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BASIC ENGINEERING
SUMMARY REPORT
May 2012
PROJECT DESCRIPTION
Capital Cost
Cobre Panama
Panama, Coln province
Investment grade
13,000 ha
31 years
1Q16
$US6.18b
TIER I CHARACTERISTICS
Average annual production (Y2-16)
Average annual production (LOM)
C1 cash costs (Y2-16)
C1 cash costs (LOM)
Strip ratio
Design mill throughput (Y1-9)
Design mill throughput (Y10-31)
298 ktonnes Cu
266 ktonnes Cu
$US0.72/lb Cu
$US0.82/lb Cu
0.58
160 ktpd
240 ktpd
Project
Project location
Sovereign rating
Concession area
Life of mine
Start of Production
ktonnes
258,000
2,061,000
2,319,000
Cu (%)
0.57
0.38
0.40
Measured
Indicated
Total
Inferred
262,000
3,905,000
4,167,000
3,749,000
0.56
0.34
0.35
0.23
Status
Au (g/t) Ag (g/t)
0.14
1.6
0.06
1.4
0.07
1.4
0.13
0.06
0.07
0.04
1.5
1.2
1.3
1.0
Y2-16
298
106
1,572
3.1
LOM
266
87
1,545
2.9
TOTAL LOM
8,237
2,705
47,899
90.2
Moly (%)
0.010
0.007
0.007
Cu ktonnes
1,478
7,781
9,258
Au koz
1,126
4,041
5,167
Ag koz
13,020
91,008
104,028
Mo ktonnes
25
145
169
0.009
0.005
0.006
0.004
1,476
13,237
14,715
8,660
1,118
7,845
8,963
4,805
12,979
155,392
168,454
120,534
24
214
238
156
LT Consensus
14.3%
16.7%
$3.2b
$3.5b
$2.4b
$2.8b
$1.8b
$2.2b
FW Curve
18.5%
21.9%
$4.8b
$5.0b
$3.9b
$4.2b
$3.2b
$3.6b
3Y Trl. Avg.
19.2%
22.5%
$6.0b
$6.3b
$4.9b
$5.2b
$4.0b
$4.4b
PROJECT ECONOMICS
CAPITAL COSTS
$USm
Mining
760
Process plant
1,184
Site and services
550
Port site
543
Power plant
646
Total Direct
3,682
Construction indirects
844
Total field costs
4,526
EPCM
355
Owner Costs
885
Contingency
415
Total project cost
6,181
Sustaining capex
2,916
POTENTIAL FOR UPSIDE
Expand throughput beyond max planned 240ktpd
Accelerate increase to 240ktpd
Conversion of substantial resources beyond reserves
%
12
19
9
9
10
59
14
73
6
14
7
100
PROJECT ADVANTAGES
Low strip-ratio (one fifth of industry O/P Cu mine avg 2011 )
Ammenable to large scale, efficient mining
Powered by owner-built, 300mW coal-fired plant
Proximity to tidewater, permitting inexpensive con transport
Clean concentrate
Extensively reviewed by 3rd parties (capex and opex)
Financed Case 1
Financed Case 2
Financed Case 1
Financed Case 2
Financed Case 1
Financed Case 2
Financed Case 1
Financed Case 2
PROJECT DETAIL
SCHEDULE
Notice to proceed
Mine/process construction start
Process earthworks complete
Plant to port road complete
Port complete
Power line complete
Tailings dam complete
Ore hits grinding lines
Power plant complete
Start of production
Concentrate shipment
Commercial production
RESOURCE ADDITIONS SINCE 2010
(contained metal)
M&I
FEED
Increase
Current
Cu (m lb)
25,800
6,641
32,441
Au (k oz)
Ag (k oz)
Mo (m lb)
6,533
133,300
474
2,430
35,154
51
8,963
168,454
525
INF
Cu (m lb)
Au (k oz)
Ag (k oz)
Mo (m lb)
FEED
16,600
4,003
103,100
236
Increase
2,492
802
17,434
18
Current
19,092
4,805
120,534
344
2Q12
2Q12
4Q13
4Q13
2Q14
3Q14
3Q15
4Q15
4Q15
4Q15
1Q16
2Q16
Other
0.24
0.01
0.69
0.09
1.03
Total LOM
2.44
3.29
0.88
0.28
6.88
LT Consensus
2.44
3.29
0.88
0.28
6.88
Total LOM
FW Curve
2.46
3.36
0.88
0.28
6.98
0.027
0.033
0.034
Power($US/kWh) Y10-31 2
C1 cash cost ($US/lb) Y2-16 - Fin Case 1
C1 cash cost ($US/lb) LOM - Fin Case 1
0.05
0.72
0.82
0.05
0.74
0.83
0.055
0.77
0.87
Total Y2-16
2.68
3.28
0.97
0.3
7.23
1-Power costs adjusted to reflect sales into grid 2-Power costs are quoted before D&A expense covering the $646m capital
Cu ktonnes
5,457
8,660
Cu mlbs
12,031
19,092
NSR BY METAL
Cu
Au
Ag
Mo
Total
25%
1.17%
5%
4%
89.0%
53.3%
52.4%
46.1%
CONCENTRATE ASSUMPTIONS
Copper TC
Copper RC
Gold RC
Silver RC
Molybdenum roast and freight
Freight
Copper Con Moisture
Losses and Insurance charges
$70/dmt
$0.07/lb
$5/oz
$0.50/oz
$1.49/lb
$41/t wet con
8%
0.25%
COBRE PANAMA
COBRE PANAMA FACT SHEET - PG 2
price levels and volatility in the spot and forward markets for metals and;
access to the necessary capital to fund the development and construction of the Project;
the ability to develop and construct the Project in accordance with the currently projected budget and
timeline;
the uncertainties inherent in current and future legal challenges we or the Project are or may become
a party or subject to;
the lack of certainty with respect to foreign legal systems, which may not be immune from the
influence of political pressure, corruption or other factors that are inconsistent with the rule of law;
the speculative nature of mineral exploration and development, including the risks of obtaining and
maintaining the validity and enforceability of the necessary licenses and permits and complying with
permitting requirements;
inherent hazards, risks and uncertainties associated with mining exploration, development and
operations, including accidents;
discrepancies between actual and estimated production, between actual and estimated costs,
between actual and estimated reserves and resources and between actual and estimated
metallurgical recoveries;
geotechnical issues;
Page 4
May 2012
dependency of cash flow and earnings growth upon the development of our current reserve base and
converting our resource base to reserves and production;
actual capital costs, operating costs and expenditures, production schedules and economic returns
from the Project;
fluctuations in the international currency markets and the rates of exchange between currencies;
taxation, including with respect to tax laws and regulations that are unclear or subject to ongoing
varying interpretations;
potential losses, liabilities and damages related to the Projects business which are uninsured or
uninsurable;
labour disputes;
defective title to mineral claims or property or contests over claims to mineral properties;
competition; and
the loss of key employees and the ability to attract and retain qualified personnel.
In addition, there are risks and hazards associated with the business of mineral exploration, development
and mining, including environmental hazards, industrial accidents, unusual or unexpected formations,
pressures, (and the risk of inadequate insurance or inability to obtain insurance to cover these risks) as
well as other risks, uncertainties and other factors.
Forward-looking statements are not guarantees of future performance, and actual results and future
events could materially differ from those anticipated in such statements. All of the forward-looking
statements contained in this Basic Engineering Summary Report are qualified by these cautionary
statements.
Although we have attempted to identify important factors that could cause actual results to differ materially
from those contained in the forward-looking statements, there may be other factors that cause actual
results to differ materially from those which are anticipated, estimated or intended. There can be no
assurance that such statements will prove to be accurate, as actual results and future events could differ
materially from those anticipated in such statements. You should not place undue reliance on
forward-looking statements. We expressly disclaim any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, events or otherwise.
Page 5
May 2012
Page 6
May 2012
Important Notice
This report shall not constitute an offer to sell or a solicitation of an offer to purchase any securities of
Inmet Mining Corporation in the United States or any other jurisdiction. Any securities of Inmet Mining
Corporation have not and will not be registered under the U.S Securities Act of 1933, as amended (the
Securities Act), or the securities laws of any other jurisdiction and may only be offered and sold in the
United States pursuant to an exemption from the registration requirements of the Securities Act and
applicable state securities laws
Page 7
May 2012
INTRODUCTION .........................................................................................................15
1.1
1.2
1.3
1.4
Operating Costs..................................................................................................20
1.5
1.6
1.7
1.8
1.9
Conclusions ........................................................................................................26
2.1.1
2.1.2
2.1.3
Metallurgy.....................................................................................................39
2.1.4
2.1.5
2.1.6
2.1.7
2.1.8
2.1.9
2.1.10
Port ...............................................................................................................50
2.1.11
Pipelines .......................................................................................................51
2.1.12
2.2
2.2.1
2.2.2
Panama ...............................................................................................................54
3.1.1
3.1.2
3.1.3
3.2
3.3
May 2012
3.4.1
3.4.2
3.4.3
3.4.4
3.4.5
Partnerships.................................................................................................71
Basis of Estimate................................................................................................73
4.1.1
4.2
4.2.1
4.3
4.4
Basis of Estimate................................................................................................82
5.2
5.3
5.4
5.4.1
5.4.2
5.4.3
5.4.4
6.2
6.3
6.4
Cash Costs..........................................................................................................96
6.5
6.6
6.6.1
6.6.2
6.7
7
Page 9
May 2012
8.1.1
8.2
9
9.2
9.3
9.4
9.5
9.6
9.6.1
9.6.2
9.6.3
9.7
9.7.1
9.8
9.9
9.10
9.11
9.11.1
9.11.2
9.11.3
10
11
11.2
11.3
11.4
11.5
11.6
11.7
Page 10
May 2012
Table 1-2
Table 1-3
Table 1-4
Table 1-5
Table 1-6
Table 1-7
Table 1-8
Table 1-9
Table 1-10
Table 1-11
Project Milestones........................................................................................26
Table 2-1
Table 2-2
Table 2-3
Table 2-4
Table 2-5
Table 2-6
Table 2-7
Table 3-1
Table 4-1
Table 4-2
Table 4-3
Table 5-1
Table 5-2
Table 5-3
Table 5-4
Table 5-5
Table 5-6
Page 11
May 2012
Table 5-8
Table 6-1
Table 6-2
Table 6-3
Table 6-4
Table 6-5
Table 6-6
Table 6-7
Table 6-8
Table 6-9
Table 6-10
Table 6-11
Table 6-12
Table 6-13
Table 7-1
Table 7-2
Table 7-3
Table 8-1
Table 8-2
Table 9-1
Table 10-1
Table 11-1
Table 11-2
Page 12
May 2012
Figure 2-2
Figure 2-3
Figure 2-4
Figure 2-5
Figure 2-6
Figure 2-7
Figure 2-8
Figure 2-9
Figure 2-10
Figure 3-1
IHS Comparative Historical Risk Showing Panamas Risk Trending Down ..55
Figure 3-2
Figure 3-3
Figure 5-1
Figure 5-2
Figure 6-1
NPV Sensitivities..........................................................................................95
Figure 6-2
Figure 6-3
Figure 6-4
Figure 6-5
Figure 6-6
Project Life After-Tax Cash Flows (Debt + Stream Case)* ........................ 102
Figure 8-1
Figure 8-2
Figure 9-1
May 2012
Figure 11-2
Gap Between Base Case Mine Production and Demand that Needs to be
Filled with Capacity Additions .................................................................... 134
Figure 11-3
Figure 11-4
GLOSSARY
k
m
b
oz
lb
kt
kTon
ktpd
mt
mt/a
US$/t
Cu
Au
Ag
Mo
bbl
l
mW
kWh
dmt
wmt
LOM
g/t
thousand
million
billion
troy ounces
pounds
thousand tonnes
thousand tons
thousand tonnes per day
million tonnes
million tonnes per annum
US dollars per tonne
Copper
Gold
Silver
Molybdenum
barrel
litre
megawatt
kilowatt hour
dry metric tonne
wet metric tonne
life of mine
grams per tonne
Page 14
May 2012
INTRODUCTION
The Mina de Cobre Panama Project (Cobre Panama; the Project) consists of a conventional
open pit mine and the associated infrastructure to produce copper-gold and molybdenum
concentrates. The concession for the Project covers an area of 130 square kilometres (km2) and
is located in the Donoso District, Coln Province in north central Panama.
Cobre Panamas projected significant annual production at first quartile cash costs, long mine
life, extensive mineral reserves and resources, and high proportion of net revenues from copper
all provide exceptional exposure to copper. With the Environmental and Social Impact
Assessment (ESIA) regulatory approval for the Project already received, a strong social license
and Basic Engineering completed, the Project is construction-ready. It is essentially the only
Tier 1 copper asset not in the hands of a senior mining company.
