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In the news with RFC Ambrian, Mariana Resources and Metminco

Published: 11:20 27 Jul 2015 BST

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INTRODUCTION

In the news: Metminco (LON:MNC& Mariana Resources (LON:MARL)

We have detailed write-ups today on Metminco*† and Mariana Resources*. Metminco has announced the completion of a mining study for its 45,000tpa Los Calatos Copper Project, while Mariana has released further high-grade drilling results from its Hot Maden Gold Project in Turkey. Please see Jim Taylor and Imogen Whiteside’s comments below.
Just a reminder. We are marketing William Howe, the CEO of Metminco, in London today and tomorrow. Please let us know if you would like a meeting.

METALS & MINING EQUITIES

Metminco*† — Completes Mining Study for 45,000tpa Copper Project Los Calatos — The dual ASX- and AIM-quoted copper developer focused on South America has announced the results of a mining study on the Los Calatos Copper Project in Chile. This follows the announcement of an updated resource for the project on 16 June 2015. The study focused on the development of an underground mining operation pinpointing the high-grade section of the Los Calatos deposit (in contrast to the large-scale combined open-pit and underground project envisaged in studies completed two years ago).

Of the higher-grade breccia resource of 126Mt grading 1.03% Cu and 351ppm Mo, 94Mt grading 0.88% Cu and 510ppm Mo (containing 827,000t Cu and 48,000t Mo) was estimated to be mineable, of which 62% was in the Inferred category. A mining rate of 6Mtpa of ore is planned for a sub-level caving mining operation over a mine life of 17 years. Standard flotation is a planned to produce an average of 45,000tpa of copper in concentrate and an associated molybdenum concentrate. Life-of-mine average C1 cash costs are estimated to be US$1.20/lb copper, after by-product molybdenum credits of US$0.53/lb of copper. Pre-production capex was estimated at US$650m, including US$111m of contingencies.

Project economics were presented using a long-term copper price of US$3.00/lb and returned an NPV8 of US$285m and a payback period of 5.3 years.

With respect to infrastructure and development issues, the project has a number of key advantages. These include the design of the project to be based on the use of sea water (to be piped 75km to the project) and grid power (to be delivered through a 32km power line). We expect that this will help to minimise issues relating to competing demands on the region’s freshwater supplies that have affected many projects in Peru and Chile. Also, we note that the use of grid power will help to keep operating costs low, with an expected power cost of US¢6/kWh.

The company stated that it will now focus on advancing the project towards development, subject to funding, and that attracting a partner for the project remains a priority. In this regard, the announcement said that a number of parties are currently undertaking detailed due diligence on the project. The company will announce an Implementation Plan for the project in 3Q15 and will provide an update on the technical detail once it receives the final mining study report.

RFC Ambrian Comment: The company has undertaken this high-level mining study in order to evaluate the economics of a smaller, underground only operation, focused on the high-grade section of the Los Calatos deposit. The study indicates that the project has considerable flexibility with respect to the development scenario, which we believe adds further to the project’s optionality and attractiveness.

We note that C1 operating costs are 7% higher than those in the studies of two years ago, but remain at a very attractive level of US$1.20/lb net of molybdenum credits. Although the announcement does not detail the level of ongoing sustaining capital required to support the operation, the pre-production capex cost of US$650m includes contingencies; while (again) 8% higher than the previous studies, the capital intensity of US$14,444/tpa of capacity remains competitive with many other copper development projects.

We continue to believe that Metminco’s Los Calatos Project remains a substantial opportunity with considerable optionality, and we are optimistic that the reported ongoing due diligence being undertaken by third parties interested in partnering on the project will reach a satisfactory conclusion and allow the project to move forward to the next stage of development.

Mariana Resources* — Further High-grade Drilling at Hot Maden & Engagement of RungePincockMinarco for Resource Estimation — The AIM-quoted exploration company focused on Turkey and South America has reported further high-grade drilling results from holes HTD-15 to HTD-17 at the Hot Maden property, Turkey. Local JV partner Lidya is fully funding this drilling programme to bring its interest in the project to 70%, while Mariana will retain a 30% stake. Highlighted intercepts included:

  •  HTD-15 — 117.3m at 13.9 g/t Au and 2.0% Cu from 216m downhole (including 22m at 46.2 g/t Au and 3.1% Cu from 306m)
  •  HTD-16 — 100.7m at 2.3 g/t Au and 1.8% Cu from 332m downhole (including 14.7m at 7.7 g/t Au and 2.0% Cu from 333m)
  •  HTD-17 — 83m at 13.4 g/t Au and 3.9% Cu from 51m downhole (including 16.0m at 34.5 g/t Au and 2.2% Cu from 98m)

Assays are still pending from HTD-18, which was drilled as a step back to HTD-15, and intersected the main mineralised zone over 93m from 313m downhole.
Both holes HTD-15 and -16 confirmed the vertical continuity of mineralisation down-dip (from holes HTD-10 and -13 respectively); meanwhile, HTD-17, a scissor hole to discovery hole HTD-04, confirmed a true width of at least 50m for the mineralised zone.

Based on the high-grade results to date, Mariana has engaged RungePincockMinarco to commence preparation of an NI 43-101-compliant resource estimate for the project, which is expected to be complete by 4Q15.

Diamond drilling of HTD-19 and HTD-20 is currently ongoing; HTD-19 is a scout hole intended to explore for large-scale extension of the N-S trending mineralisation. Having been collared 320m S of the southernmost cross-section, the hole is currently at a downhole depth of 345m, and has variously intersected Cu/Zn and semi-massive sulphide with associated Cu-Zn-Pb mineralisation.

Having been designed to test the northern, near-surface extension of the mineralisation encountered by holes HTD-04 and -17, drillhole HTD-20 initially encountered a mixed slag and void zone between 15-25m, before entering a fault zone.

Mariana’s local JV partner Lidya is continuing to earn a 70% interest in the project through incurring US$2.5m in exploration expenditure in addition to a US$0.5m cash payment. Prior to the initiation of the Phase 2 drilling programme, Lidya had committed an estimated US$0.7m to exploration at Hot Maden.

RFC Ambrian Comment: We are encouraged by the continuation of the high-grade results from the most recent drillholes, confirming both depth extensions to and breadth of mineralisation. Following on from this, we anticipate that progressing to the resource estimation phase will serve as a further positive catalyst for the stock, moving towards quantifying the potential value of the project. We will also be interested to see assay results from hole HTD-19, drilled to the south of the previously-explored area to explore for broader extensions to the mineralised zone.

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