Australian copper and gold company Oxiana (OXR) fell by 12 cents at one point today on the news that the rising price of materials and labor will lift costs by 30 percent for the company's new mine at the Prominent Hill project.
With less than 12 months to commissioning of the South Australian copper-gold project, Oxiana said a comprehensive review of expenditure and schedule has now been undertaken.
The mine will now cost $1.08 billion, up from an earlier estimate of $850 million in August 2006.
Despite the increase in expenditure, Oxiana said the mine will remain on schedule to start production in the third quarter of next year.
Oxiana expects the Prominent Hill project to more than double the company's copper output and increase its gold output by a third in the first year of production.
"Buoyant market conditions and higher copper, gold and silver prices have significantly improved project economics since Board approval some 12 months ago," said CEO of Oxiana, Owen Hegarty.
"The expected contribution of Prominent Hill to Oxiana's earnings and cash flows has increased substantially.
"Exploration success below and lateral to the current open pit has seen Oxiana already initiate studies aimed at expanding production and extending life of mine to at least 2030."
Over the past ten months a major resource expansion drilling program has been ongoing at Prominent Hill, with 60% of the planned exploration program completed so far.
Oxiana said results from this program have been outstanding and that the ultimate size of the Prominent Hill deposit will be significantly larger than the currently outlined resource.
Prominent Hill is expected to produce 117,000 tons of copper, 86,000 ounces of gold and 390,000 ounces of silver in its first full year of operation.
Furthermore, a large new "discovery-focussed" regional exploration program has recently been commenced nearby the Prominent Hill project.
Oxiana said additional iron oxide systems hosting gold and copper mineralisation have been identified within 30 km of the Prominent Hill deposit and the company believes there is potential for further large discoveries there.
25 separate high priority targets have been identified for testing over the next 14 months, and drilling of the first targets has already commenced.
Shares in Oxiana recovered slightly to close at $4.03. Yesterday's closing price was $4.11.