Table 1-1 Tier 1 Characteristics
Tier 1 Characteristic
Life of Mine
31 years
Capital Cost
$US6.18b
298 kt
266 kt
$US0.72/lb Cu
$US0.82/lb Cu
Strip Ratio
Scale
0.58
160 ktpd to 240 ktpd throughput with further expansion capacity
Consensus Long-Term
Forward Curve
(declining to
(SEC case)
consensus)
IRR (debt financing)
14.3%
18.5%
19.2%
NPV @ 8% ($m)
3,200
4,800
6,000
16.7%
21.9%
22.5%
NPV @ 8% ($m)
3,500
5,000
6,300
$US0.90b
$US0.81b
9.3 mt
14.7 mt
8.7 mt
Clean concentrate not expected to draw penalties
Proximity to tidewater and Panama Canal
Page 15
May 2012
The Project has the key attributes of a Tier 1 copper asset with substantial exposure to copper,
projected long life, low operating costs and significant expansion potential in a geopolitically
favourable jurisdiction.
Cobre Panamas projected average annual copper production of 298kt for Years 2-16 and 266kt
over the life of operations are indicative of a world class asset. The expected 31 year life with
these levels of output would provide exceptional exposure to copper.
Page 16
May 2012
Copper (kt)
Molybdenum (kt)
Gold (koz)
Silver (koz)
Annual Average
Years 2-16
298
Annual Average
Life of Operations
Total
Life of Operations
266
2.9
87
1,545
8,237
90.2
2,705
47,899
3.1
106
1,572
Estimated C1 cash costs (see Section 5 for definition) of $US0.72/lb for Year 2-16 and
$US0.82/lb for the life of the operation would put the Project in the very favourable position of
being in the first quartile of the projected industry cost curve.
Table 1-3 Cobre Panama Mineral Reserves
Category
Tonnes
Cu
Au
Ag
Mo
(x 1000)
g/t
g/t
258,000
0.57
0.14
1.6
0.010
1,478
1,126
13,020
25
Probable
2,061,000
0.38
0.06
1.4
0.007
7,781
4,041
91,008
145
Total
2,319,000
0.40
0.07
1.4
0.007
9,258
5,167
104,028
169
Cu
Au
Ag
Mo
(x1000)
(x1000)
(x1000)
(x1000)
Tonnes
ounces
ounces
tonnes
Proven
Cu
Au
Ag
Mo
(x1000)
(x1000)
(x1000)
(x1000)
Tonnes
ounces
ounces
tonnes
Tonnes
Cu
Au
Ag
Mo
(x 1000)
g/t
g/t
Measured
262,000
0.56
0.13
1.5
0.009
1,476
1,118
12,979
24
Indicated
3,905,000
0.34
0.06
1.2
0.005
13,237
7,845
155,392
214
Total
4,167,000
0.35
0.07
1.3
0.006
14,715
8,963
168,454
238
Inferred
3,749,000
0.23
0.04
1.0
0.004
8,660
4,805
120,534
156
Page 17
May 2012
Measured and Indicated (M&I) resources have grown to approximately 32.4b lb of copper and
9.0m oz of gold. This represents a 26% increase of 6.6b lb of copper and a 37% increase of
2.4m oz of gold over the FEED Study. In addition, inferred mineral resources have grown to
19.1billion lbs of copper and 4.8m oz of gold an increase of 2.5b lb of copper (15 percent) and
an increase of 0.8m oz gold (20 percent) over the FEED Study.
Currently there are 12b lb of contained copper in M&I mineral resources and some 19b lb of
copper in inferred mineral resources not exploited in the mine plan. While mineral resources do
not have demonstrated economic viability, based on commonly used market precedent, these
additional units of copper could potentially be valued at between $US0.03 and $US0.06/lb in the
ground, suggesting an option value on those copper units of between $US0.9b and $US1.8b.
This is especially true once the infrastructure is in place and the mine is operating.
If work progresses to allow us to move these resources into reserves, it would provide
opportunities to:
accelerate the addition of a third line to the process plant that would increase
production in Years 3 to 9; and/or
Cobre Panama would enjoy a number of other positive attributes. In an industry with a trend of
increasing presence of deleterious elements in concentrates, the Project would have a clean
concentrate. The port, located on tide water, would be only 30 km from the mine site, allowing
for ease of exporting concentrates as well as importing supplies. This would provide a unique
Page 18
May 2012
The Project exploration and mining concession was granted under Law 9 of February 26, 1997,
promulgated by the Legislative Assembly of Panama. This, in addition to an amended Mineral
Resources Code in Panama, provides clarity on the fiscal framework for Cobre Panama. The
ESIA approval was received in December 2011 and gives the Project the right to obtain the
balance of the permits required to commence operations. Several such construction permits
have already been obtained.
MPSA has created an existing privilege to operate locally by building relationships with local
communities, an intention to comply with the International Finance Corporations Performance
Standards on Environmental and Social Sustainability and by meeting its responsibility to ensure
that the benefits of the Project are shared with the people of Panama.
1.3
Capital Costs
Page 19
May 2012
Area
Mining
% of Project
760
12
1,184
19
550
543
Power Plant
646
10
3,682
59
844
14
4,526
73
EPCM Services
355
Owner Costs
885
14
Contingency*
415
6,181
100
Process Plant
1.4
Operating Costs
C1 cash costs during Years 2-16 of operation are expected to average $US0.72/lb of copper and
for the life of operations average $US0.82/lb (see Section 5 for further details). These costs
should put Cobre Panama in the first quartile of the projected industry curve and support the
economic robustness of the operation under most foreseeable market conditions.
Table 1-6 C1 Cash Costs($US/lb of Cu) at Copper Price Scenario of $US2.75/lb.
Cost Item
Average Yr 2-16
Life of Operations
Mine
0.30
0.32
Plant
0.37
0.44
G&A
0.11
0.12
Site services
0.03
0.04
Offsite costs
By-product credits
C1*
Note: Totals may not add due to rounding
Page 20
May 2012
0.30
0.30
(0.40)
0.72
(0.40)
0.82
Total
Labour
Material
Power
Other
Mine
2.44
0.27
1.87
0.05
0.24
Process Plant
3.29
0.24
2.13
0.91
0.01
G&A
0.88
0.15
0.01
0.04
0.69
Site Services
0.28
0.11
0.07
0.01
0.09
Total
6.88
0.77
4.08
1.01
1.03
A third party review of process plant operating costs concluded that the estimate of operating
costs was realistic and consistent with other operating concentrators. A separate reviewer
concluded that the Projects mining productivity ratios were at the average or slightly
conservative as compared to other similar open-pit mining operations.
Analysis of costs for input commodities such as oil (diesel), freight, steel (grinding media),
ammonia (explosives) and coal (power) has demonstrated a strong correlation to the historical
price of copper. When prices of oil and other raw materials are relatively high, statistically
significant correlations demonstrate that it is reasonable to expect that the economic
environment is robust and, likewise, so presumably would be the price of copper. The cost
assumptions for these commodities can therefore linked to price assumptions for copper over
the long term. The life of mine operating costs estimate of $US6.88/t of ore milled is based on a
long-term copper price assumption of $US2.75/lb. Table 5-5 shows the various input costs used
for each metal price scenario in the $US2.75/lb copper case oil is $US68.68/bbl, diesel is
$US0.62/l, coal is $US82.54/t, steel grinding media is $US935.25/t, explosives are $US936.21/t
and concentrate freight cost was $US41.21/t.
In the $US3.42/lb copper case oil is
$US80.53/bbl, diesel is $US0.72/l, coal is $US96.93/t, steel grinding media is $US1,143.62/t,
explosives are $US1,011.18/t and concentrate freight cost was $US48.32/t.
1.5
Project Economics
Three metal price scenarios were used to evaluate the Project economics: Consensus LongTerm ($US2.75/lb), Forward Curve, and Three Year Trailing Average ($US3.42/lb). It is our
belief that the Consensus Long-Term price is conservative and does not reflect anticipated
supply-demand dynamics (see Section 11 Marketing for additional discussion). Two financing
structures were considered in the Project economic analysis:
1. a levered case with third party and subordinate shareholder debt, and
2. a levered case with third party and subordinate shareholder debt, plus a gold and silver
stream sale.
Page 21
May 2012
Forward Curve
(declining to
consensus)
IRR
14.3%
18.5%
19.2%
NPV @ 8%
3,200
4,800
6,000
NPV @ 9%
2,400
3,900
4,900
NPV @ 10%
1,800
3,200
4,000
($USm)
Forward Curve
(dropping to
consensus)
IRR
16.7%
21.9%
22.5%
NPV @ 8%
3,500
5,000
6,300
NPV @ 9%
2,800
4,200
5,200
NPV @ 10%
2,200
3,600
4,400
($USm)
However, readers should be aware that the static Discounted Cash Flow valuation methodology
employed in the analysis does not capture the value of the optionality embedded in a long-life
asset and additional mineral resources that may be incorporated into the mine plan.
1.6
Many recent projects in the mining industry have been impacted by unreliable capital estimates.
To ensure the reliability of Cobre Panamas capital estimate, third party reviews of key aspects
of the Project overall were undertaken to mitigate risks and improve the confidence of estimates.
Page 22
May 2012
Capex
Opex
Power
Tailings
Tailings
Project Controls
Project Readiness
1.7
Reviewer
Outcome
Confirmative
Confirmative
Confirmative
Confirmative
Confirmative
Confirmative
Confirmative
Confirmative
Cobre Panama stakeholder risks and opportunities were identified and risk mitigants put in place
as part of Basic Engineering.
Cost Escalation
Quotes to build the power plant and the process plant (together a significant component
of Project capital expenditures) were and are being written on a Lump Sum and Not to
Exceed basis in order to reduce the likelihood that these components will bring the
Project over budget. These quotes will be received from audited vendors with the
sophistication and balance sheet to manage costs and deliver on budget.
The advanced stage of engineering for the Project (currently 38% completed) in
combination with the large portion of firm bids received to-date (58%) should further
reduce the potential for unforeseen costs.
Panamas use of the US currency is another positive characteristic of the Project that
should reduce the potential for material cost escalation due to foreign exchange
fluctuation.
The manner in which the Request for Quotation process was conducted should reduce
the potential for cost overruns.
The Projects Engineering, Procurement and
Construction (EPC) and Engineering, Procurement, Construction and Management
(EPCM) contracts are designed to incent contractors to stay on budget and on schedule.
We believe the quotes obtained are materially conservative in some cases the labour
multiplier (unit of work over unit of time) used for work on the Project is as high as three
times what would normally be employed and some of the quotes for individual work
packages have small overlaps in scope (which could potentially reduce costs).
By the end of 2012, 50% of the Project expenditures are expected to be committed
against firm quotes currently in hand.
Overall Project contingency is 9.6% (as a percentage of TIC). When owners costs (mine
preproduction, mine equipment and owners project management (PM)) and contingency
Page 23
May 2012
on owners costs are removed, the remaining contingency level is 11.2%. This
percentage is in line with what might be expected of an AACE Class 2 engineering
estimate.
The Project is actively considering early group purchase of bulk commodities (to lock in
some costs of steel, diesel, cement) for construction and passing out to suppliers.
Page 24
May 2012
Project Execution
A project execution plan has been developed to move Cobre Panama from completion of Basic
Engineering through design, construction and commissioning phases all the way to shipment of
the first concentrate anticipated in the first quarter of 2016. The MPSA Project team would grow
from 50 today to 107 members at its peak in 2013.
Milestones from the Project master schedule are presented below.
Page 25
May 2012
Date
(Estimated)
Notice to Proceed
2Q12
2Q12
4Q12
4Q13
4Q13
2Q14
3Q14
3Q15
4Q15
4Q15
4Q15
4Q15
Start of Production
4Q15
Shipment of Concentrate
1Q16
Commercial Production
2Q16
1.9
Conclusions
With Basic Engineering completed, detailed engineering underway, key permits in process, and
continued efforts to maintain and enhance its privilege to operate locally, Cobre Panama is a
construction-ready Tier 1 project. With few such assets in a construction-ready position and not
already in the hands of a senior mining company, we believe the Project has potential value
beyond what is estimated in the NPV analysis.
Page 26
May 2012
TECHNICAL SUMMARY
2.1
Project Description
Cobre Panama would be a world-class Tier 1 asset based on projected mine life, annual
production, cash costs, scalability and annual cash flow.
Table 2-1 Tier 1 Characteristics
Tier 1 Characteristic
Life of Mine
31 years
298 kt
266 kt
$US0.72/lb Cu
$US0.82/lb Cu
Strip Ratio
0.58
Scale
Annual free cash flow (Yr 2-16) at $US2.75/lb Cu, debt financing
$US0.90b
$US0.81b
Copper reserves*
9.3 mt
14.7 mt
8.7 mt
Concentrate
Logistics
Cobre Panama would be developed as a conventional truck and shovel open pit mine with a
concentrator employing proven technology (crushing, grinding, flotation) to produce copper-gold
and molybdenum concentrate. A 300 mW coal-fired power plant and ship loading port facilities
would also be part of the Project.
