grade Tonnage table for the breccia units, this being attributable to the fact that the design of the stopes is largely restricted to the confines of the breccia units.  It is probable that the mining dilution can be reduced with an improved understanding of the caving characteristics of the breccia, the latter of which will be facilitated by the morphology of the breccias as descibed previously.

On this basis, RPM estimated a mineable quantity for the 0.70% Cu cut-off grade scenario, known as the Expansion Case, as summarised in Table 3 below.
 
Table 3:  Mineable quantity by mineral resource classification. 
 
Mineral Resource Classification Mt Cu % Mo %
Measured 26.8 0.85 0.054
Indicated 24.0 0.83 0.040
Inferred 83.5 0.92 0.028
Mineable Quantity 134.3 0.89% 0.036%

Note:  Cut-off grade of 0.70% Cu.

From Table 3 above it can be seen that 62% of the estimated mineable quantity comprises Inferred Mineral Resources.  As there is a low level of confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources, or that the mineable quantity itself will be realised.

The conversion rate from mineral resources to tonnes mined at a cut-off grade of 0.70% Cu is approximately 85% (or 134Mt from a total mineral resource of 158Mt).  Given an increasing copper price, there is considerable upside to increase the size of the mineable quantity.  For instance, at a lower copper cut-off grade of 0.50% copper, the total mineral resource for Los Calatos is 352Mt at 0.76% Cu and 318ppm Mo.

It must be emphasised, however, that the mining study is based on a low-level technical and economic assessment with an accuracy level of +/- 50%, which is insufficient to support the estimation of Ore Reserves, or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the mining study will be realised.

Production Profile

A production profile was constructed for the Expansion Case based on a steady state production (and milling) rate of 6.5Mtpa (Figures 7 and 8).

Figure 7:  Annual production rate and head grade - Expansion Case.


 
 
Figure 8:  Annual copper and molybdenum production in concentrate - Expansion Case.



 
Key aspects of the production profile are as follows:

  • Pre-production period:          18 to 24 months
  • Two decline systems:           Access high grade supergene material at an initial depth of 150 metres below surface
  • Year 1:                                Production rate of 3Mtpa
  • Year 2:                                Production rate of 5Mtpa
  • Year 3:                                Production rate of 6.5Mtpa
  • Years 3 to 21                       Steady State at 6.5Mtpa
  • Copper Production:               Peaks in Year 3 at 65,500t Cu in Concentrate 

Conceptual mine design

The high grade Cu and Mo mineralisation occurs within three well defined breccia units, although from a mining perspective there are two geographic areas which contain the majority of the mineralisation in both a lateral and vertical sense.  For this reason, two decline systems have been proposed to access these areas, known as the eastern and western declines.

Two conceptual designs have been proposed, the key difference being that one design has a central vertical shaft system in addition to the eastern and western declines, whereas the alternate design provides for a central decline / conveyor system.  Although preliminary cost estimates have been determined for the designs, a detailed trade-off study has yet to be completed.  As such, a contingency of approximately 25% of total mine capital has been provided.
 
Design 1
  • Eastern and Western Declines:  Extends from surface to the 2,450mRL
  • Central Conveyor System:  Extends from the 2,500mRL to the 1,300mRL
Design 2
  • Eastern Decline:  Extends from surface to the 2,175mRL
  • Western Decline:  Extends to the 2,300mRL
  • Central Vertical Shaft System:  Extends from surface to the 1,300mRL
  • Refer Figure 9.

Figure 9:  Conceptual mining design - Design 2.


Regional Infrastructure

Over the period 2012 to 2014, Poch y Asociados Ingenieros Consultores S.A. (“POCH”) conducted a number of studies on Los Calatos in terms of road access, power supply and the location of a water and concentrate pipeline to the coast, for which capital and operating costs were estimated (Figure 10).

These costs, excluding the provision for a concentrate pipeline, have formed the basis of the cost estimates used for the Expansion Case.  The concentrate is planned to be transported via road to Matarani Port, for which transport, loading and ocean freight costs have been estimated.

As the POCH work was based on a larger mining operation of ±24Mtpa (by comparison the planned 6.5Mtpa operation), the potential exists to reduce these costs in accordance with the requirements of the smaller operation.

Figure 10:  Regional infrastructure.



