Kate Hayc/ock -- MINING NEWS --- Monday, 14 April 2008
WITH the announcement of a definitive feasibility study into its polymetallic Kylylahti mine, Vulcan Resources has decided to immediately start work at the Finnish project, which it says is an extremely strong financial proposition.
The company this morning released the results of the DFS for an 800,000 tonne per annum mine and concentrator at the Kylylahti project.
The DFS found the project would have an after-tax net present value of $US149 million ($A161.5 million), a 29.5% internal rate of return and a life-of-mine pre-tax cash flow of $618 million.
Over 10 years, the mine could generate $1.3 billion in revenue.
Capital cost estimates came to $170 million, while cash costs would be around $40 per tonne, or $1.05 per pound of copper equivalent.
At nameplate capacity, the mine should produce 11,000 tonnes of copper per annum, 12,000 ounces of gold, 2000t of cobalt, 1500t nickel, and 4000t zinc.
Vulcan’s managing director Alistair Cowden said this morning the project was ready to go, with full environmental approvals and other permits received from the Finnish Government.
“The economics we published today are very robust and the project has a rapid payback,” he added.
“Most projects at this stage are still pending environmental and other approvals, but we have all those in place, and we have the capacity to start now.”
The project has been modified from the pre-feasibility stage and simplified, with throughput boosted by 300,000tpa.
The after-tax NPV forecasts indicate the project’s capital costs would be paid back in around two years, Cowden added.
However, the company has sacrificed some of Kylylahti’s future payability by producing two concentrates – copper-gold and cobalt-nickel-zinc – instead of taking processing further and producing individual concentrates.
Two years ago, the company released a pre-feasibility study based on processing through copper-gold and bulk sulphide (cobalt-nickel-zinc) concentrate production, with the bulk-sulphide concentrate – containing more than 96% of the in-situ cobalt and nickel – sent to a roaster.
The resultant residue would have been leached for intermediate products for sale to refineries.
“When we started this project, the availability of nearby infrastructure such as a roaster led us to realise that instead of accepting conventional but complex polymetallic payabilities – which could be 50-60% of in situ metal values – if we invested more capital, we could make a product that could receive 75-80% payability,” Cowden explained.
At pre-feasibility level, costs for taking the metal to this intermediate level were viable; at the DFS stage, costs spiralled, he added.
“There was just too much capital to pay back, and for a company of Vulcan’s size a lower capital barrier is a much better thing.”
The company is, however, keeping its options open for future processing, including technical work with GRD Minproc over concentrate processing, which could be applied later in the mine life once cash flows are in place.
Cowden was quick to say the company would have no difficulty achieving the financing needed for the project, pointing out the strong economics for production, as well as the low sovereign risk in Finland and the permit approvals as clear factors in Vulcan’s favour.
The company is already in advanced negotiations over sales agreements for the two concentrates, and would consider life-of-mine agreements for offtake in return for some project financing, along with equity financing, though Cowden said the company’s preference was for project finance.
“We’ve had significant interest from financial markets...those negotiations will be continuing in conjunction with the project development,” he added.
Cowden also said the project’s polymetallic nature was a boon, with the nickel, copper, zinc and cobalt providing a “natural hedge” for each other.
The company currently has $A42-43 million in cash, and boasts the Finnish government as a shareholder.
“As of today, [we are] ordering long lead items…we’re into front end engineering, we’re into design of the box cut and the surface facilities,” Cowden added.
Shares in Vulcan – which were up over 19% on Friday – dropped 1.5c this morning to 28.5c.
VCN Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