The Project would be within an exploration and mining concession covering 130 km2 located in
the Donoso District, Coln Province in north-central Panama. The development would be close
to tidewater and would be advantaged by its proximity to the Panama Canal which provides
increased flexibility in sourcing supplies from both the Gulf of Mexico (North America) and South
America as well as providing convenient shipping of mine concentrates to global markets.
Page 27
May 2012
Page 28
May 2012
2.1.1
Three open pits (the Botija, Colina and Valle Grande deposits) which would be
progressively developed;
Ore crushing, conveying and stockpiling facilities, consisting of two gyratory crushers,
belt conveyors and a pad for crushed ore stockpiling for the initial Botija pit;
Provisions for a second crusher and associated conveying and stockpiling facilities to
handle ore from the Colina and Valle Grande pits
A 160 ktpd process plant consisting of two lines;
Provisions for an addition of a third line in the concentrator expanding its capacity to 240
ktpd throughput in Year 10 with negligible infrastructure modifications;
A slurry pipeline to transport concentrate to the port facility;
A port facility including concentrate loading and coal offloading facilities;
A 300 megawatt coal-fired power plant;
A coast access road, connecting the process plant with the port facility;
Plant and truck repair shop;
Warehouse and tank farm;
Camp and administrative offices;
Facilities and systems for environmental monitoring and management of effluents in
compliance with Project commitments; and
Transmission line from the power plant at the port facility to the process plant and
switchyard, continuing south to connect with the Panamanian grid at the Llano Sanchez
substation.
Geology and Mineral Resources
Page 29
May 2012
Cobre Panama mineral resources (inclusive of reserves) were re-estimated in early 2012 to
incorporate the 171 holes completed since the 2010 FEED Study (see Table 2-2). The increase
in measured and indicated resources reflected conversion of inferred resources into indicated
resources on the Brazo deposit and the addition of the Balboa resource. Most of the increase in
inferred resources came from Balboa.
Page 30
May 2012
Tonnes
(x 1000)
Cu
Au
Ag
Mo
g/t
g/t
Cu
Au
Ag
Mo
Tonnes
ounces
ounces
tonnes
Measured
262,000
0.56
0.13
1.5
0.009
1,476
1,118
12,979
24
Indicated
3,905,000
0.34
0.06
1.2
0.005
13,237
7,845
155,392
214
Total
4,167,000
0.35
0.07
1.3
0.006
14,715
8,963
168,454
238
3,749,000
0.23
0.04
1.0
0.004
8,660
4,805
120,534
156
Inferred
Mineral resources which do not form part of the mineral reserves do not have demonstrated economic viability.
Mineral resources as at March 5, 2012 were estimated by Robert Sim, P. Geo., of SIM Geological Inc.
Mineral resources include mineral reserves.
Resource grades are estimated using ordinary kriging with a nominal block size of 25 metres by 25 metres by 15 metres. Resources
are limited inside a pit shell defined by a copper price of $USUS2.60 per pound, $US1.75/t mining cost and $US7.02/t total site
operating cost, and are tabulated at a cut-off grade of 0.15 percent copper.
Cobre Panama has one of the largest undeveloped resources in the Metals Economics Group
(MEG) and Brook Hunt databases (see Figure 2-4). As a copper deposit not held by a major
(>$US10b market cap or sovereign), Cobre Panama stands out even more (Figure 2-5).
Page 31
May 2012
Figure 2-4 Contained Copper Endowment (resource proxy) for Undeveloped Copper
Deposits
Cu Contained in
total endowment (resource proxy) (mt)
40
35
30
25
20
15
10
5
-
Based on MEG, Brook Hunt and in the case of Cobre Panama, Inmet databases.
Cu Contained in
total endowment (resource proxy) (mt)
25
Feasibility
Construction Ready
20
15
10
0
KSM
Galore
Creek
Haquira
Casino
Schaft
Creek
Based on MEG, Brook Hunt and in the case of Cobre Panama, Inmet databases.
Page 32
May 2012
Red Chris
Cobre
Panama
Sentinel
The mine production schedule has been developed to maximize early revenues and improve overall
Project returns utilizing a conventional mining fleet. The economics of Cobre Panama would benefit
from a low life of mine strip ratio of 0.58 tonnes of waste for every tonne of ore. Mine operations
would be scheduled for two 12-hour shifts per day, 365 days per year.
A series of analyses were conducted for Basic Engineering to determine economic pit limits and the
mining phase development sequence for three mineral deposits in the concession area: Botija,
Colina, and Valle Grande. The concentrator site would be centrally located within 2 km of all three
deposits as well as the stockpile (Figure 2-9). A fourth smaller deposit, Medio, is about 500 m
northeast of the Colina pit. The new block model incorporates a small Medio pit which was targeted
by recent drilling and is part of the mine production schedule in Years 11-14.
The economic pit limit evaluations, open pit development sequence plans, and reserve estimates are
based on metal prices of $US2.25/lb Cu, $US13.50/lb Mo, $US1,000/oz Au, and $US16.00/oz Ag.
Over the life of the Project, forecast concentrator recoveries used are based on the revised Basic
Engineering flow sheet forecasts and should average about 89% for Cu, 53% for Mo, 52% for Au,
and 46% for Ag. Weighted average mining costs of $US1.77/t were used in the pit limit analyses,
along with base ore processing and general/administration costs of $US3.83/t and $US1.44/t,
respectively. The costs used to estimate mineral reserves are conservative compared to the Basic
Engineering final operating cost summarized in Section 5.2.
The ultimate pit plans and mining phase designs have not changed from the FEED Study of March
2010, with the exception of the Medio pit extension. The open pit development sequence has been
adjusted to reflect slightly lower effective cut-off grades that have resulted from increased copper
recoveries and higher metal prices used to define ore in the Basic Engineering Study. These minor
reserve changes resulted in an increase in ore tonnages of about 8%.
Page 33
May 2012
Figure 2-7 Mining Schedule Shown by Type of Material Moved and by Pit
Page 34
May 2012
Prior to M-15*
PP M-15 to M0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
Y11-Y15
Y16-Y20
Y21-Y25
Y26-Y31**
Total
Ore to ROM
Stockpile
or Mill
(kt)
214
1,227
50,241
58,062
58,400
58,654
58,400
57,950
58,400
58,400
57,360
85,407
437,152
438,001
411,876
428,310
2,320,054
To Saprock
Ore
Stockpile
(kt)
1,751
7,643
5,382
2,108
739
4,331
9,519
4,843
11,391
4,167
7,085
1,378
1,291
5,571
8,216
75,414
To
Low-Grade
Ore
Stockpile
(kt)
Waste
Rock
& Saprolite
(kt)
766
9,478
14,006
23,897
23,592
18,520
14,424
4,844
4,167
2,489
1,961
118,145
47,552
50,406
47,089
31,762
21,099
22,135
21,493
37,793
32,884
45,337
62,567
49,906
247,902
251,978
128,054
55,953
1,153,910
Total
Material
(kt)
50,282
68,755
118,718
115,829
103,831
103,640
103,837
105,429
106,842
110,392
128,973
136,691
686,345
695,550
548,147
484,263
3,667,523
Page 35
May 2012
Strip Ratio
234.41
55.02
1.27
0.99
0.78
0.77
0.78
0.82
0.83
0.89
1.25
0.60
0.57
0.59
0.33
0.13
0.58
Contractor
(kt)
50,282
12,912
7,351
376
6,476
5,614
8,680
9,806
13,019
10,138
3,119
586
38,422
44,565
28,895
240,238
Owner
(kt)
55,843
111,367
115,452
97,355
98,026
95,157
95,623
93,823
100,254
125,854
136,106
647,923
650,985
519,252
484,263
3,427,284
Cu-Au (Cu
26%)
Concentrate
Production
(k dmt)
789
1,077
1,114
1,137
1,122
1,161
1,185
1,111
933
1,344
5,830
5,858
4,702
4,318
31,681
Y26-Y31
214
1,227
52,241
58,062
58,400
56,595
46,412
35,332
23,731
13,585
7,036
16,219
164,073
272,047
16,342
77,599
Total
899,114
Prior to M-15
PP M-15 to M-0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
Y11-Y15
Y16-Y20
Y21-Y25
VG
1
2,059
11,988
22,617
33,084
40,686
39,753
63,426
164,432
164,402
284,198
84,587
1,585
4,129
10,571
5,762
91,316
1,552
111,337
266,124
17,331
-
1,751
7,643
5,382
2,108
49
27
36
49
-
691
4,331
9,519
4,842
9,814
429
3,532
690
339
5,001
-
911,233
492,375
17,331
17,044
39,187
VG
VG
0
1,577
3,710
3,517
689
903
570
8,216
-
766
9,478
14,006
23,897
23,591
16,818
10,767
1,022
199
171
-
1
1,702
3,657
3,797
3,377
352
577
-
25
790
1,938
1,214
-
19,182
100,715
13,462
3,968
Page 36
May 2012
Total
Ktonnes
47,552
50,406
47,089
31,762
9,520
4,834
1,507
9,542
5,452
27,200
49,903
41,006
147,894
24,950
331
-
11,579
17,301
19,986
23,039
11,552
3,411
3,353
4,050
74,758
147,678
35,825
2,023
5,212
15,880
14,726
9,311
4,850
5,359
79,351
91,898
53,930
19,891
-
50,282
68,755
118,718
115,829
103,831
103,640
103,837
105,429
106,842
110,392
128,973
136,691
686,345
695,550
548,147
484,264
498,948
354,555
280,516
19,891
3,667,523
Page 37
May 2012
Total material within the designed ultimate pits is estimated to be 3.501bt. Contained metal from
proven and probable mineral reserves is projected to be approximately 20.4b lb of copper, 373m
lb of molybdenum, 5.17m oz of gold, and 104m oz ounces of silver.
Page 38
May 2012
Tonnes
Cu
Au
Ag
Mo
(x 1000)
g/t
g/t
258,000
0.57
0.14
1.6
Probable
2,061,000
0.38
0.06
Total
2,319,000
0.40
0.07
Proven
Cu
Au
Ag
Mo
(x1000)
(x1000)
(x1000)
(x1000)
Tonnes
ounces
ounces
tonnes
0.010
1,478
1,126
13,020
25
1.4
0.007
7,781
4,041
91,008
145
1.4
0.007
9,258
5,167
104,028
169
Mineral reserves as at December 31, 2011 were estimated by William Rose, P.E., of WLR Consulting, Inc., a qualified
person under National Instrument 43-101.
Reserve estimates are based on the following assumptions:
copper price: $US2.25 per pound
gold price: $US1,000 per ounce
silver price: $US16 per ounce
molybdenum price: $US13.50 per pound
Mining costs : $US1.66/t of ore mined, $US1.96/t of waste mined and
Milling and general and administration cost: $US5.27/t of ore milled, average life of mine metallurgical recoveries: 89
percent for copper, 52 percent for gold, 46 percent for silver and 53 percent for molybdenum.
2.1.3
Metallurgy
Extensive metallurgical test work was carried out on the Botija and Colina deposits as part of a
feasibility study completed in 1997. This work included mineralogical and geochemical ore
characterization, comminution, copper flotation, copper-molybdenum separation and dewatering
studies.
As part of the 2010 FEED Study, an extensive sampling and test program was undertaken to
bolster the knowledge from previous work and provide insight into the variability of the
comminution and flotation response. A total of 16 metallurgical holes for grinding and flotation
tests were drilled in the Botija, Valle Grande, and Colina ore bodies. Sample preparation,
flotation testing, and testing of flotation products were done primarily at G&T Metallurgical
Services, Kamloops, B.C.. Comminution work was conducted at SGS Mineral Services,
Lakefield, Ontario, and at Philips Enterprises LLC, Golden, Colorado.
During Basic Engineering, the process flowsheet was further optimized with the removal of
sodium cyanide as a pyrite depressant. Improvements to the cleaner circuits such as a reduction
of a stage and the recycling of cleaner tails to the regrind mill have improved recovery. Test work
to support these changes to the flow sheet was performed at SGS Mineral Services, Lakefield.
Page 39
May 2012
Notes
Cu
5.8287*Ln(Cu%) + 95.775
Mo
Au
Ag
Process Plant
The Cobre Panama concentrator will be designed to use current proven technology to produce
copper and molybdenum concentrates. The Project design is based on an initial ore feed rate of
160 ktpd. The processing plant is designed with two grinding lines, each having nominal capacity
of 80 ktpd. The design also includes a planned increase to 240 ktpd in Year 10 of operations.
This expansion would include the addition of a second crusher station to crush Colina and Valle
Grande ore and a third line in the concentrator. The expansion would also include the addition of
a third grinding line, additions to bulk rougher flotation, water and air systems.
The process plant is designed to process ore at a nominal head grade of 0.5% Cu and 0.01%
Mo and maximum head grades of 0.9% Cu and 0.015% Mo.
