Centinela Mining District
The Group’s primary focus for exploration in Chile remains the Centinela Mining District (formerly known as the Sierra Gorda District) which is located in the Atacama desert in northern Chile, and which stretches over a length of approximately 30 km. The Group owns or controls a number of properties in the district, containing both sulphide and oxide resources. The district encompasses the Group’s Esperanza and El Tesoro operations, as well as the Telégrafo and Caracoles projects, stretching through to Centinela and Polo Sur where the Group has been undertaking extensive drilling work. The total mineral resource in respect of the Telégrafo and Caracoles deposits is 4.3 billion tonnes with an average copper grade of 0.36% (along with additional gold and molybdenum credits). These deposits represent approximately 30% of the total mineral resources of the Group’s subsidiaries.
Following the completion of the pre-feasibility study in the district during 2011 the Group is conducting a feasibility study for the district to study the options for processing sulphide ores from the Telégrafo and Caracoles deposits, as well as the potential to process oxide ores from those deposits in the existing El Tesoro plant. Based on the results of the pre-feasibility study the current estimates are that each of these projects could support a plant of a similar scale to the existing Esperanza operation, which could result in annual production of somewhere in excess of 150,000 tonnes of copper for each project, along with gold by-products. Preliminary indications of the potential capital costs of these projects are that each could be in the region of US$3.5 billion at today’s prices.
Telégrafo is likely to be the earlier of the two projects. Depending on the successful conclusion of the feasibility study and permitting, construction at Telégrafo could potentially take place between 2014 and 2016, with first production from 2017. Current expectations are that construction in respect of the Caracoles project could start in 2015 with first sulphide production potentially from 2020.
The Group is also undertaking significant drilling at Centinela and Polo Sur to the south of the district, as well as in the area between Telégrafo and Caracoles during 2012. Based on the results of the intensive drilling campaign currently being performed it is anticipated that a scoping study could commence during 2013 in respect of these additional areas within the district.
Los Pelambres is continuing to review options for the longer-term development of the mine, especially given the size of the resource base, which at 6.0 billion tonnes at 0.51% copper (plus 0.011% molybdenum and 0.03g/tonne gold) is more than four times the ore reserves of 1.45 billion tonnes. Given the size of the resource base it is possible that a more than doubling of existing plant capacity could be the optimal choice.
Following the completion of a scoping study looking at opportunities for the longer-term large-scale development at Los Pelambres in the first half of 2011, the Group approved just under US$100 million of expenditure on a pre-feasibility study, with a drilling campaign to recategorise mineral resources, in order to analyse in detail these growth opportunities. The pre-feasibility study commenced in July 2011 and is expected to be completed during 2013, potentially then to be followed by a feasibility study. It is possible that any project could be a staggered process, potentially with the first incremental production coming through at some point from 2019 onwards. Unlike the Group’s operations and projects in northern Chile, Los Pelambres is situated in an agriculture area, with competing demands over land and water use, which need to be addressed in a sustainable manner.
Antucoya is a copper oxide deposit located in Chile’s Antofagasta region approximately 45 km east of the Group’s Michilla mine.
The Board approved the Antucoya project in December 2011. The Group also signed a Memorandum of Understanding with Marubeni Corporation in December 2011 whereby Marubeni will become a 30% partner in the project for a consideration of US$350 million and a commitment to fund its pro rata share of the development costs of the project. Definitive agreements were signed in April 2012 and the transaction is expected to close during the second half of 2012.
Antucoya will be developed as a conventional open pit mine and the ore will be processed using a dynamic heap-leaching facility and a SX-EW plant and will use untreated sea water throughout the operations.
The project is expected to produce an average of 80,000 tonnes of copper cathodes per annum through a standard heap-leach process, and is expected to have a mine life of approximately 20 years. The capital cost of the project is currently estimated at US$1.7 billion. The cash costs are estimated to be approximately 145 cents over the first five years of operation and 155 cents over the mine life. The approved mine plan includes proved and probable Ore Reserves of 642 million tonnes of 0.35% copper (using a cut-off grade of 0.21%) during the 20-year mine life.
