I have tried to put Kitumba in a certain context. Obviously this...

I have tried to put Kitumba in a certain context. Obviously this is probably rather hand-knitted comparison. However it might give a feeling how interesting or how boring Kitumba might be.

First of all a few words regarding the cost structure of copper concentrate:

The main cost factors of a mine are financing costs, operating costs, administration cost, license costs, (royalties) to the country of the mine and depreciation and amortization. To compare the cost of different copper mines, mainly the cash costs are compared.

The cash costs includes mining costs, milling costs, royalties and administration costs of the mining site, but no costs of the headquarter. Cash costs do not include financing costs and depreciation and amortization. Some times cash costs are also termed “direct costs” abbreviated as C1.
In general the industry has been confronted with declining ore grades exacerbated by increasing energy and other costs, and significant deposits being found at greater depths or in more remote areas, the average capital costs for copper production capacity in new mines increased an average of 15% per year over the past 20 years. Cash operating costs at major mines also increased significantly, more than tripling over the past ten years, to an average of almost $1.50/lb in 2012. Besides the costs of operating mines, companies had to find or purchase reserves to replace mined copper, build mines to replace exhausted ones, continually upgrade equipment, and pay treatment and refining charges. Net of administrative costs, a mining company had an average total cost of about $1.95/lb to replace reserves and produce copper over the period, increasing from about $0.76/lb in 2003 to more than $3.30/lb in 2012.

Let’s take a look at the Kitumba PFS September 2013:

Life of mine average C1 cash cost estimate of US$2.04/lb of Cu metal. After resource upgrade December 2013 C1 should be lower.
Overall Cu Recovery Approx. 76%
Cu Head Grade 1.7%
(Includes cost of mining, processing and SXEW costs, administration, overheads, transport and
logistics of concentrate to smelter, treatment & refining charges. Excludes royalties and taxes)

Here the figures of some competitors (even if some are a lot larger it might give an indication if Kitumba is above or below the benchmark (see also illustrations).

Antofagasta Minerals: Cash costs before by-product credits were in line with expectations at $1.82/lb in Q4 2013, $0.02/lb lower than the previous quarter. Cash costs before by-product credits in 2013 were $1.79/lb, compared with $1.63/lb in 2012.

OZ Minerals Ltd.:Cash costs rose to $1.95 per pound from $1.18 in the same quarter a year ago, the company said. OZ Minerals is cutting jobs and has delayed a decision on whether to develop its Carrapateena project, citing rising labor and equipment costs.
Lundin Mining: C1 costs of $1.85/lb Cu (net of by-product credits). Average copper grades of 2.5% with recovery rate of 86%

First Quantum Minerals: Low-cost producer: $1.40 - $1.50/lb copper; Kansanshi Cu-Au mine, Zambia, C1 cash cost of US$1.48/lb.
Altona Minina / Little Eva DFS Key Parameters : C1 Cash Costs $1.73/lb. Mine Life 11 years,Annual Production 38,800t Cu, 17,200oz Au. Capex A$320m

Ivanhoe: Total Cash Costs before Credits 1.38 USD/lb (average)

Conclusion:

I have no idea if reduced capex, increased resources, higher grade (then the competition), maybe a higher recovery rate might reduce the average cash cost from US$ 2.04 to maybe US$ 1.70 or even lower (???). However it seems that at second glance the Kitumba project might be more interesting then at first glance…..at least if I assume that the cash costs might end somewhere in the 1.60-1.80 US$/lb area.
Any views?