Copper concentrate would be delivered by a 32 km slurry pipeline from the mine site to the filter
plant located at the port in Punta Rincon. After pressure filtration, the dewatered concentrate
would be stored and subsequently reclaimed and loaded onto bulk concentrate vessels for
delivery to international customers. Molybdenum concentrate would be produced from the
copper concentrate by differential flotation when the molybdenum head grade is sufficiently high
Page 40
May 2012
Changed the feed grade design criteria from 0.41% Cu nominal and 0.7% Cu design
maximum to 0.5% Cu nominal and 0.9% Cu design maximum
Increased the SAG and Ball Mill sizes and motors to ensure design throughput rate is
met over a range of ore hardness characteristics
Eliminated the use of cyanide in the flotation circuit by modifying the reagent suite
Revised the cleaner circuit configuration to remove the 3rd cleaner circuit
The middlings (scavenger concentrate and second cleaner tails) were rerouted to the
regrind mills whilst previously they were routed to the 1st cleaner bank. This should
liberate more minerals and improve recoveries
The SAG mill and ball mill discharge pumps were combined which should improve plant
availability and lowering maintenance costs.
The mill maintenance workshop was relocated so as not to interfere with the installation
of a third line.
Increased the size but reduced the number of units of regrind mills
Modified the molybdenum flotation circuit configuration by adding rougher feed
conditioning tank, and increased number of 1st and 2nd cleaner cells
Eliminated the molybdenum regrind mill
Resized the concentrate thickeners to reflect changes in copper head grade design
criteria
Increased the copper concentrate filter size
Increased throughput capacity from 150 to 160 ktpd using some of the design
contingency in the crushing and grinding circuits
The initial Botija gyratory crushers have been be resized from 60 x 89 to 60 x 110
Page 41
May 2012
Recoveries
Contained
Recoverable
Au
Ag
Cu Rec
Mo Rec
Au Rec
Ag Rec
Cu lbs
Mo lbs
Au Troy
Ag Troy
Cu lbs
Mo lbs
Au Troy
Ag Troy
x1000
x1000
Oz
Oz
x1000
x1000
Oz
Oz
(kt)
Cu %
Mo %
(g/t)
(g/t)
(%)
(%)
(%)
(%)
Y1
52,241
0.43
0.008
0.09
1.31
91.2
55.0
57.7
47.3
496,017
9,382
158,761
2,197,379
452,440
5,161
91,587 1,039,369
Y2
58,062
0.52
0.009
0.11
1.34
92.3
55.0
59.2
47.3
668,657 11,406
201,038
2,500,983
617,084
6,273
118,933 1,183,015
Y3
58,400
0.54
0.011
0.11
1.38
92.4
55.0
59.7
47.3
691,000 13,524
207,106
2,593,730
638,532
7,439
123,676 1,226,899
Y4
58,654
0.55
0.009
0.11
1.42
92.5
55.0
60.1
47.3
705,071 11,840
209,068
2,684,133
651,975
6,509
125,691 1,269,685
Y5
58,400
0.54
0.010
0.10
1.57
92.4
55.0
58.1
47.3
695,850 12,948
186,451
2,941,948
642,976
7,121
108,390 1,391,647
Y6
57,950
0.56
0.010
0.11
1.50
92.7
55.0
58.7
47.3
718,384 13,375
197,394
2,795,988
665,643
7,356
115,895 1,322,630
Y7
58,400
0.57
0.009
0.13
1.77
92.6
55.0
63.3
47.3
733,126 11,474
243,878
3,329,455
679,234
6,305
154,281 1,574,945
Y8
58,400
0.54
0.009
0.11
1.72
92.1
54.8
60.4
47.3
691,835 11,818
199,577
3,224,473
636,983
6,481
120,578 1,525,262
Y9
57,360
0.47
0.008
0.08
1.56
90.8
54.4
56.5
47.3
588,441 10,025
153,870
2,882,785
534,597
5,454
86,978 1,363,598
Y10
85,407
0.45
0.008
0.08
1.48
91.2
54.8
55.7
47.3
844,811 14,728
220,231
4,067,640
770,176
8,071
122,647 1,924,103
Y11-Y15
437,152
0.39
0.007
0.06
1.37
89.6
54.2
49.7
47.3
3,730,176 63,071
809,995
19,245,778 3,341,760
34,178
402,698 9,103,594
Y16-Y20
438,001
0.38
0.008
0.07
1.27
90.7
55.0
54.1
47.3
17,923,250 3,357,878
40,338
571,152 8,478,077
Y21-Y25
411,876
0.34
0.006
0.05
1.45
88.5
54.1
47.9
47.3
3,044,904 55,696
656,669
19,226,507 2,694,961
30,156
314,317 9,094,779
Y26-Y31
428,310
0.33
0.006
0.05
1.34
79.9
46.4
37.2
40.2
3,097,280 60,475
666,843
18,396,852 2,474,937
28,040
248,038 7,401,672
2,318,613
0.40
0.007
0.07
1.40
89.0
53.3
52.4
46.1
Total
Page 42
May 2012
Three forms of mine waste materials would be generated during the mine construction and mine
operation.
They include:
i) Pit Waste Rock
Various facilities would be constructed to stockpile and store saprolite and waste rock:
The Botija North Waste Rock Storage Facility would store the waste rock generated in the
early years of mine construction and mine operation.
The Botija North Saprolite Stockpile (BNSS), constructed within the footprint of the Tailings
Management Facility (TMF) during the early phase of mine construction, would receive
saprolite materials excavated from the Botija Pit development.
The Botija South Waste Rock Storage Facility, as well as a low-grade ore stockpile in the
Botija West area, would be constructed in the early years of mine development. Waste rock
stockpiles to be constructed at a later phase in the mine operation, when required, would
include the Botija West Waste Rock Storage Facility, the Colina North Waste Rock Storage
Facility, and the Southwest Waste Rock Storage Facility.
Page 43
May 2012
Solid waste from both the mine/plant site and the port site would be disposed of using
incinerators, waste storage buildings, a solid waste sorting facility, and sanitary landfills.
Hazardous waste would be stored in secure facilities prior to being shipped offsite to approved
disposal facilities.
2.1.6
The TMF would store tailings for the first 22 years of mine operation, after which tailings would
be discharged into the mined-out pits for the remainder of mine life. Water recycled from the
TMF would also provide mill process water. Tailings would be transported from the plant site
through a pump and pipeline system. The TMF is designed to store a minimum of 1.54bt tailings
produced over the first 22-year period; about 1.35bt of this will be placed in the impoundment
and the remainder used in cycloned sand embankment construction. A storage capacity of
approximately 1.0b cubic metres would be created within the impoundment area. The milling
operation produces two separate tailings streams, each of which would be deposited separately:
90% rougher tailings (non-acid generating or NAG) deposited on the beaches and
cycloned for producing sand for dam construction; and
10% cleaner tailings (potentially acid generating material or PAG) deposited and
maintained under submerged condition. Cleaner tailings would be deposited into the TMF
for the first 20 years and thereafter into pits.
Page 44
May 2012
Water Management
The Project area receives between 4.5 and 5 m of rain annually, making water management an
important consideration. The water management system has been designed to minimize the use
of freshwater and thereby reduce the water footprint of the Project. The principal water
management facilities incorporated into the Project design include:
Botija North Saprolite Stockpile sedimentation pond
Botija Pit sedimentation pond
Botija South Waste Rock Storage Facility collection ponds
Process Water Pond (PWP)
Botija West sedimentation pond
TMF pond and ancillary facilities (including seven seepage collection facilities at Year 5)
Fresh water ponds (one at the mine area and another at the port area)
Open pits (including Botija, Colina and Valle Grande)
Sedimentation ponds along access roads or for temporary works
These water management facilities would:
Collect potentially contaminated surface runoff or seepage
Control total suspended solids level in discharge
Alleviate the impact of runoff due to extreme rainfall events
Provide water supply for mine operations
Facilitate the dam raise operation of the TMF
Page 46
May 2012
Power Plant
The power plant is scheduled for construction during 2013 to 2015, concurrent with overall
project construction. It is expected to produce electric power at an average life-of-mine cost of
US4.43/kWh which should result in a significant cost savings compared to an approximate
average cost of US10/kWh in Panama. The power plant would consist of two pulverized coalPage 47
May 2012
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May 2012
Page 50
May 2012
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2.2
2.2.1
As part of its commitment to Corporate Responsibility and incorporation of best practice in its
operations, MPSA established an ITRB in 2009 during the FEED phase of the Project. The
MPSA ITRB was established to provide on-going, independent confirmation to MPSA by
internationally-recognized experts that the design, construction, operation and closure of the
Cobre Panama TMF would conform to international best practice. The objective of establishing
the ITRB was to confirm that the TMF would ensure the operational sustainability of the mining
operation and would not pose a hazard to the environment and the local communities over the
long term. The ITRBs mandate is to monitor the design and operating plans of the TMF to
ensure that Inmets Mine Waste Management Policy will be incorporated into the TMF at all
stages of the mining life cycle. The ITRB is independent of the TMF designers and the ITRBs
scope includes reviewing, commenting, questioning and critiquing all aspects of the TMF,
including, but not limited to: engineering design, including design criteria and factors of safety
under both static and pseudo-static loads; construction practices; operation and maintenance;
closure and post-closure; stability analyses; water management and treatment, including both
surface and ground water; geochemical considerations; management systems; budget and
staffing; emergency preparedness and response planning; and community interaction. The ITRB
considers the risks and possible impacts to health and safety, environmental protection and
communities and will advise MPSA on designing and implementing mitigation strategies.
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May 2012
URS Corporation was mandated by MPSA to independently review the plans for the Project
tailings dam.
The focus of attention of the URS report was on:
precedent and best practices in the construction of tailings dam in high rainfall conditions.
The URS report concluded that the TMF design criteria is in compliance with international design
standards and CDA guidelines and constitutes a robust design. The report also noted the level of
competency of the ITRB and JVP engineering and construction team and confirmed their
understanding of the significant challenges involved in the execution of the tailings dam for
Cobre Panama.
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May 2012
PRIVILEGE TO OPERATE
3.1
Panama
Page 54
May 2012
3.00
2.90
2.80
2.70
2.60
2.50
2.40
Lower Risk
2.30
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Recognizing Panamas improving financial track record, particularly during the 2009 financial
crisis when Panamas economy continued to grow, Standard & Poors upgraded Panamas credit
rating in 2011 from BB+ to BBB- status. Fitch had already upgraded the country in 2010.
Cobre Panama would have a significant impact on the economy of Panama. 6,700 direct jobs
would be created during construction and 2,100 jobs during operations. Including indirect jobs,
these figures would climb to 17,900 and 6,300, respectively (Figure 3-2). It has been estimated
Page 55
May 2012
Operation
Construction
11,200
4,200
6,280
17,900
6,700
Direct jobs
2,080
Indirect jobs
Direct jobs
Indirect jobs
The Cobre Panama Project would bring with it the introduction of large scale mining to the
country and the start of a new, major industry. The government executive has visited different
mining countries in the region and has had high level discussions with its peers. These meetings
have helped the government determine that a strong mining industry would help with the social,
technological and economic development of the country.
3.1.1
Minera Panama was granted the mineral concession to explore and exploit the property under
Law 9. Law 9 has an initial twenty-year term ending in 2017 and provisions for two consecutive
twenty-year extensions.
Under Law 9, Minera Panama has the rights to explore for, extract, exploit, beneficiate, process,
refine, transport, sell and market the gold, copper and other mining deposits on the concession.
It must pay a 2 percent royalty on all mineral product revenues to the Government of Panama.
Law 9 also grants to Minera Panama rights of way on state owned lands and easements to use
surface lands on concessions adjacent to the Law 9 concession, and the right to build, maintain
and use on such lands and easements for use to build, install, maintain and use facilities and
installations that Minera Panama deems convenient for the development of the Cobre Panama
project.
The legal regime established by Law 9 for the development of the Cobre Panama concession is
supplemented by the Mineral Resources Code of Panama (Code). In February 2011,
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May 2012
Contract Law 9
MPSA has been a registered Panamanian business since 1995. It was previously called Minera
Petaquilla S.A. and was renamed in 2008.
MPSA was granted the 13,600 hectare Petaquilla concession via Contract Law 9. Being a
contract law, Law 9 requires the consent of both parties to effect any changes. Renewals are
standard and are awarded in the year of the renewal. Law 9 establishes the financial and
juridical stability arrangements with the government for the development of Cobre Panama.
Some of the benefits that MPSA would enjoy are duty-free imports, no withholding tax on exports
and dividends, fewer restrictions on the use of foreign workers and professionals and automatic
Rights-of-Way through government lands.
Two items in Law 9 will likely be changed to align with the new Code:
The current 2% royalty under Law 9 would be increased to 5% for base metals and 4%
for precious metals. A significant part of the revised royalty, 2% of the 5%, would likely go
to the local municipalities, which should help ensure strong local support for the Project.
A tax provision that currently states that no income tax would be payable for as long as
any debt exists on the Project. Recent discussions with the government would most
likely see this tax holiday eliminated. See Table 6-2 for modelled debt assumptions.
