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Metminco farms-out Peru and can focus on Colombia

Last updated: 11:51 20 Jun 2016 BST, First published: 12:51 07 Mar 2016 GMT

Picture of gold bars
Previous owner Mineras Seafield spent US$29mln on exploration at the project

Copper and gold explorer Metminco Limited (LON:MNC ASX:MNC) has tied-up a US$45mln farm–out of its Los Calatos project in Peru.

A binding terms sheet has been signed with natural resources fund CD Capital Fund III that will see the money received in three tranches to pay for pre-feasibility and feasibility studies over the next 3-4 years.

CD Capital can take up to 70%

Initially, CD Capital Fund III will subscribe US$16mln for 51% of a new subsidiary, Los Calatos Mining Inc (LCMI), that will to be set up to own and manage the project.

It also has an option for two additional payments of US$14.5mln each that will take its stake to 65% and 70% respectively.

LCMI will retain the existing management team to develop the project.

Los Calatos has an overall resource of 352Mt at 0.76% Cu (2.7mln tonnes of copper) and 0.032% Mo (0.11mln tonnes molybdenum).

The first tranche of money is expected in July.

First tranche due in July

William Howe, Metminco’s managing director, said:  "We are delighted that CD Capital will be our partner and strategic long term investor in the Los Calatos Project.  

CD Capital has an extensive knowledge in the resource sector, as well as a proven track record in identifying and investing in world class mining and resource assets like Los Calatos.

Completion of the feasibility studies will add enormous value to both the project and Metminco itself, he believes.

One of the last junior-held porphyry deposits

 “Los Calatos is one of the few large porphyry systems left in the hands of a junior.

“For Metminco with a current market value of A$15mln the net present value (NPV) on the project at the back end of a feasibility study could be 12 to 15 times that.”

While Metminco itself will not get any money directly, it releases funds earmarked for Los Calatos to spend on other projects and notably Colombia, he added.

Attention switches to Colombia

Metminco moved into Colombian gold with the acquisition of the Quinchia project earlier this year.

The portfolio at Quinchia covers 6,043 hectares (Ha) of granted concessions and an additional 3,792Ha of pending applications and contains a number of deposits and exploration targets including Miraflores, Dosquebradas and Tesorito.

Miraflores has measured and indicated resources 72.6mln tonnes at grades of 0.78g/t and 1.52g/t, with a further 3.76m/t at 0.51g/t in the indicated category.

Previous owner Mineras Seafield spent US$29mln on exploration at the project before its parent went bust just before completion of a feasibility study.

A technical report based on that work looked at a small mine operation at Miraflores producing 504,000 oz of gold and 280,000 silver from 12 years of operation at an all in cost of US$682 an ounce.

Cost saving potential

Metminco believes it can substantially reduce the costs shown in the technical report.

In addition, it sees scope for further discoveries at Tesorito and in the surrounding Quinchia licence area, which has already seen a number of large mines developed.

The consideration was 50mln shares at 0.5p in an initial payment, with a further 350mln shares on settlement along with A$0.5mln cash for costs already incurred.

There were also staged payments of A$7mln up to the point a mine opens after which a further A$7mln royalty payment becomes due.

Speaking to Proactive earlier this year, Howe said it had been looking for an acquisition in South America for some time.

Tesorito the prize at Quinchia

While MiraFlores would likely see first production, the real story at Quinchia is Tesorito, only 800m away, said Howe.

“It’s a porphyry gold systemhttps://images.intellitxt.com/ast/adTypes/icon1.png where the last drilling has one hole with 284m running at 1g/t gold from top to bottom. Potentially it’s a multi-million ounce deposit”.

What the broker’s say

SP Angel: Metminco has acquired a substantial package of exploration projects in a known gold belt hosting major gold deposits.

“The resources defined by the previous owners are relatively low grade, however, Metminco has proved adept at redefining its own Los Calatos project in Peru in order to enhance the economics through adjusting the scale of mining to improve capital and operating costs.

“They will now to be able to deploy these skills at Quinchia.” 

Metminco has already identified potential to reduce the initial capital costs and sustaining capital of US$83m and US$123m respectively by more than 25%. "Operating costs are also anticipated to significantly reduce".

Los Calatos

At Los Calatos, the most recent optimisation study delivered a 57% increase in the project’s NPV to US$447mln.

Under this scenario, Metminco would mine134.4mln tonnes of ore grading 0.89% copper and 0.036% molybdenum.

That would in turn lead to production of 50,000 tonnes of copper in concentrate per year on average, or a total production over the life of the project of 1.1mln tonnes.

Earnings before interest, tax, depreciation and amortisation (EBITDA) would then ring in at a hefty US$3.82bn, generating an internal rate of return (IRR) of 16.6%.

A key metric, cash operating costs per pound of copper, is set at US$1.29 per pound, significantly lower than the prevailing price of US$2.44 per pound.

Pre-production capital expenditure is a hefty US$665mln.

 

--updates for Los Calatos farm-out--

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