Operating costs and capital expenditure

The operating and capital costs were estimated by RPM to a +/- 50% accuracy level, with supporting information for infrastructure (road, power, water), processing recovery rates, smelting and refining charges and selling costs having been provided by Metminco.

The estimated operating and capital costs for the Expansion Case are summarised in Tables 4 and 5 respectively.

As can be seen from Table 4, the C1 cash operating cost after by-product credits is US$1.29/lb.  Figure 11 shows how Los Calatos ranks in terms of C1 Cash Costs by comparison to the cumulative tonnes per annum paid copper production for some 268 copper projects.

Table 5 indicates an estimated total life of mine capital expenditure of US$1,043 million, comprising US$655 million of pre-production capital and US$388 million sustaining capital.  Figure 12 compares the capital intensity for Los Calatos (US$13,100/t annual copper production) with 60 other copper projects.

Table 4:  Total Operating Costs and Unit Operating Costs.

Total Operating Costs
Item US$/t milled
Mining 14.27
Milling 6.05
G&A 1.34
Subtotal – On Site 21.66
Treatment & Transport 6.97
Total Operating Costs 28.63
Unit Operating Costs
Item US$/lb
C1 Cash Operating Cost 1.69
By-product credits 0.40
C1 Cash Costs after by-product credits 1.29

Table 5:  Estimated Capital Expenditure.

Item Initial Capex Sustaining Capex Total Capex
Underground 58.1 335.0 393.1
Plant 149.9 33.3 183.2
Infrastructure 216.2 19.9 236.1
Indirect Costs 83.6 83.6
Contingencies 111.7 111.7
Owners Costs 27.6 27.6
Land Acquisition 8.0 8.0
Total 655.1 388.2 1,043.3

 
Figure 11:  C1 Cash Operating Costs – Los Calatos.




Note:  Comparison with 268 other projects (WoodMacKenzie 2015 Q2).
 
 
Figure 12:  Capital Intensity – Los Calatos.



Note:  Comparison with Goldman Sachs GS 60 Copper Projects (dated September 2012).

Indicative Life of Mine (LoM) Financial Model - Results

Financial modeling of the Expansion Case was conducted by Metminco based on the financial and production data provided by RPM.

The financial model supports the potential development of Los Calatos as a high grade mine producing on average 50kt per annum of copper in concentrate over a LoM of 22 years, with an estimated C1 cash operating cost of US$1.29/lb copper (net of by-product credits), a NPV at 8% (ungeared) of US$447 million, and an IRR (ungeared) of 16.6%.

Key operating parameters and financial returns for the Expansion Case, based on the planned production / milling rates and operating and capital cost estimates are summarised in Table 6 below.
 

Table 6:  Key Operating Parameters & Financial Returns – Life of Mine (Expansion Case).

Economic Analysis Units Amount
Mine Physicals    
Milled Grade Cu % 0.89%
Recovery % 92.50%
Milled Grade Mo % 0.036%
Recovery % 68.00%
Mineable Quantity Mt 134.3
Production Rate Mtpa 6.5
Life of Mine Years 22
Product    
Copper in Concentrate Kt 1,101
Payable Copper Kt 1,062
Payable Molybdenum Kt 28
Gold Koz 106
Silver Koz 1,699
Rhenium (000's kg) 17
Commodity Prices ¹    
Copper Price US$ per lb 3.00
Molybdenum Price US$ per lb 11.15
Gold Price US$ per oz 1,250
Silver Price US$ per oz 19.00
Rhenium Price US$ per kg 5,773
Revenue    
Copper US$ million 7,031
Molybdenum US$ million 678
Other Commodities US$ million 262
Total Revenue US$ million 7,971
Operating Costs    
Mining US$ million 1,917
Milling US$ million 813
G&A US$ million 180
Treatment & Transport US$ million 936
Subtotal - Operating Costs US$ million 3,845
Unit Operating Cost ² US$/t milled 28.63
Royalties US$ million 305
Cash Flow    
EBITDA US$ million 3,820
Capital Expenditure ³ US$ million 1,043
Unlevered Cash Flow (before tax) US$ million 2,541
Unlevered Cash Flow (after tax) US$ million 1,774
Net Present Value @ a 8% discount rate (ungeared) US$ million 447
IRR (ungeared) % 16.6
Payback Years 4.85

¹     Street Consensus long term commodity prices used (circa median price beyond 2019) sourced from BMO, encompassing up to 40 Institutions: Copper US$3.00/lb; Au US$1,250/oz; Ag US$19/oz; Mo US$11.16/lb; Re US$5,773/kg (Re price from MNC).
²     C1 Cash Operating Cost after by-product credits of US$1.29/lb Cu.
³     Pre-production capital expenditure of US$655 million.
 