Both these anticipated revisions to Law 9 have been reflected in the financial forecasts and the
economic evaluations contained in this document.
For the changes to Law 9 to be implemented, MPSA and the government would have to agree
and then these would have to be approved by the Legislative Assembly.
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May 2012
Inmet believes that corporate responsibility builds reputation and reputation drives value. Our
commitment to meeting leading standards of health, safety and environmental management, to
contributing to the development of sustainable communities and to being open and transparent
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May 2012
We believe this level of outreach and activity with organizations shaping the future of sustainable
resource development is a necessity in our business. We also believe commitments to evolving
international best practice in Corporate Responsibility (CR) deliver clear business benefit to us.
3.3
At Cobre Panama, our goal our responsibility is to ensure that the benefits of our operation
are shared with the people of Panama. We are committed to leveraging the positive and helping
reduce adverse impacts of the Project. We expect that Cobre Panama would to help improve
the economic conditions of nearby residents and lead to sustainable socioeconomic
improvements throughout Panama. As well, through a rigorous focus on environmental
management, landscape-scale conservation and species-level conservation, we are confident
that the rich biodiversity of the area surrounding our operation will be protected.
An endorsement of this vision for Cobre Panama, and Inmets commitment to it, after several
years of presence in the area was the approval of the ESIA in December 2011. In light of the
challenging context of the Project, the ESIA approvals highlight Minera Panamas capability to
work with local stakeholders and to develop and implement innovative approaches to deliver net
positive benefit.
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May 2012
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May 2012
2. Labour and
Working Conditions
3. Pollution
Prevention and
Abatement
4. Community Health,
Safety and Security
5. Land Acquisition
and Involuntary
Resettlement
6. Biodiversity
Conservation and
Sustainable Natural
Resource
Management
7. Indigenous
Peoples
8. Cultural Heritage
3.3.1
PAGE
63-67,
112
112,
119,
121
44,
112
60
68
63,
112
71
63
Panamas constitution states that it is the responsibility of the State to ensure the proper use of
natural resources and the protection of the environment for the benefit of society. Law No. 41 of
July 1, 1998 identifies the Autoridad Nacional del Ambiente (ANAM), the Panamanian
environmental regulator, as having primary responsibility for the administration of the ESIA
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May 2012
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May 2012
The Petaquilla River basin, which drains northwest from the west side of the mine site to
the Caribbean coast;
The Caimito River basin, which has six sub-basins: Rinconcito River (Uvero), Uvero
River (del Medio), Del Medio River (Pif), Hoja River (Caimitn) Upper Caimito River and
Lower Caimito River, which mostly drain northward to the Caribbean coast; and
The San Juan River basin, which has four sub-basins, including the Upper San Juan,
Turbe, Limn and Botija rivers. The San Juan River basin drains eastward joining the
Cocle del Norte River basin, which drains north to the Caribbean coast, and combines
runoff from the Coclesito, Cascajal, Toabr and Cuatro Calles river basins, in addition to
that of the San Juan River basin.
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May 2012
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May 2012
There is no doubt that the local communities expect us to deliver action and they will hold us to
the high standard that we have set for Cobre Panama.
3.4.4
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May 2012
Partnerships
Many of the actions that MPSA is undertaking now and would undertake in the future to deliver a
net positive benefit require expertise that is not central to our experience. MPSA has
incorporated partnerships with NGOs and educational institutions to bring the required expertise
to bear, build public confidence in our actions and to deliver on our actions. Partnerships will
involve both the environmental (biodiversity) and social (community development) elements and
we have already been active in establishing such relationships.
In summary, despite the challenging context, Inmets and MPSAs best and next practice
approach has resulted in a clear privilege to operate. Indicators for this are summarized below.
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May 2012
Positive proof
MPSA Community Relations monitoring
Media report, MPSA Community Relations monitoring
Media reports
MPSA Grievance Officer data
Government of Panama decree
Permit documents in-hand
Minister of Industry and Commerce (MICI) Quijanos
statements supporting the mining industry after passing
of the mineral resources code April 3, 2012.
Government officials present (including Minister of
Government, MICI Vice Minister) at the MPSA launch of
the Donoso regional development plan April 27.
Bilateral agreements between MPSA and various
government institutions including health and agriculture
ministries and training and human development agency.
CAM Phase II Independent Engineers Report
Signed RAPs
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May 2012
4.1
Basis of Estimate
The Basic Engineering capital cost estimate for the Cobre Panama Project is based on an initial
ore feed rate of 160 ktpd to the grinding plant. The total estimated capital cost to bring the
Project into operation is $US6.18b.
Sustaining capital, that includes a third line expansion to 240ktpd, is estimated to be $US2.92b
over the projected 31-year life of operations. All dollars in this section are third quarter 2011
United States dollars, with no allowance for escalation.
Engineering, procurement and construction scope of work for the Basic Engineering estimate
was completed to a level consistent with an Association for the Advancement of Cost
Engineering (AACE) Class 2 estimate (the Estimate) with an intended accuracy level of +/-10%,
as determined by a team of independent third party reviewers who assessed the quality of the
estimate, including quantities and productivities (see Section 4.4 for more details, including a
definition of an AACE Class 2 estimate).
The comprehensive estimate is comprised of over 9,000 lines over 800 pages. No major
omissions were identified by independent third party reviewers, and the majority of
inconsistencies identified were found to have a conservative effect. The review also produced
several recommendations, which were subsequently implemented to enhance the quality of the
estimate.
The engineering to-date is significantly advanced and has been focused on high over-run risk on
large capital spending items.
An extensive amount of engineering has gone into
installation/construction planning and detail engineering for the initial activities of the execution,
ie site capture, site services and earthworks. The graphic below shows the engineering progress
by area.
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May 2012
JVP Estimates
$US0.57b
19 Packages
Budget
$US2.00b
74 Packages
Firm
$US3.61b
70 Packages
The capital estimate is not subject to significant foreign exchange fluctuations as the estimate is
based on information and quotations that were obtained mainly in US dollars (93%) and
Canadian dollars (6%). The remainder was mostly in euros, Korean won and a small degree of
Swiss francs.
Estimates regarding mining equipment, a portion of the mine stripping and owners costs were
provided by MPSA.
4.1.1
Site Investigation
Extensive additional site investigation activities were completed, both onshore and offshore,
during the course of Basic Engineering that lend greater certainty to the capital cost estimate.
This additional information added to previous site investigation campaigns conducted as part of
the FEED Study and previous feasibility studies.
The areas that were further investigated included:
- TMF starter dam and borrow areas
- Waste Rock Storage Facilities
- Collection, Sedimentation and Fresh water pond dams
- Plant site
- Onshore and offshore portion of the port site
- Eastern Infrastructure Facilities
- Coast and Eastern Access roads with associated bridges
The program included drilling, test pits and was supported by geophysical surveys that consisted
of seismic refraction surveys which were completed at select transects located along the access
road alignment, TMF starter dam and borrow areas, camp site facilities and the crusher location.
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May 2012
The graphics below show the total estimated capital cost by major area including allowances (where
applicable) and contingencies.
$US265m, 8%
$US26m, 1%
$US355,
11%
$US844m, 25%
$US1,748m, 53%
$US79m, 2%
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May 2012
Direct Costs
Growth - Direct
Indirect Costs
Growth - Indirect
EPCM
Contingency
$US105m, 8%
$US97m, 8%
$US52m, 4%
Direct Costs
Growth - Direct
EPC
$US1,027m,
80%
$US17m
Contingency
$US30m
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May 2012
$US23m, 3%
$US29m, 3%
Owner = $US908m
$US103m, 11%
Mine Equipment
$US347m,
38%
Yard Equipment
Operations
Project Team
MPSA Capex
$US386m,
43%
Contingency
$US20m, 2%
Process Plant,
$US1,132m , 18%
Power Plant,
$US646m , 10%
Allowances,
$US157m , 3%
Owner, $US885m
, 14%
Other, $US572m
, 10%
Mine, Port, &
Infrastructure,
$US2,946m , 48%
Process Plant
Power Plant
Owner
Contingency,
$US415m, 7%
Contingency
Allowances
Note: Allowance of $US157m includes $52m for Process Plant growth and $105m for Mine, Port & Infrastructure growth.
Page 77
May 2012
CAPEX Total
($USm)
% of Project
760
12
1,184
19
550
543
Power Plant
646
10
3682
59
Construction Indirects
844
14
4526
73
EPCM Services
355
Owner Costs
885
14
Contingency*
415
6,181
100
The above capital cost estimate has increased from the previously announced FEED Study estimate
of $US4.3b. A third of the change is due to the inclusion of the power plant which has a positive
internal rate of return (IRR) on the Project. The bulk of the remainder of the increase is due to
escalation in estimates from the FEED Study which was prepared during the 2009 economic crisis
and completed in March 2010 compared to the current estimate that has been prepared in light of
higher forecast commodity prices. A reconciliation of the major changes are listed in Table 4-2
below:
Table 4-2 FEED Study to Basic Engineering Capital Cost Estimate Variances
CAPEX Total
($USm)
FEED Study capital costs
4,320
Power plant
646
403
312
285
Other
215
6,181
Page 78
May 2012
Explanation
Process Plant
Mining
Fuel cost in FEED Study was $US0.56/l, current estimate uses $US1.06/l
Unit rates for earthworks higher based on firm price quotes
Indirect costs were allocated to direct such as camp and catering
4.2.1
The power plant has been contracted at a fixed price under a lump sum engineering,
procurement and construction EPC contract with liquidated damages tied to Project completion
date. The process plant is currently in the bidding process also under a fixed price EPC contract.
The balance of the Project, under an EPCM contract with JVP, includes both penalties and
incentives tied to the Project budget, schedule and performance.
4.3
A sustaining capital cost estimate was prepared, indicating sustaining capital and including a
third line expansion, estimated at $US2.92b being over the 31-year life of operations. This
estimate allows for increasing the plant grinding capacity of 160 ktpd to 240 ktpd. The plant
expansion would be developed in two phases, with the Colina primary crushers and overland
conveyor completed by Year 5 and the third grinding line completed and ready for production in
Year 10. This expansion would significantly lower capital intensity given that the associated
infrastructure would already be in place, allowing for the expansion that should be very
economical.
Estimates are included for replacement and additional mining equipment. Other plant and port
mobile equipment is included in sustaining capital based on the replacement time cycle for each
piece of equipment.
Sustaining capital also includes costs for the continued development of the TMF, including
additional tailings pumps, tailings and reclaim pipelines. Continued development of pit
dewatering systems is also included. Additional costs are also included for expansion of the
truck shop by four bays.
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May 2012
Page 80
May 2012
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May 2012
In this section, the forecast operating costs for Cobre Panama are outlined in further detail. Set
out below is a summary of operating costs both on a per tonne basis and a cash cost net of byproducts basis. In total there are two phases of the mines operation for which the operating
costs have been broken down. Additionally, contained within this section is a broad discussion
of the components (Mine, Plant, G&A and Site Services) that contribute most materially to the
forecast costs as well as the what inputs that contribute most materially (Material, Power,
Labour).
5.1
Basis of Estimate
The operating costs represent the estimated cash cost required during the Projects operation
phase to process a nominal 160 ktpd (58.4 mt/a) of ore, increasing to a nominal throughput of
240 ktpd (87.6 mt/a) from Year 10 onwards. The operating cost estimate is based on a 31-year
life of mine operation. The first quarter of Year 1 is part of the ramp-up period and is therefore
excluded from the estimate.
The operating cost estimate presented herein is expressed in constant fourth quarter 2011 US
dollars with no allowances for escalation or fluctuation in exchange rates. Costs incurred before
plant start-up and during ramp-up periods are treated as capital expenditures and are included in
the capital cost estimate presented in Section 4.
Benchmarking of costs for input commodities such as oil (diesel), freight, steel (grinding media),
ammonia (explosives) and coal (power) demonstrated a strong correlation to the historical price
of copper. All of these commodities are directly related to the overall health of the global
economy. When prices of oil and other raw materials are relatively high, statistically significant
correlations demonstrate that it is reasonable to expect that the economic environment is robust
and likewise the price of copper. The cost assumptions for these commodities are therefore
linked to the price assumptions for copper over the long term, and were applied throughout Basic
Engineering to ensure internal validity and consistency of sensitivity analyses.
The operating costs were estimated on an annual basis for the 31 year life of mine. The costs
are reported in the following cost centres:
By cost centers, the process plant represents almost 50% of the estimated operating costs.
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May 2012
The total operating cost is estimated at $US15,897m over the LOM for a mill feed of 2,310 mt
(excluding the 9.1 mt of feed during the ramp-up period in the first quarter of Year 1). The
overall unit operating cost would be $US6.88/t of ore milled.
The total cost for each cost centre was estimated for the LOM (Table 5-1). Average costs of
operation and the LOM weighted average are presented in Table 5-2. Table 5-3 presents the
estimated operating cost by component.
