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.
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.
|Total tonnes milled (millions)
|Average annual tonnes milled (millions)
|Average annual copper in concentrate (kt)
|Average annual payable molybdenum (kt)
|Strip Ratio (Open pit)
|Mining costs (US$/t)
|Processing costs (US$/t)
|G & A costs (US$/t)
|By - product credit (US$/lb payable Cu)
|Cash operating costs net of credits (US$/lb copper)
|Pre-production capital (US$ millions)
|Unlevered Free Cashflow - Post Tax (US$ million)
- Cash operating costs exclude government royalties, but include all other costs and royalties.
- 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.
Note: Cut-off grade of 0.70% Cu.
|Mineral Resource Classification
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.
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
- 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.
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:
Operating costs and capital expenditure
he 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
|Subtotal – On Site
|Treatment & Transport
|Total Operating Costs
|Unit Operating Costs
|C1 Cash Operating Cost
|C1 Cash Costs after by-product credits
Estimated Capital Expenditure.
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$447 million, and an IRR (ungeared) of 16.6%.
Key operating parameters and financial returns for the Expansion Case, based on the planned production / milling rates and operating and capital cost estimates are summarised in Table 6 below. Table 6:
Key Operating Parameters & Financial Returns – Life of Mine (Expansion Case).
|Milled Grade Cu
|Milled Grade Mo
|Life of Mine
|Copper in Concentrate
|Commodity Prices ¹
||US$ per lb
||US$ per lb
||US$ per oz
||US$ per oz
||US$ per kg
|Treatment & Transport
|Subtotal - Operating Costs
|Unit Operating Cost ²
|Capital Expenditure ³
|Unlevered Cash Flow (before tax)
|Unlevered Cash Flow (after tax)
|Net Present Value @ a 8% discount rate (ungeared)
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:
- 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.
- 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).
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.
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.
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.
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.
Mineral Resource Estimate at a 0.50% Cu cut-off - SRK Consulting (Chile) S.A. June 15, 2015.