United States – Twin Metals
The Group acquired a 40% controlling stake in Twin Metals Minnesota LLC (“Twin Metals”) from Duluth Metals Limited (“Duluth”) in 2010. The Twin Metals copper-nickel-PGM deposit is located in north-eastern Minnesota, USA. Under the terms of the agreement with Duluth, the Group is providing US$130 million of funding over a three-year period to advance the project towards a bankable feasibility study. The Group also has the option to acquire an additional 25% of the project company following the completion of the feasibility study, based on the then net present value of the Twin Metals project as determined by that study.
During 2011 Twin Metals acquired 100% of Franconia Minerals Corporation of Canada’s (“Franconia”) assets. Franconia’s principal assets were a 70% interest in the Birch Lake Joint Venture (“BLJV”) which holds the Birch Lake, Maturi and Spruce Road copper-nickel-platinum and palladium deposits that are contiguous to the Twin Metals’ deposits. Franconia’s assets were acquired for US$76.6 million in a combination of cash and shares. The Franconia transaction effectively doubled Twin Metals’ mineral and land assets, providing the opportunity for greater efficiency and maximum environmental protection for the project.
A pre-feasibility study has commenced, after the completion of the conceptual study in the first half of 2011. It is currently envisaged that the operation will comprise an underground mine and use a hydro-metallurgical process to recover the base and precious metals from the bulk copper-nickel concentrate. The pre-feasibility study is expected to be completed in mid-2013, and if approved then to be followed by a feasibility study.
The Group holds a 50% interest in Tethyan Copper Company Limited (“Tethyan”), its joint venture with Barrick Gold Corporation (“Barrick”). Tethyan is seekingto develop the Reko Diq copper-gold deposit in the Chagai Hills District of the province of Balochistan in south-west Pakistan. Tethyan has held a 75% interest in an exploration licence encompassing the Reko Diq deposit, with the Government of Balochistan (the provincial authority) holding the remaining 25% interest, resulting in an effective interest for the Antofagasta group of 37.5%.
The mineral resource at Reko Diq is estimated at 5.9 billion tonnes with an average copper grade of 0.41% and an average gold grade of 0.22 g/tonne. The Group’s 37.5% attributable share of this resource amounts to 2.2 billion tonnes.
Tethyan completed the feasibility study in respect of the project and submitted this to the Government of Balochistan in August 2010. On 15 February 2011, Tethyan submitted an application to the Government of Balochistan in accordance with the Balochistan Mineral Rules for a mining lease. On 15 November 2011, Tethyan was notified by the Government of Balochistan that the Government had rejected its application for a mining lease. Tethyan has commenced two international arbitrations in order to protect its legal rights.
Other exploration and evaluation activities
The Group has continued with its extensive early-stage exploration activities beyond its existing core districts, both in Chile and internationally. In general, this is undertaken by the Group’s internal exploration team in those areas where the Group has historically had its deepest experience, namely Chile and Peru. Typically when the Group wishes to engage in early-stage exploration work outside of those areas it does so through partnerships with other companies already established in those locations.
The Group is also continuing with its exploration and development activities relating to geothermal and coal energy prospects as well as entering into further investments in power generation.
Energía Andina S.A, is continuing with its activities for the exploration and development of geothermal energy prospects in Chile. In May 2011 Origin Energy Limited acquired Empresa Nacional del Petróleo’s (“ENAP”) 40% stake in Energía Andina S.A., to become the Group’s joint venture partner in this entity. Energía Andina is currently managing 15 concessions, and during 2012 will include four new concessions granted in the last bidding process to Energía Andina and Origin, resulting in a total of 19 concessions grouped into 12 projects
Work is continuing on the potential underground coal gasification (“UCG”) project at the Mulpun coalfield, situated near Valdivia in southern Chile, along with the Group’s partner in the project Carbon Energy Limited (“Carbon Energy”) of Australia.
In December 2011 the Group exercised an option to acquire a 30% interest in Parque Eolico el Arrayan SPA (“El Arrayan”), a company which is constructing the wind power plant. The plant will supply up to 40MW of power to Los Pelambres under a 20-year supply contract.
El Arrayan started construction of the 115MW plant in early 2012 and has an estimated total cost of approximately US$280 million of which it is expected that a significant proportion will be debt financed and the plant is expected to start operating in the second half of 2013.
The Antofagasta Railway Company (“FCAB”) group owns a 40% interest in Inversiones Hornitos S.A. (“Inversiones Hornitos”). Inversiones Hornitos has constructed and is now operating the 165MW Hornitos thermoelectric power plant in Mejillones in Chile’s Antofagasta Region.