The process plant and mine operations costs would account for 83% of the total operating cost,
while G&A and site services account for the remaining 17% (Figure 5-1). Materials, which
include items such as diesel fuel, maintenance parts and supplies and explosives, etc.,
represent 59% of total operating costs while power and labour represent 15% and 11% of total
operating costs, respectively.
The peak operating cost of about $US609m would occur on Year 17. The annual average
operating cost cash flow would be about $US513m.
Table 5-1 Total Operating Cost Summary
Cost Centre
$USm
$US/t
Mine
5,626
2.44
Process Plant
7,600
3.29
G&A
2,035
0.88
Site Services
636
0.28
15,897
6.88
Table 5-2 Summary of Operating Costs per Year ($US/t of ore milled)*
Cost Centre
Years 2-16
LOM
Mine
2.68
2.44
Process Plant
3.28
3.29
G&A
0.97
0.88
Site Services
0.30
0.28
Total
7.23
6.88
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May 2012
Total
Labour
Material
Power
Other
Mine
2.44
0.27
1.87
0.05
0.24
Process Plant
3.29
0.24
2.13
0.91
0.01
G&A
0.88
0.15
0.01
0.04
0.69
Site Services
0.28
0.11
0.07
0.01
0.09
Total
6.88
0.77
4.08
1.01
1.03
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May 2012
Area
FEED
Study*
Basic
Engineering**
Change
($US/t
milled)
($US/t milled)
(%)
Mine
2.14
2.44
+14%
Process
Plant
3.72
3.29
-12%
G&A
0.73
0.88
+21%
Site
Services
0.64
0.28
-56%
Total
7.23
6.88
-5%
*Based on $US2.10/lb long-term copper price; **Based on $US2.75/lb Consensus Long-Term copper price
Overall, the difference in operating costs between FEED Study and Basic Engineering is a
reduction of approximately 5%. The difference can be largely attributed to higher input
commodity costs as a result of a higher base copper price assumption ($US2.10/lb in FEED
Study and $US2.75/lb in Basic Engineering) offset by power cost savings as a result of an onsite power generating facility. The decline in Site Services cost is partially due to the removal of
a site Technical Services department from the FEED Study estimate and the subsequent
allocation of those costs to the mine and process plant. Table 5-5 illustrates the changes in unit
diesel, coal, steel grinding media, explosives and concentrate freight costs with changes in the
copper price assumption (see Table 5-5 and Table 6-3 for details of the selected metal price
scenarios).
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May 2012
Consensus Long-Term
($US/tonne milled)
($US2.75/lb)
Forward Curve
(declining to
(SEC case -
consensus)
$US3.42/lb)
Mine
2.44
2.46
2.55
Plant
3.29
3.36
3.60
G&A
0.88
0.88
0.89
Site services
0.28
0.28
0.28
6.88
6.98
7.32
Total
1,2
68.68
71.01
80.53
0.62
0.64
0.72
82.54
85.37
96.93
935.25
976.27
1,143.62
936.21
950.97
1,011.18
41.21
43.17
48.32
Diesel ($US/l)
1,2
Coal ($US/t)
5.3
Brook Hunts C1 cash cost is a commonly used operating cost measure in the base metals
industry. It is defined by Brook Hunt as the net direct cash cost, representing the cash cost
incurred at each processing stage, from mining through to recoverable metal delivered to
market, less any net by-product credits. Tables 5-6 and 5-7 summarize Cobre Panamas C1
cash cost at three metal price scenarios (see Table 5-5 and Table 6-3 for details of the selected
metal price scenarios).
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May 2012
Forward Curve
(declining to
consensus)
3-Year Trailing
Average (SEC case $US3.42/lb)
Mine
0.30
0.31
0.32
Plant
G&A
Site services
Offsite costs
By-product credits
0.37
0.11
0.03
0.30
(0.40)
0.39
0.11
0.03
0.31
(0.41)
0.41
0.11
0.03
0.32
(0.42)
C1*
0.72
0.74
0.77
Cost Item
Forward Curve
3-Year Trailing
(declining to
consensus)
$US3.42/lb)
Mine
0.32
0.33
0.34
Plant
0.44
0.45
0.48
G&A
0.12
0.12
0.12
Site services
0.04
0.04
0.04
Offsite costs
0.30
0.31
0.32
(0.40)
(0.40)
(0.42)
0.82
0.83
0.87
By-product credits
C1*
*Totals may not add due to rounding
Cobre Panamas C1 cost compares favourably against other copper mines expected to be in
operation by 2020. At a C1 cost of $US0.72/lb, Cobre Panama ranks in the 19th percentile
during Years 2 to 16 of production. Figure 5-2 illustrates Cobre Panamas position on Brook
Hunts projected 2020 C1 cost curve.
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May 2012
(1)
2020 Copper Cost League by Brook Hunt with Brook Hunts 2012 Q1 assumptions adjusted for
metal prices and derived input costs under the Consensus Long-Term Price Scenario
5.4
5.4.1
An independent third party review of the process plant operating cost estimate was performed.
Two approaches were used for the review:
Costs were verified for consistency against the design criteria and industry standards;
and
Costs were benchmarked against industry data, using a number of similar operations in
Chile and Peru.
The review concluded that the operating cost estimate for the process plant is realistic, and
consistent with other concentrator projects.
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May 2012
AMEC plc was retained to benchmark the mining costs included in the Basic Engineering
operating cost estimate. The review utilized a database of more than 20 South American openpit mines that operate truck fleets with similar operating parameters to those that would be used
at Cobre Panama.
Rather than using a cost-based approach that may be biased due to cost escalation, the
analysis was focused on Cobre Panamas projected productivity ratios (i.e. output per unit of
input consumable) as compared to those of the selected South American mines. The productivity
ratios covered major components of mining costs such as diesel, power, labour, maintenance
parts, tires, and explosives.
The report concluded that, in general, Cobre Panamas mining productivity ratios are average or
slightly conservative as compared to other similar open-pit mining operations.
5.4.3
In November 2011, MPSA mandated Sunrise Americas, LLC to conduct an analysis of MPSAs
power plant economic model and power price estimates. Sunrises findings were updated in
February 2012 to reflect a revised coal price forecast based on regression analysis modeling the
correlation between copper price and coal price, a revised schedule for mine commercial
production, and updated foreign exchange rates. Overall, the power plant economic model and
power price estimates were deemed reasonable.
Coal prices comprise approximately 80% of the power cost. By performing a regression analysis
using historical price data, MPSA has developed an algorithm to predict coal prices in relation to
copper prices (Table 5-8). See Table 5-5 and Table 6-3 for details of the selected metal price
scenarios. Over the first 9 years of operation, MPSA will obtain a power credit for the excess
power sold.
Table 5-8 Power Costs at Selected Copper Price Assumptions ($US/kWh)
Copper Price Assumption
Consensus Long-Term
($US2.75/lb)
to consensus)
Years 1-9
0.027
0.033
0.034
Years 10-LOM
0.050
0.050
0.055
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May 2012
An analysis performed for MPSA by Wood Mackenzie in November 2011 determined that
structural changes in the US coal market have created more low-cost coal supply in the region
that should be available to the Project.
While high-growth economies in Asia, namely China and India, should continue to drive global
demand growth and shift trade flows in their direction, global thermal coal prices should retract
and stay flat, in real terms, over the short to medium term before resuming growth in the longer
term.
With a weak domestic market, United States suppliers of thermal coal should be looking for
export markets and represent a very attractive supply option to MPSA due to its delivered price
and relative proximity. Colombia, a fixture in the seaborne market, typically commands higher
prices and should compete very closely with US coal for MPSA business. Venezuela has similar
delivered costs to the US and Colombia, but is a much higher risk because of the political
situation and a lack of infrastructure.
Page 90
May 2012
PROJECT ECONOMICS
In this section a number of standard valuation metrics are presented over multiple scenarios.
Included are project assessments based on varying metal price assumptions (and by correlation,
input costs) as well as varying project financing assumptions. Details of the different metal price
assumptions, input cost assumptions and financing scenarios are all contained in this section.
The operating cost discussion in Section 5 is expanded upon and the impact of a financing
scenario which includes a precious metals stream sale is evaluated in terms of how it would
impact cash costs after by-products. This section concludes with an analysis of the Projects
forecasted annual and cumulative cash flows.
6.1
Modelling Assumptions
Set out below are the assumptions used to generate the financial projections for the Project.
Assumption
Valuation Date
Start of development
Start of production
Cost inflation
Technical input
Realization costs
Copper treatment charges
Copper refining charges
Gold refining charges
Silver refining charges
Molybdenum roasting & freight charges
Freight charges
Losses & insurance charges
Taxation
Corporate tax rate
Royalty
Alternative minimum tax
Depletion allowance
Page 91
May 2012
None
None
$US6.18b (refer to Section 4)
$US2.92b (refer to Section 4)
8%
Refer to Section 2
Refer to Section 2
Refer to Section 2
Refer to Section 5
Total pre-financing sponsor funding requirement during the construction period (up to and
including Q1 2016) is summarized in Table 6-2. Refer to Section 6.6 for sponsor funding
requirement after considering Inmets financing assumptions.
Table 6-2
Item
Amount ($USb)
$6.2
$0.1
$6.3
Two financing structures are considered in the Project economic analysis (Table 6-3):
1. A levered case with third party and subordinate shareholder debt; and
2. A levered case with third party and subordinate shareholder debt, plus a gold and silver stream
sale.
These structures represent Inmets financing assumptions applied to 100% of the Project.
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May 2012
Assumptions
6.2
Three metal price scenarios are used in evaluating the Project economics:
Refer to Section 11 for our analysis on the copper and molybdenum market outlook. Table 6-4
sets out the metal prices used in each of the three price scenarios discussed.
Page 93
May 2012
Consensus Long-Term
Forward Curve
Assumptions
$US2.75/lb copper, $US15/lb molybdenum,$US1,250/oz gold and $US20/oz
silver
Tables 6-5 and 6-6 summarize the economics of the Project, showing the estimated internal rates of
return and the net present values for a range of price assumptions and discount rates.
Forward Curve
(declining to
consensus)
IRR
14.3%
18.5%
19.2%
NPV @ 8%
3,200
4,800
6,000
NPV @ 9%
2,400
3,900
4,900
NPV @ 10%
1,800
3,200
4,000
($USm)
Page 94
May 2012
Forward Curve
(declining to
consensus)
IRR
16.7%
21.9%
22.5%
NPV @ 8%
3,500
5,000
6,300
NPV @ 9%
2,800
4,200
5,200
NPV @ 10%
2,200
3,600
4,400
($USm)
6.3
Sensitivity Results
As could be expected, the Project is most sensitive to changes in copper price, followed by
capital costs and operating costs. The Projects returns should not be significantly impacted by
changes in the gold price given that gold represents only 6% of total net smelter returns.
Furthermore, changes in each of the input commodity costs of oil, steel, power and explosives
should have insignificant impacts on the overall Project returns (see Figure 6-1).
Figure 6-1 NPV Sensitivities
Debt Case NPV Sensitivity Chart
Page 95
May 2012
Cash Costs
The Project has projected operating costs in the first quartile of the industry cost curve. As
described in Section 5, the operating cost model developed during Basic Engineering treats the
price of input commodities such as diesel as a function of the copper price assumption. A higher
copper price in the financial model would therefore drive higher estimated operating expenses.
Tables 6-7 and 6-8 illustrate the sensitivity of C1 cash costs to changes in copper price under
both the Debt case and the Debt plus Stream case financing structures.
Table 6-7 Years 2-16 Cash Costs Based on Payable Copper ($US/lb)
Metal Price Scenario
Consensus LongTerm
Forward Curve
(declining to
consensus)
3-Year Trailing
Average (SEC
case)
0.72
0.74
0.77
0.14
0.15
0.16
0.86
0.89
0.93
Debt Case C1
Table 6-8 Life of Mine Cash Costs Based on Payable Copper (US/lb)
Metal Price Scenario
Consensus LongTerm
Forward Curve
(declining to
consensus)
3-Year Trailing
Average (SEC
case)
0.82
0.83
0.87
0.13
0.13
0.14
0.95
0.96
1.01
C1
With a gold and silver stream sale, the Projects C1 cash cost during Years 2-16 increases from
$US0.72/lb to a stream-adjusted C1 of $US0.86/lb under the Consensus Long-Term price scenario.
As illustrated by Figure 6-2, Cobre Panamas stream adjusted C1 still ranks favourably in the 23rd
percentile of Brook Hunts projected 2020 C1 cost curve.