Under the preferred development scenario, Los Calatos becomes an attractive development option in a resource sector that is focused on minimising capital spend, attaining above average copper grades, and achieving C1 cash operating costs in the lower quartile of global copper producers.


Project is highly deliverable

The development of the Los Calatos Project is deliverable due to a number of important factors, namely:

Social Licence

  • No exposure to local potable water issues.
  • No competing land use.
  • All surface rights covering the project will be acquired directly from the Peruvian government - Project of National Interest status.

Access to Power and Water

  • Use of seawater for the operations – access via a 75km pipeline.
  • Located in southern Peru with estimated long term power costs of 6 cents/kWh.
  • Power to be accessed via a dedicated 32km power line from Moquegua.

Regional Infrastructure

  • Modest elevation (2,900m amsl) capable of supporting year round operations.
  • Close proximity to the regional city of Moquegua (65km).
  • Large available work force in historical mining district.
  • Close proximity to port facilities accessible via the Pan American highway (e.g. loading facility at Matarani).


Opportunities

RPM has identified a number of opportunities that have the potential to improve the economics of the Project, which include:
  • Planned infill drilling, geotechnical work, and improved open pit designs:  Potential to increase the mineral resources amenable to open cut mining.
  • Optimisation of mine design and supporting infrastructure:  Reduction in capital expenditure.
  • Detailed mine planning, with the benefit of an improved understanding of the geotechnical attributes of the breccia splines:  Reduction in dilution.
  • Cave rate:  Expected to be favourable based on the ‘soft rock’ properties generally expected in breccias.
  • Application of dynamic cut-off grade:  Improved annual operating margins.
  • Financial analysis supported by supplier quotations:  Improved cost estimates and reduction in current contingencies.
From the work completed by RPM in terms of a Conceptual Mine Design, it is clear that a number of development alternatives exist, which will ultimately be dictated by commodity prices and the impact thereof on cut-off grades and the selected mining method, or methods.

No technical fatal flaws have been identified by RPM which prevents the Project from progressing to a higher level of study, and potentially, a successful mining operation.  As per industry standard mining project development approaches, risks identified in the Mining Study can be mitigated or better quantified through the completion of further geological, geotechnical, metallurgical test work and mine design.

Metallurgical Testwork

A preliminary metallurgical testwork program was conducted on 11 sulphide composites (derived from drill core samples) in 2009 at the SGS Lakefield Laboratories in Santiago.  The results provided a provisional indication of the expected recoveries and likely concentrate grades for a commercial operation, namely:
 
  • 87% to 92.5% recovery for Cu (Concentrate grade = 25%)
  • 68% recovery for Mo (Concentrate grade = 50%)
  • By products include gold, silver and rhenium
(92.5% recovery expected for a head grade in excess of 0.70% Cu).

A second, more detailed, metallurgical testwork program (Phase 2) is to take place during the planned Pre-Feasibility Study.  Whilst 9 geo-metallurgical units were differentiated in support of the Optimised L3_Model on the basis of those criteria that may impact on the copper extraction process (e.g. low-grade and high-grade copper equivalent zones, supergene and primary material, lithology and alteration type, and the presence of potentially deleterious elements), these need to be revisited in terms of the higher grade development scenario (viz. Expansion Case).

The metallurgical program will include both grinding and flotation testwork, and will confirm the relevant metallurgical parameters for the planned Feasibility Study.  All of the proposed metallurgical tests will be carried out using sea water, as this will be the fluid medium of choice for the extraction process in the main commercial plant. Metallurgical tests will, however, also be conducted using potable water for comparative purposes.
 
The scope of work for the proposed metallurgical testing will comprise the following key phases:
  • Flowsheet development program – Grinding Circuit.
  • Flowsheet development program – Flotation Circuit for sulphide ores.
  • Metallurgical mapping program – Grinding Circuit.
  • Metallurgical mapping program – Flotation Circuit.
  • Pilot plant testwork in order to generate sufficient bulk copper-molybdenum concentrate for copper-molybdenum separation testwork.
  • Environmental characterisation program of metallurgical products.

