Further insights into Cobre Las Cruces, for those sufficiently interested (my light edits). This from a paper discussing the grant of state aid totalling Eu26.2m. Recently, the Commission examined such a project in case SA.100238. It concerned a regional investment grant to Cobre Las Cruces [CLC] to convert an existing mono-metallurgical refinery, located in Andalucia, into a new poly-metallurgical refinery.
At its Andalucian plant, CLC produce(d) copper with 99.999% purity. However, the local deposits are depleted and CLC needs to invest in a new technology to produce copper from lower grade ore. The proposed investment will also produce other metals such as zinc, lead and silver. Without the investment, the plant would have to close down with a loss of about 170 jobs. The envisaged investment would create about 70 new jobs.CLC intends to invest in both the local mining activities and the refinery production. However, only the refinery production is eligible to receive State aid.
The cost of the whole project [mine & refinery] is EUR 501.5 million, made up of EUR 195 million for the refinery and EUR 306 million for the mine. According to the calculations of CLC for the whole project [mine & refinery], the NPV of the whole project over a 20-year period is EUR 82.3 million. The CLC’s WACC is 8%, while the derived IRR is 10.7%. Since the IRR exceeds the cost of capital, the project should be feasible without aid. However, the hurdle rate for CLC is 12%. Therefore, the project would not have been approved without aid. The notified aid raises the NPV to EUR 121.7 million and the IRR to 12.2% making the project acceptable to CLC. This, of course, raises the question whether the state should reduce the risk of otherwise viable projects and make them more profitable for shareholders. Apparently, in the absence of aid, CLC would close down the refinery.
Given these parameters, notably project cost of Eu500m - the Eu26.2m grant already lost to inflation - it is difficult to see the below pit orebody, existing concentrator and Cu refinery being worth much at all. FQ made no moves to develop the project.
Compare this to Sotiel where SFR has a conceptual study underway to add a polymetallic concentrator to a sorely underexploited existing and operating mine with a large inferred resource.
Well, at least I had a look.
Ash
SFR Price at posting:
$8.58 Sentiment: Buy Disclosure: Held
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