Shares in Panoro Minerals (TSXV: PML) rose 9% after company sketched out the economics of its Antilla project in a preliminary economic assessment (PEA).
The Antilla copper-molybdenum porphyry deposit sits 140 km southwest of Cuzco in the Apurimac region of southern Peru.
The PEA — by SRK Consulting (Canada) and Moose Mountain Technical Services — envisions Antilla as “a moderate-scale, open-pit copper mine of modest capital,” Luquman Shaheen, Panoro’s president and CEO, said in an interview.
Antilla is 90 km southwest of Panoro’s advanced-stage Cotabambas copper-gold-silver-molybdenum project, where Silver Wheaton (TSX: SLW) recently paid US$1 million in an early payment as part of its US$140-million, silver-gold streaming deal.
Both projects sit in Peru’s prolific Andahuaylas-Yauri porphyry copper-gold belt.
“We are in a region of the country where a lot of copper projects are being put into production. That is not by accident. The geology is good, of course. The infrastructure synergies are building,” Shaheen says. “But more importantly, it’s part of the government’s strategic objective” to build its mining sector.
The Peruvian government had forecast in 2013 that its copper output would double in 2016, as companies brought online new projects.
Some advanced or new mines in the district include China-backed MMG’s US$7-billion Las Bambas project; Glencore’s (LSE: GLEN) US$1.5-billion Antapaccay mine and Hudbay Minerals’ (TSX: HBM; NYSE: HBM) US$1.8-billion Constancia mine.
Panoro’s PEA proposes that a 40,000-tonne-per-day operation at Antilla could produce 81 million lb. copper and 1.9 million lb. molybdenum annually for 24 years. The mine would have a low strip ratio of 0.85-to-1 and direct cash costs of US$1.83 per lb. copper, net of by-product credits.
Start-up costs are pegged at US$603 million, with another US$324 million in sustaining costs and US$92 million in mine-closure costs. This brings Antilla’s bill to US$1 billion.
While the PEA results fit Shaheen’s expectations, he notes that “there are a number of areas where we think we can still improve the project.” These areas include refining the metallurgy and tweaking the capital cost estimates for the infrastructure. (The PEA estimates US$85 million for infrastructure costs.)
On an after-tax basis, Antilla has a modest net present value (NPV) of US$225 million and 15.1% internal rate of return (IRR), using a 7.5% discount rate and US$3 per lb. copper price, and US$12 per lb. moly price. Payback would occur in 4.1 years.
Antilla’s PEA incorporates 291.8 million indicated tonnes grading 0.3% copper and 0.01% moly, or 0.4% copper equivalent, as well as 90.5 million inferred tonnes at 0.3% copper and 0.01% moly, or 0.3% copper equivalent.
The estimate — completed by Tetra Tech in 2015 — includes a revised pit shell and a lower 0.2% copper-equivalent cut-off grade, compared to 0.2% previously.
Panoro cautions the inferred resource is “too speculative geologically” to be considered economic.
While pleased with the PEA results, Shaheen says the company’s priority is advancing the larger Cotabambas project. An updated September 2015 PEA envisaged building Cotabambas as an 80,000-tonne-per-day open-pit operation — with a 17-year mine life — for US$1.5 billion. Using metal prices of US$3 per lb. copper, US$1,250 per oz. gold and US$18.50 per oz. silver, the project has a US$683.9 million after-tax NPV at a 7.5% discount rate, and a 16.7% after-tax IRR.
In the near-term, Panoro intends to focus on three tasks that could add “significant value” to Cotabambas, Shaheen says. This includes step-out drilling to grow the current oxide resource to add a heap-leach solvent-extraction and electrowinning component; additional metallurgical testing to boost recoveries; and exploration drilling at Maria Jose, the closest target to the current resource.
Panoro expects to start a prefeasibility study within two years, depending on the outcome of the tasks. Those tasks could add to the mine life, Shaheen says, adding that further exploration on Cotabambas’ eight other targets, if successful, could increase the project’s throughput.
Under the streaming agreement, Silver Wheaton will match the amount Panoro raises for exploration at Cotabambas for a maximum US$3.5 million in the next two years, Shaheen says, noting the major will pay another US$3.5 million over that time.
Silver Wheaton will pay the balance of the upfront cash payment of US$140 million during Cotabambas’ construction, and a production payment to receive 100% of the silver and 25% of the gold produced from the project.
Panoro’s long-term goal has always been to advance both of its key projects to feasibility stage, before finding a partner or an acquirer to develop them. “We have been working on that route for nine years now, and we’ve advanced quite a bit,” Shaheen says.
“The Antilla and Cotabambas projects together now really enhance the unique position that Panoro is in. We have two good copper projects in what I would argue is the pre-eminent copper district in the world, in a favourable regulatory environment.
“Right now we’re satisfied that we’ve de-risked these two projects and are looking forward to improving both the projects before we set off into feasibility studies.”
Commenting on the copper market, Shaheen estimates a surplus will remain in 2016 and 2017, before a structural shift pushes the market into a deficit and copper prices higher. “If you look at the world’s two largest copper producing nations — Chile and China — both of their copper production peaked and will start to decline. Two years out, there is a good fundamental reason to think that the copper price will be significantly stronger.”
Spot copper was recently trading at US$2.24 per lb., below the US$3 per lb. long-term price used in both PEAs.
Panoro closed May 3 flat at 18¢ per share, after gaining 9% a day earlier on Antilla’s PEA.