Planned Metallurgical Circuit

Based on the preliminary metallurgical testwork conducted to-date, the planned metallurgical circuit will be identical to that of other porphyry hosted copper-molybdenum operations in the Region, as depicted in Figure 13 below, producing separate copper and molybdenum concentrates.
 
Due to sensitivities revolving around the use of potable water, the Company plans to use seawater as the principle processing medium in the flotation circuit.  However, a reverse osmosis plant will be required to produce clean water for the processing of the molybdenum concentrate.
 
In order to access seawater, a 75 kilometre pipeline is planned to the coast, which will be used to pump water to the site.  The installation of the pipeline and the associated infrastructure will require a “Right of Access”, which is currently under review.  The cost of this infrastructure has been provided for in the estimated capital cost for the project.
 
Figure 13:  Conventional Sulphide Flotation Circuit.




Los Calatos In Summary

Los Calatos is one of the few, substantial, copper – molybdenum porphyry projects that has been advanced to a Pre-Feasibility Stage, and is wholly owned by a junior exploration and development company.
 
Key aspects of the project include:
  • Located in a favourable mining jurisdiction in close proximity to existing porphyry copper – molybdenum mining operations.
  • There is no competing land usage and the project enjoys the status of a ‘Project of National Interest’.
  • Power costs are very competitive at US$0.06/kWh by comparison neighbouring countries.
  • Seawater will be the processing medium of choice due to limited availability of potable water.
  • The project area covers an area of 175 square kilometres, where some 8 exploration targets have been defined to-date, of which 4 are drill ready.
  • An extensive drilling program has been completed comprising 134 drill holes totalling 125,376 metres of drilling.
  • A total mineral resource (Measured, Indicated and Inferred Mineral Resource categories) of 352 million tonnes at 0.76% Cu and 0.032% Mo has been estimated at a cut-off grade of 0.50% Cu (contained metal content of 5,900 million lbs Cu and 250 million lbs Mo).
  • Three mining studies have been completed by independent mining consultancy groups, who have confirmed the economic potential of the project.
  • The latest mining study by RPM (viz. Expansion Case) provides for an underground sub-level cave operation with a LoM of 22 years, at a steady state milling rate of 6.5Mtpa.
  • The average annual payable copper in concentrate production over the LoM is 50kt, with an annual payable molybdenum production of 1.3kt.
  • C1 Cash Operating Costs, inclusive of by-product credits (gold, silver and rhenium), average US$1.29/lb copper.
  • Pre-production capital is estimated at US$655 million, with an estimated capital intensity of US$13,100 per annual tonne of copper.
  • Preliminary financial modelling of the Expansion Case indicates that Los Calatos can potentially yield an unlevered free cashflow (post-tax) of US$1.8 billion over the 22 year LoM.
  • Production could potentially commence in late 2020, should the funds be available to progress the project through to Feasibility and Construction.  Hence, Los Calatos would start copper production at a time when it is expected that there will be a shortfall in global copper supplies.   

Way Forward

Based on the results of the August 2015 RPM Mining Study, the Company is positioned to initiate a development program that progresses the Los Calatos project to Feasibility, subject to the availability of funding.

The initial work program leading into the completion of a Pre-Feasibility Study will be an in-fill drilling program to advance the current mineral resource to Measured and Indicated Mineral Resource categories for that part of the mineral resource that is to be mined in the first 10 years of the LoM.  The drill program will also facilitate the collection of appropriate metallurgical samples, in addition to geotechnical and hydrogeological information required for the development of the underground mining operation to Feasibility Study level.

The planned in-fill drilling program, and additional studies, will ultimately address the quality and accuracy of the information required to estimate Ore Reserves, and to provide assurance of an economic development case, being cognisant of the risks involved in the mining sector.

Exploration drilling at the TD2 hydrothermal breccia target adjacent to the main Los Calatos deposit remains a priority, as any resources discovered would complement any development at Los Calatos.  The Company has received quotes from drilling companies to complete an initial drilling program encompassing two 1,000m drill holes to test the TD2 target.

An environmental baseline study has been planned, which will accommodate legislated requirements for the completion of an Environmental Impact Assessment.

 
 


ANNEXURE 1

Mineral Resource Estimate at a 0.50% Cu cut-off - SRK Consulting (Chile) S.A. June 15, 2015.