subject: Far West on track for May PFS with increased capacity, improved metallurgy and economics [print this page] Far West on track for May PFS with increased capacity, improved metallurgy and economics
farwestmining.com 604.602.9144
Rick Zimmer
President & CEO
Investors who like large, advanced-stage copper, iron ore, gold (IOCG) projects in Chile are increasingly keen about Far West Mining (TSX: FWM). The company is squarely focused on its 485 million tonne Santo Domingo IOCG project, which has a prefeasibility study due out in May. Resource Intelligence sat down with President and CEO Rick Zimmer and CFO Iain MacPhail to talk about the advances the company has made in metallurgy, resource size and economics.
Resource Intelligence: Far West's focus over the past three years has been proving up resources and advancing the Santo Domingo project in northern Chile. Could you update us on where the project is at now?
Iain MacPhail: In July 2010, we announced the results of a new resource estimate prepared by Scott Wilson RPA for the Santo Domingo Sur/Iris and Iris Norte deposits. At a cut-off of 0.25% copper equivalent, the new resource estimate is 485 million tonnes at an average grade of 0.57%. During the past year, we have been adding to our knowledge on the project metallurgy and Ausenco Engineering has commenced a prefeasibility study (PFS), which will be completed in the second quarter of 2011.
Rick Zimmer: Most of our recent metallurgical work has either confirmed the known metallurgy or improved upon our existing metallurgical studies. A couple of bright spots: We're finding that the ore is somewhat softer, especially in the early years of the mine life. As a result we believe we'll be able to increase our throughput rate from 50,000 tpd to 70,000 tpd for at least the first five or six years.
We've also found that we can coarsen the grind level and achieve the same recovery and concentration rates. This means significantly lower power requirements and lower operating costs which were already low due to our excellent infrastructure.
RI: What latest information could you share with investors that would help them evaluate the potential of this core asset of yours?
RZ: In the PFS, we will be looking at increasing the throughput to 70,000 tpd from the 50,000 tpd suggested in the scoping study completed in 2008. The initial five years will have an average copper equivalent grade in excess of the average life of mine grade and is expected to exceed 0.8%. Production targets in the first five years are estimated to be 250 million pounds of copper and three to four million tonnes of iron concentrate. With the increased resource, the mine life is now expected to be in excess of 20 years, not including the discovery of any additional resources.
RI: I understand Santo Domingo is also particularly rich in magnetite. Could you briefly discuss this and other potential by-products or features that add to the project's value?
IM: The deposit is located in the Chilean IOCG belt and has a substantial iron credit and a smaller gold credit. With copper prices testing new highs, the price of iron concentrate has also maintained a historically high price over the past year. The copper and iron concentrates from Santo Domingo have no significant deleterious elements, which not only adds value but will create demand from smelters for the concentrates from Santo Domingo.
RI: I read on your website that "Santo Domingo is on the very low end of new production cash cost for copper." What makes you believe it would be a low-cost project?
IM: Compared with most other copper projects in the world, Santo Domingo has the advantage of being located very close to superior infrastructure, which is just one of the variables that keep our operating costs per tonne down. The project is seven kilometres from the town of Diego de Almagro and has access to power, rail and a paved highway. The project is at an elevation of 1,000 metres and is located 60 kilometres from the coast. Additionally, one of the challenges for miners in Chile is access to water. Our metallurgical testing with seawater shows recovery rates for copper in excess of 85%, which is higher than recovery rates with fresh water.
RZ: Infrastructure is a big part of what makes our operating costs so low, but on a pound per pound basis, Santo Domingo will be a remarkably low cost project because of the iron and gold credits. At current metal prices, due to the net-back of the iron, our cost per pound of produced copper would be negative $2.
RI: With this new metallurgy and the confirmatory metallurgy how long will it take to pay back your capital requirements and what would the capital expenditures be?
RZ: Our capital costs were estimated at $940 million in 2008. There are a number of additions that we will have to make to our infrastructure, such as a water pipeline, which we expect to increase capital costs to around $1.2 billion.
The payback is somewhat dependent on metal pricing but at current metal prices we would have a less than two year payback. In the first five years not only is the ore body softer and the throughput higher but the copper grades are significantly weighted towards the front end also. We will produce somewhere around 250 million pounds of copper over the first five years on an annual basis. At today's revenue prices that would be over $1 billion in revenues annually.
RI: Copper prices are near historic highs and you are operating in one of the best mining jurisdictions in the world. How is Far West Mining positioned to capitalize on these market opportunities?
IM: Chile has one of the most mature legislative environments for the development of mining projects in a socially and environmentally responsible manner. The Santo Domingo project is located in Region III of Chile, where copper mining is the primary source of employment. The relatively short time for permitting and construction that is common in Chile would not be achievable inother jurisdictions.
RI: You've recently acquired a number of new prospective claims between Santo Domingo and Freeport's giant Candelaria mine 150 km to the south. How much land did you acquire, and what is the plan?
RZ: We've acquired claims that total 27,000 hectares of unexplored land, which is a part of the Chilean IOCG belt that many well known mines are a part of. We have initiated an exploration program using geophysics, which will identify drill targets for a follow up drill program.
What we've learned at Santo Domingo will be invaluable to our present exploration program on the new leases. Over the years we've developed an exploration method which will allow us to rapidly explore the ground for certain geological indicators. These indicators, some of which we know are there already, will help form our next drill program.
We are also presently conducting a 4,000 metre drill program on targets within and near Santo Domingo, to follow up on some previously identified anomalies. We'll stay in communication with our shareholders throughout this process, with some drill results available within six to eight weeks.
Far West is conducting a 4,000 metre drill program on its Santo Domingo project.
RI: Your plan is to achieve production by 2014. Are you still on track?
RZ: Yes, we are still on track for that. What has to happen to achieve production in 2014 is completion of the PFS by the end of May 2011, leading to a feasibility study, which would take approximately nine months to complete. We would then start construction in 2012 to achieve production in 2014.
RI: You also have multiple active exploration targets in Australia. Were you affected by the recent flooding?
RZ: No, not directly, but the floods washed out a number of roads that we use to access our property. Some of those will require maintenance before we can get back to the next leg of our exploration plan.
We'll be mounting drill programs on our Perryvale and Mount Mist properties sometime before June. We've identified significant geophysical anomalies there, along with high-grade silver-lead-zinc on the surface with ganite, which is a critically important mineral for exploring for this type of deposit.
Investor Highlights:
Market cap: $442,537,408
Share price: $6.79as of February 23, 2011
Stage: Prefeasibility Study
Commodities: Copper, iron ore, gold
Share price change 12 months: 48%
Share price change 24 months: 530%
Mine life: 20+ years
Highlights:
Excellent infrastructure: Paved roads, rail, power, people
Located in a jurisdiciton favourable to mining
PFS study due out in May, FS due by early 2012
Economics expected to improve over PEA
Cash costs are exceptionally low
Copper fundamentals are forecast to remain outstanding
Production possible by 2014
Production targets in first 5 years estimated to be 250 MMlbs of Cu and 3-4 Mt Fe concentrate annuall
