Inca Pacific targets Magistral startup in 2010 – Peru

Vancouver’s Inca Pacific Resources is targeting production startup in the first quarter of 2010 for its Magistral copper-molybdenum project in Peru, company president Anthony Floyd said Wednesday.

“The most important thing is to try and catch this metal price cycle and move the project forward and be in production by 2010,” said Floyd in a conference call to discuss Magistral’s preliminary feasibility study.

The independent study by SRK Consulting outlines total capital costs of US$265mn to build a 20,000t/d operation at Magistral that would produce 31,000t/y of copper and 2,500t/y of molybdenum in concentrates over 16 years.

“The results demonstrate that an open pit mining operation at Magistral is economically viable,” said Floyd.

The development timetable contemplates completion of a definitive feasibility study in September 2007, financing in the Northern Hemisphere spring of 2008, and production start-up in the first quarter of 2010, he said.

The Inca Pacific president said a “probable outcome” would be a mid-tier miner taking over the company as the project approaches completion of a definitive feasibility study.

To date, Asian smelter groups eyeing up possible off-take agreements have shown the most interest in Magistral, according to Floyd. But “meaningful conversations” could only start to take place next year as harder data becomes available, he said.

STUDY DETAILS

SRK’s study estimates Magistral has a base case Net Present Value of US$62mn after tax and an internal rate of return of 12.3%, using forecast metal prices of US$1.25/lb copper, US$10/lb molybdenum and US$7.50/oz silver and an 8% discount rate.

But Floyd noted that Magistral is very sensitive to metal prices. “If you have US$1.50/lb copper, or US$1.75/lb copper, and higher molybdenum prices, then you rapidly see the NPV getting up into the US$200mn and US$300mn range.”

Capital payback is anticipated in 5.2 years.

Life of mine cash costs, net of by-product credits of molybdenum and silver, are put at US$0.77/lb, according to an Inca Pacific statement.

The study is based on Magistral’s proven and probable reserves of 106Mt grading 0.52% copper, 0.054% molybdenum and 2.59g/t silver.

The deposit has only been drilled to 350m and has potential to grow at depth, opening the way for the phasing in of a possible underground operation after year 10, according to Floyd.

Peru’s mines and energy ministry has said it will work with Inca Pacific and local communities to advance the project, which would generate US$225mn in taxes, royalties and employee profit sharing, said Floyd.

Inca Pacific has a market cap of Cdn$24mn and some Cdn$6.5mn in the treasury, enough to start feasibility study work estimated to require US$5-6mn.

The company’s shares closed up 16.47% at Cdn$0.99 on Wednesday. Magistral is in central-west Peru’s Ancash department.