Shares in OZ Minerals seem to have survived the strong suggestion that the company could spend a billion dollars or more than expected on its huge Carrapateena underground copper-gold mine in South Australia.
News like that, on top of a near $1 billion budget for the mine which is on its way to coming on stream later this year or early 2020, would normally spook a market nervous of mining company investment plans with lots of naughts after the initial figure.
But OZ Minerals seems to have won a reputation for wise investment at its existing Prominent Hill mine in South Australia – which is nearing the end of its second major expansion – and the first round costing and planning for Carrapateena.
OZ shares traded ended down half a percent at $10.31, not a big move at all and a sign investors for the moment are comfortable with the idea. It might be different next year if the company commits to the expansion.
In the statement, OZ said it had completed a scoping study into a potential expansion of its Carrapateena copper mine which is situated around 470 kilometers north of Adelaide.
According to the study, the Carrapateena Block Cave Expansion would more than double the throughput of the mine but would require pre-production capital of between $1 billion and $1.3 billion. It would increase copper production from the year 2026.
That means total spend on the mine could top $2.3 billion and mean a longer lead time to see significant returns from the project (assuming copper and gold prices remain where they are)
Block caving is a mining technique in which an ore body is undermined and allowed to progressively collapse under its own weight. Newcrest Mining’s Cadia and Ridgeway gold mines in central New South Wales are examples of block caving.
“A block cave expansion of the lower portion of the current Carrapateena Sub Level Cave has the potential to increase average life of mine copper production from 65,000 tonnes per annum to ~105,000 – 125,000 tonnes per annum from 2026,” Oz’s CEO, Andrew Cole said in Wednesday’s statement.
Annual production of ore would jump from 4.25 million tonnes a year to 10-12 million tonnes. The move would increase Carrapateena’s reduce all-in sustaining costs (AISC) to $US0.90–0.95 per pound.
Mr. Cole said transitioning from the sub-level cave to the block cave expansion would allow the mining company to focus on the higher-grade ore at the top of the body (sub-level cave) and the bottom of the body (block cave expansion), prioritising these over the lower-grade ore in the center of the body.
He added that the construction of the sub-level cave was on schedule, with the first production due to begin in the final quarter of this year and that the block cave expansion pre-feasibility study was due to be completed by the middle of next year.
“The potential for the Carrapateena block cave expansion to progressively unlock the Carrapateena life of province more broadly via a controlled, methodical and incremental approach is particularly attractive as it manages risk and capital expenditure whilst enhancing value for shareholders and other stakeholders,” Mr. Cole said.