Page 96
May 2012
(1)
2020 Copper Cost League by Brook Hunt with Brook Hunts 2012 Q1 assumptions adjusted for
metal prices and derived input costs under the Consensus Long-Term Price Scenario
A projects C3 cost, defined by Brook Hunt as the C1 cash cost plus depreciation expense,
closure costs, royalties, frontend taxes, interest and other indirect expenses, gives an indication
of the cost to finance, build and operate a production stream. Cobre Panamas estimated C3
operating cost during Years 2-16 of $US1.41/lb under the Debt Case would rank in the 26th
percentile on Brook Hunts projected 2020 C3 cost curve, and would be attractive compared to
the consensus long-term copper price of $US2.75/lb. With a gold and silver stream sale, the
Projects estimated C3 operating cost would increase to $US1.48/lb but would still be well below
the consensus long-term copper price of $US2.75/lb and would rank in the first half of the
projected 2020 C3 cost curve (28th percentile).
Page 97
May 2012
Forward Curve
(declining to
consensus)
3-Year Trailing
Average (SEC
case)
C1
0.72
0.74
0.77
0.50
0.60
0.62
0.14
0.16
0.18
0.04
0.04
0.04
1.41
1.54
1.61
0.13
0.15
0.16
-0.07
-0.07
-0.07
1.48
1.62
1.70
Cost Item
*Includes stream sale by-product credit adjustment and difference in the timing of depreciation expense incurred on capital assets
**Upfront payment is amortized on a unit-of-production basis on precious metals production
Forward Curve
(declining to
consensus)
3-Year Trailing
Average (SEC
case)
C1
0.82
0.83
0.87
0.48
0.48
0.48
0.14
0.15
0.18
0.03
0.03
0.03
1.47
1.49
1.56
0.13
0.13
0.14
-0.07
-0.07
-0.07
1.52
1.55
1.63
Cost Item
Page 98
May 2012
(1)
6.5
2020 Copper Cost League by Brook Hunt with Brook Hunts 2012 Q1 assumptions adjusted for metal prices and derived
input costs under the Consensus Long-Term Price Scenario
Cobre Panamas net revenues would be highly leveraged to copper prices, with copper providing
87% of net smelter returns (NSR). Current reserves yield payable metals of 17.5b lb copper,
199m lb of molybdenum, 2.5m oz of gold and 43m oz of silver. As illustrated in Table 6-11,
precious metals represent only a small portion (8%) of the Projects estimated total NSR. Figure
6-4 summarizes Cobre Panamas estimated annual payable copper production and C1 cash cost
over the projected life of the Project.
Page 99
May 2012
LOM Payable
Metal
Production
Gross
Revenue
($USm)
Realization
Costs
($USm)
NSR ($USm)
17.461b lb
48,017
(4,970)
43,047
199m lb
2,983
(303)
2,680
Gold
2.488m oz
3,111
(20)
3,090
Silver
43.109m oz
862
(24)
839
54,973
(5,317)
49,656
Copper
Molybdenum
Total
Figure 6-4 Payable Cu Production and C1 Cash Cost by Year (Consensus LT Prices Debt
Case)
Page 100
May 2012
6.6.1
Debt Case
Figure 6-5 depicts the Projects cash flow profile under the Debt Case. As outlined in Table 6-12,
net sponsor funding during the construction period (up to and including 2016 Q1) is
approximately $US5.0b. The Project is projected to generate a total undiscounted cumulative
cash flow of approximately $US20b.
Figure 6-5 Project Life After-Tax Cash Flows (Debt Case)*
1,500
20
1,000
10
500
(500)
(10)
(1,000)
(20)
(1,500)
(30)
(2,000)
(2,500)
(40)
2012
2017
2022
2027
2032
2037
2042
Amount ($USb)
$6.2
$0.1
$0.3
($1.6)
Total
$US5.0b
Page 101
May 2012
The cash flow profile of the Debt plus Stream Case is shown in Figure 6-6. Net construction
period sponsor funding is approximately $US3.8b (see Table 6-13), and the Project would be
expected to generate a total undiscounted cumulative cash flow of approximately $US19b.
Figure 6-6
1,500
20
1,000
10
500
(500)
(10)
(1,000)
(20)
(1,500)
(30)
(2,000)
(2,500)
(40)
2012
2017
2022
2027
2032
2037
2042
Table 6-13 Construction Period Funding Requirement Debt plus Stream Case ($US)
Item
Amount ($USb)
$6.2
$0.1
$0.3
($1.6)
($1.2)
Total
$US3.8b
Page 102
May 2012
Page 103
May 2012
PROJECT FINANCING
Cobre Panama is owned 80% by Inmet and 20% by Korea Panama Mining Company (KPMC).
Each owner will fund its pro-rata share of the estimated $6.2b Project capital cost, as detailed in
Table 7-1.
Table 7-1 Independent Funding Breakdown
$USb
KPMC investment catch-up
$0.2
$1.2
$4.8
Total
$6.2
KPMC is wholly owned by LS-Nikko Copper Inc. (LS-Nikko) and Korea Resources Corporation
(KORES). LS-Nikko owns and operates, among other business interests, the worlds second
largest smelter producing over 500 kt of blister copper annually. KORES is wholly-owned and
supported by the South Korean government and focuses on securing a long-term supply of basic
commodities for the South Korean economy.
Inmet is a Canadian based global mining company with three low cost operating mines in
geopolitically stable jurisdictions. It is listed on the Toronto Stock Exchange and has a market
capitalization of about $4b. Inmets funding plan is outlined in Table 7-2.
Table 7-2 Inmets Funding Plan
$USb
Cash on hand
$1.7
$1.0
$1.0
$1.5
Total
$5.2
*Includes fees and debt servicing costs for the senior unsecured notes
Page 104
May 2012
% Financed
(cumulative)
$6.2
Funding sources:
KPMC
$1.4
23%
$1.7
50%
$1.0
66%
$1.0
82%
$1.5
106%
Other
$1.0
123%
$7.6
123%
As can be seen, in short duration the Project would be approximately 82% funded or 106%
considering Inmets future operating cash flow. Through the balance of 2012, rather than rely on
cash flow from its operating mines, Inmet would continue to work on creating additional financing
Page 105
May 2012
Page 106
May 2012
8.1
Page 107
May 2012
Infrastructure EPCM
Contractor: JVP
Risk Identification
Risk Identification is achieved using a systematic approach including a number of different tools
and techniques such as Risk Workshops and HAZPOS, to identify both technical and nontechnical risks.
describing the potential risk (i.e. potential failure mode); identifying the risks potential initiating
event(s); and finally, identifying the risks potential resulting effect(s).
Risk Assessment
During the Risk Assessment stage, the likelihood and consequence of each identified risk is
assessed using the Projects predetermined scales, as defined by the Projects standardized
Likelihood and Consequence Table. Consequences are assessed in terms of economic and
non-economic criteria that have been developed and approved specifically for the Cobre
Panama Project in the areas of: Safety and Health; Environmental; Community; Security; Human
Rights; Reputation; Loss/Damage; Financial; Production/Schedule; and Business/Project Impact.
Once the Likelihood and Consequence scores have been agreed upon, the risks ranking is then
determined using the Projects 5x5 Risk Ranking matrix.
Page 108
May 2012
each
risk,
three
actions
The
being
Actual
Special Considerations
Cobre Panama stakeholder risks and opportunities were identified and risk mitigants put in place
as part of Basic Engineering.
Cost Escalation
Quotes to build the power plant and the process plant (together a significant component
of Project capital expenditures) were and are being written on a Lump Sum and Not to
Exceed basis in order to reduce the likelihood that these components will bring the
Project over budget. These quotes will be received from audited vendors with the
sophistication and balance sheet to manage costs and deliver on budget.
The advanced stage of engineering for the Project (currently 38% completed) in
combination with the large portion of firm bids received to-date (58%) should further
reduce the potential for unforeseen costs.
Panamas use of the US currency is another positive characteristic of the Project that
should reduce the potential for material cost escalation due to foreign exchange
fluctuation.
The manner in which the Request for Quotation process was conducted should reduce
the potential for cost overruns. The Projects EPC and EPCM contracts are designed to
incent contractors to stay on budget and on schedule.
We believe the quotes obtained are materially conservative in some cases the labour
multiplier (unit of work over unit of time) used for work on the Project is as high as three
times what would normally be employed and some of the quotes for individual work
packages have small overlaps in scope (which could potentially reduce costs).
By the end of 2012, 50% of the Project expenditures are expected to be committed
against firm quotes currently in hand.
Overall Project contingency is 9.6% (as a percentage of TIC). When owners costs (mine
preproduction, mine equipment and owners project management (PM)) and contingency
on owners costs are removed, the remaining contingency level is 11.2%. This
percentage is in line with what might be expected of an AACE Class 2 engineering
estimate.
The Project is actively considering early group purchase of bulk commodities (to lock in
some costs of steel, diesel, cement) for construction and passing out to suppliers.
Page 110
May 2012
Page 111
May 2012
Sediment levels (TSS, TDS) down stream of project exceed Robust sediment and erosion control procedures and processes have been developed and
allowable limits during construction.
implemented in conjunction with industry experts, using significant field tests including settling
rates, turbidity to TSS relationships, TSS runoff loading, toxicology analysis and geomorphologic
studies. The effectiveness of existing procedures and processes are carefully monitored using
stations set up at key locations both on and off the project footprint.
Loss of biodiversity in project footprint.
Flora and fauna rescue and relocation programs have been developed and implemented in
conjunction with biodiversity experts, ensuring that all endangered and threatened species are
conserved . Contractors flora and fauna conservation performance is carefully monitored through
regular inspections during rescue activities.
Analysis of existing local infrastructure has been conducted to identify any improvements and
expansions required to support the expected increase in local population. The development of
required upgrades is being coordinated with government agencies and supported through the
provision of technical assistance to authorities.
Effective expediting organizations within MPSA and EPC/EPCM contractors as well as first class
customs brokers, are utilized to execute the projects procurement strategy including the proactive
expediting and monitoring of vendors based on the criticality of material/ equipment. Dedicated
EPC/EPCM procurement employees will manage custom clearance at port of Colon.
Comprehensive Safety Management plans and policies have been developed based on industry
best practices and implemented through extensive safety training including leadership and
supervisor training. Project safety goals and targets are clearly defined and safety performance is
carefully monitored across the entire project including all contractors working on site. Ratios of
qualified supervisors to workers has been predetermined and mandated for all project activities.
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May 2012
Opportunities
The installation and commissioning of a third line in Year 10 is part of the current Cobre Panama
design. The current preproduction capital provides for all of the civil work necessary for this third
Page 113
May 2012
Proven and
Tonnes
Cu
Au
Ag
Mo
Cu
Au
Ag
Mo
(x 1000)
g/t
g/t
(x1000)
(x1000)
(x1000)
(x1000)
tonnes
ounces
ounces
tonnes
2,319,000
0.40
0.07
1.4
0.007
9,258
5,167
104,028
169
845,000
0.36
0.10
1.2
0.002
3,041
2,586
33,261
21
3,164,000
0.39
0.08
1.3
0.006
12,299
7,753
137,289
190
Probable
Reserves
Indicated
Resources at
Balboa and Brazo
Total
With a substantial and growing resource base, the operation could justify working towards
expanding beyond the current design capacity. Much of the infrastructure such as the port,
power plant, roads and camp could be leveraged by expansions so these could be very
economic capacity additions.
Exploration Activities in the Concession
In late 2010, MPSA initiated its first modern, concession-wide exploration program by flying a
recently developed airborne geophysical survey. This survey identified the known shallow
mineralization and generated numerous additional similar targets. One of the first targets tested
in early 2011 was immediately west of Colina. This drilling resulted in the discovery of the Balboa
deposit. Within a year, this discovery had established an indicated resource of 602 mt at 0.36%
copper and 0.10 g/t Au and additional inferred resource of 301 mt at 0.31% Cu and 0.08 g/t Au.
On Balboa, two intersections drilled at the most north-westerly extent of Balboa returned some of
the best grades over good widths. Hole 11-116 returned 0.85% Cu, 0.26 g/t Au over 241
Page 114
May 2012
An extensive exploration program for 2012 is underway with some 36 holes testing additional
targets on the concession.
Page 115
May 2012
PROJECT EXECUTION
9.1
Project Background
The Project execution plan describes the assumptions, challenges, keys to success, and
sequence of events over the Project development period from completion of the Basic
Engineering report through design to shipment of the first concentrate.
There would be several distinct and separate construction areas:
mine site, including the process plant site;
port site;
300 mW power plant;
TMF and associated infrastructure;
Botija pit;
230 kV overhead power line and upgrades from Llano Grande; and
Coast Road and pipelines.
The methodology applied during the Project quotation phase, which included the receipt of a
large portion of firm quotes, a significant degree of completion of overall engineering and the
contractual encouragement of EPC and EPCM contractors to meet budget and schedule, has
afforded the Project a relative degree of control over schedule and scope change.
9.2
Project Organization
The organization of the MPSA Project team is based on a matrix approach, commonly used in
the industry for development of major projects. The organization provides a single point
responsibility through MPSAs Project Director to the Inmet Project Sponsor. To facilitate
management, coordination and control, the Project is broken down into three major areas: Mine,
Port and Infrastructure; Power Plant; and Process Plant.
