Ruashi copper project costs up 80%

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Ruashi copper project costs up 80%
Allan Seccombe
Posted: Thu, 21 Aug 2008

[miningmx.com] -- METOREX, the diversified JSE-listed miner, has shelved its Zambian zinc dump retreatment plans in favour of cobalt from its Ruashi project where capital costs have nearly doubled to $290m and the timeline has fallen behind by two months.

It�s not the only Metorex project where costs have increased. CEO Charles Needham told a results presentation the cost of bringing the Kinsenda copper project in the DRC into production would be $200m on a 100% basis. The cost in February 2008 was estimated at $160m.

Metorex said it August 2006 it planned to treat a 400,000 tonne zinc oxide dump, with a 12% zinc content, through a $5m plant it was to build. The price of zinc at the time was above $3,000/tonne. During the plant construction phase and commissioning the price fell.

Those dumps aren�t going anywhere

At the time the zinc price was $3,330 a tonne. It is now closer to $1,700, making the project economically unfeasible considering cash costs were estimated at $1,500 per tonne of zinc in concentrate.

Metorex has now decided to produce cobalt at the solvent-extraction facilities at the Sable zinc plant. It should take around two months and expenditure of another $100,000 to convert the plant.

The Sable plant will take concentrate from the Ruashi project in the Democratic Republic of Congo. There is another dedicated copper plant at Sable which already treats Ruashi concentrate. The former zinc plant will also source material for toll treatment. The ideal source would be the DRC, but stricter border controls have made that difficult.

Zambian material is not of a similar high quality.

�We will wait for the zinc price to turn. Those dumps aren�t going anywhere. The pundits say the zinc price should turn in about three years and in the mean time the margins are much higher for cobalt,� Needham said.

Meanwhile at Ruashi near Lubumbashi, costs have risen to $290m, well above the 2004/05 pre-feasibility cost of $160m, with costing estimates based on the copper plant at Sable in Zambia. The study also came out before the massive run up in commodity and input prices.

Metorex has about $50m left on its capital budget at Ruashi. It has drawn down the $175m project finance facility and a $20m working capital facility for the second phase of the project, with its debt/equity ratio growing to 33% from 17% a year ago.

The increase Ruashi capital budget also includes the exploration drilling Metorex has undertaken at the Musonoi deposit near Kolwezi and which the company wants to fast track into production in its drive to meet a copper output target of 135,000-140,000 tonnes by 2011/12, said CEO Charles Needham.

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The Musonoi deposit is by far the most valuable asset within the Metorex suite of assets based on a dollar per tonne of mineral in the ground basis, said one company official.

Analysts queried if Metorex�s target to increase by more than five-fold copper production from 2008�s output of 25,000 tonnes in the next four years was not overly optimistic given the difficulties of building mines in the DRC, which is undergoing a mining licence review.

Needham said the oxide deposit at Musonoi was shallow and there was existing infrastructure at Kinsenda, a mine in which Metorex has an effective 42% stake. Not only that, but Ruashi was ramping up its second phase, which will contribute 45,000 tonnes of copper cathode. The lessons learnt in constructing the two-phase Ruashi project would also go a long way towards accurately forecasting budgets and timelines of further developments.

The plants at Kinsenda copper sulphide mine and Musonoi would be smaller than that at Ruashi, and will be designed to produce 35,000 tonnes/year. It should take 18-24 months to sink vertical and decline shafts at Musonoi, which would then look at toll treating material to generate cash flow as it built its own plant. The nearest big project is owned by Katanga and as well the Tenke Fungurume project.

The one potential glitch would be the summer rains from around October making the Kinsenda site difficult a difficult place to construct civil infrastructure, Needham said.

The increased costs at Ruashi include social costs of moving people away from the opencast mine, increased import duties and increased working capital, amongst other reasons.

Metorex plans to bring Kinsenda into production in 2010 and ramping up to full production a year later. Musonoi should be in production from 2011.

Metorex will also put around $36m of debt onto the books of the debt-free Chibuluma copper mine in Zambia. The reason is to raise cash for the group and offset increased taxes in that country, which are the subject of intense negotiations between the government there and five mining companies, which have preferential development agreements.

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