Each area is managed by a Project Manager who is accountable to the Project Director for the
planning and coordination of all work required to deliver their respective areas on schedule, on
budget and with the required level of quality, while ensuring that safety, environmental and other
organizational objectives are met.
In performing their responsibilities, the Project Managers interface across all functional Project
groups, including health and safety, engineering, construction, procurement, environment and
Project controls. These groups are led by function managers, who also report to the Project
Director. These function managers have the responsibility to ensure that Project standards are
applied uniformly throughout the Project, and to allocate the necessary resources to deliver the
work required to meet Project objectives. The members of the Project team report to their
respective function managers, while assuming accountabilities to the Project Managers.
Inmets project sponsor is Fernando Martinez-Caro. Mr. Martinez-Caro brings 22 years of
experience in the engineering and construction industry primarily working in the contractors side
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May 2012
David Madsen, Project Controls Manager Power Plant: Mr. Madsen has worked for 31
years in project control roles with such companies as Weyerhaeuser, Phelps Dodge,
Freeport McMoRan and Kinross in South and North America.
John Cederberg, Procurement and Logistics Manager: Mr. Cederberg has 22 years
of experience in field logistics and procurement working for Minproc, Drummond, Barrick,
Sumitomo and Washington Group, primarily in Latin America.
Leo Flanigan, Senior Engineering Manager: Mr. Flanigans engineering expertise has
been built over the past 31 years in positions with MIM Holdings, Minera Alumbrera, and
OK Tedi Mining in Latin America, Australia and Papua New Guinea.
Pierre Beland. Health and Safety Manager: Mr. Beland brings 28 years of HSE
experience on large capital projects and operation management in Canada, US, Mexico
and New Caledonia working for companies like Vale, Inco and Alcoa
Page 117
May 2012
Page 118
May 2012
Elie Rizk, Engineering and Controls Director: Mr. Rizk has built his experience in
project management and design over 24 years in the pulp & paper and metals industries
on projects such as the Qatalum Smelter in Qatar and Alcan-Kitimat and AlcanShawinigan smelters in Canada.
9.3
MPSAs goal is Zero Harm and it aspires to ensure that every employee and contractor goes
home healthy and safe every day. To achieve a zero harm workplace, MPSA is working to
establish a culture and an environment where incident-free work is the norm. It does this
through implementation of occupational health and safety standards, safe work procedures, and
incident reporting processes and tools.
In 2011, Inmets operations, projects, and exploration achieved the lowest lost time injury
frequency (LTIF) in the companys recorded history. There was also a significant improvement
in the quantity of leading indicators related to safety performance through the focus on field
leadership activities and planning work with risk assessment methodologies.
At MPSA, all work from engineering and design to on-the-ground work practices will align with
the Inmet approach. During detailed engineering and construction, each contractor will develop
its project-specific occupational health and safety program and management plans. These will
incorporate Inmet and MPSAs occupational health and safety standards and procedures, ESIA
commitments and ensure compliance with relevant Panamanian legislation.
9.4
We are committed to the highest standard of environmental and social responsibility for Cobre
Panama. It is a complex project in a sensitive environment. Integrating our work with
communities and the environment is an absolute necessity, and we are working with several
groups to develop innovative ways to unite the goals of conservation and sustainable
development, so that all stakeholders benefit. MPSAs vision for Cobre Panama is to create a
Page 119
May 2012
Page 120
May 2012
Labour Relations
JVP has signed Project Labour Agreements (PLAs) with the three main Panamanian
construction unions that will provide workers for the Project: SUNTRACS, SINTRAICO and
SINTICOPP. The PLAs set an industrial relations framework across the Project and establish
homogeneous labour conditions for all contractors and subcontractors working in the Cobre
Panama Project.
Training and Hiring
MPSA is committed to maximizing the economic
and social benefit of Cobre Panama to the local
communities and to Panama as a whole. As
such, it has an obligation to prioritize the hiring of
workers from the immediate Project area and
then prioritize workers from concentric locales
around the Project. To comply with this
commitment, JVP has launched the Programa de
Desarrollo y Capacitacion Local (PDCL).
The first stage of the program would focus
exclusively on locals from the 22 target
communities immediately adjacent to the Project,
and would be introduced to contractors as Nuestros Vecinos Primero (Our Neighbours First).
PDCL would work closely with contractors to identify and train low-skilled workers.
MPSA has been working with the Panamanian Ministry of Labour to open an immigration office
in Penonom dedicated exclusively to the Project for issuance of work visas. A recommendation
of how to set up this Visa Coordination Centre is currently being put forward to MPSA and is
under discussion.
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May 2012
Sequence of Construction
9.6.1
Early Works: Specific early works activities that have commenced in advance of full Notice to
Proceed include:
Llano Grande Road Upgrade;
Pioneer Road;
Molejon By-pass Road; and
La Pintada By-pass Road.
These activities will enhance the access to the Project from the existing road network south of
the mine site.
Site Capture: Flora and fauna rescue and relocation programs to ensure species-level
conservation would precede stripping and clearing of vegetation to allow for the start of
earthworks activities.
A detailed erosion, sedimentation and drainage plan would be deployed to ensure that the
Project construction meets its commitment to protect water resources.
At the port, site capture would start with the installation of a temporary landing system formed by
jacked-up barges that will facilitate access for equipment, materials and personnel shipped to
site from the port of Coln. Once the beach head is established, portable tent camps would
ensure proper accommodation in the early days.
Earthworks: Five work-fronts are planned for optimal distribution across the area:
Port Site facilities: These include port materials handling facilities (concentrate receiving and
the coal unloading facility), the filtration plant, a storage shed, conveying systems to berth and
shiploader, permanent port site facilities andmarine works (offshore).
Utility Corridor: As the Coastal Road becomes available, the utility corridor would be built and
would include three pipes: concentrate, diesel and filtered water return.
Transmission Line: Comprises two segments:
Llano Sanchez substation to Process Plant 230 kV switchyard and temporary power 230
kV/34 kV substation, and
Page 122
May 2012
9.6.2
Process Plant switchyard to the Punta Rincon Power Plant switchyard built parallel to the
Coast Road over the forest canopy.
EPC Scope Yet to be Awarded
Process Plant: Built under a separate EPC Contract managed by MPSA, this contractor would
only mobilize on site once bulk earthworks have been completed by JVP.
9.6.3
Power Plant: In July 2011, MPSA signed an Engineer Procure Construct (EPC) Agreement with
SK Engineering & Construction (SK) of Korea, making SK responsible for the design of the
power plant facility, that would include 2 x 150 mW conventional subcritical pulverized coal-fired
boilers, under a lump sum turnkey arrangement. SKs scope of supply includes engineering
design, procurement, construction and installation of facilities, and commissioning of the units.
SK performed Basic Engineering services during the period prior to full Notice to Proceed with
the construction of the mine and its power plant.
The SK Project Management Team (PMT) would manage and oversee the work performed by its
subcontractors. Sargent and Lundy (S&L) have been subcontracted to provide complete
engineering services for the Project.
As defined in the EPC Agreement, the power plant is scheduled to be completed in 41 months
(first unit) and 44 months (second unit) from a full Notice to Proceed. Joint Venture Panama
(JVP) would provide rough grade platforms for the power plant facilities. The coal would be
imported through the marine facilities designed by JVP for delivery to the power plant.
9.7
The logistics execution strategy has been designed to support construction activities for major
work on multiple fronts, many of which will be constructed concurrently.
As EPCM contractor, the scope of JVPs seven person Logistics and Materials Management
team includes the procurement and management of equipment and materials required to support
construction at 12 project sites.
A third-party logistics provider of both off-shore and on-shore services would work under the
direction of JVP to provide all professional and technical services, equipment, personnel and
supervision required to safely execute logistics operations from several worldwide origins to the
Project site.
9.7.1
Logistics Strategy
Materials and equipment procured off-shore is estimated at 477,000 freight tons distributed over
1,500 shipments to take place over an estimated period of 54 months, starting in the Q2 2012. It
is estimated that 75% of the cargo would enter Panama via the Port of Coln, with the rest
Page 123
May 2012
Procurement
During Basic Engineering, approximately 175 packages were developed. Sixty percent of these
have received firm proposals from subcontractors. The rest have received budget (indicative)
bids or were estimated in-house.
Firm contracts have been signed for the fabrication and delivery of the mills and motors
(currently in production), power plant under a Lump Sum Turnkey EPC Contract, design and
construction of the Transmission Line, site telecommunication, marine barges and temporary
and construction camps.
Site capture, earthworks, logistics support has been finalized and procurement contracts for the
intial phase of the Project will be placed shortly after full Notice to Proceed.
9.9
Security
The development of security plans, procedures and the operational structure will be based on
and aligned with:
Threat and Risk Assessments;
Vulnerability Security Assessments;
Security industry best practices;
Performance standards established by MPSA;
Applicable MPSA site and security plans/policies;
An integrated approach to security related aspects with all entities (Client security,
contractors, etc.); and
Incorporation of the Voluntary Principles on Human Rights into security planning and
training.
9.10 Project Master Schedule and Key Milestones
A Project Master Schedule has been developed that takes into account the status of Basic
Engineering completion and all aspects of the Project scope, including the power plant
execution. The schedule also considers the process plant that is to be delivered under an EPC
contract.
The Project schedule activity work breakdown structure (WBS) is paired with the WBS set out in
the capital cost estimate as are the activity resources. The Project site weather has been taken
into consideration in preparation of the schedule based on input from earthworks contractors and
their submitted production rates established during the pricing of the earthworks in the Basic
Engineering phase. The lead times of major plant equipment have been ascertained from the
numerous quotations that were obtained during Basic Engineering.
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Date
(Estimated)
Notice to Proceed
2Q12
2Q12
4Q12
4Q13
4Q13
2Q14
3Q14
3Q15
4Q15
4Q15
4Q15
4Q15
Start of Production
4Q15
Shipment of Concentrate
1Q16
Commercial Production
2Q16
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OPERATIONAL READINESS
Operational readiness is an important factor to ensure that the business does not incur value
leakage in the critical period of ramp-up and stabilizing the operation. This is a potential risk to
the Cobre Panama Project because large-scale mining operations are new to the country, the
environment is environmentally and socially challenging and the Project includes a variety of
disciplines over a significant geographic footprint.
Table 10-1 Elements of and Assurance of Operational Readiness
Element
Safety
Plan
Inmet's safety standards, procedures, and incident reporting processes will be
implemented
Contractor will develop project-specific safety programs
ESIA commitments and will ensure compliance with legislation
Additonal Info
9.3
People readiness
9.5
Legislative
Compliance
9.4
License to Operate
Community relations and community development programs will continue seamlessly into
operations.
3.3
ERP (SAP) system already operational with development of additonal modules on-going.
Fixed Asset Managemet, HR and Payroll systems at MPSA already using SAP.
Plant Maintenance, Warehousing and reporting modules will be rolled out in preparation for
the operations.
Metallurgical accounting software to provide real-time tracking of metal production and
variance analysis
9.7
Microwave link between the mine and Penonome capable of delivering up to 300 Mbps of
bandwidth in place
Connection from Penonome to corporate headquarters provided by a third-party carrier
through a fibre-optic cable
MPSA planning to lay fibre optic cable between Port, Mine and Penonome during the
construction, this link will become the primary means of communication for the operations
phase - microwave link will remain in place as a backup
MPSA has already implemented live connected, on-stream water quality monitors and air
monitors will be implemented as part of the project.
2.1
System readiness
Services and
Infrastructure
readiness
Warehouse designed and will start out with a year's worth of supplies
Procurement and
supply chain readiness Will use a SAP system to track inventories and signal low levels
Critical capital spares identified and will be stored offsite
Equipment readiness
10
10
Experience has shown that project teams have come to understand the capital project
assurance imperative, usually applying rigorous focus to the technical design and build aspects
of the project. A similar focus on operational readiness is often neglected from the outset,
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Training for operations would include but will not be limited to:
Pre-screening system to understand potential employees skills, attitudes and tolerance
for risk before training.
Classroom, Classroom Based Training (CBT) and high fidelity Simulator training for
heavy equipment operations including dozers, graders, shovels and haul trucks.
Engineering Development Program (EDP) and Graduate Development Program (GDP)
students are obtaining North American engineering degrees and getting practical
experience at places like Metso Process Technology, Hazen Metallurgical Research and
Call & Nicholas Geotechnical before re-joining MPSA in middle management roles.
Panamanian Engineering Universities would be supplying the majority of the supervisor
level of management and these staff will undergo extensive leadership training prior to
start-up of the mine and concentrator.
A program completed by Chilean Centro Entrenamiento Industrial Minero (Industrial
Mining Training Centre or CEIM) for teaching mining skills to people without experience
will be introduced. This system was implemented in Chile as the industry does not have
enough workers available to address the expansion of the industry.
Approximately 4% of the operational workforce will be in continuous training programs.
This will give the mine the ability to train workers for different functions and have a ready
spare person in case of absenteeism.
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6%
2%
% NSR by Metal
5%
Copper
Molybdenum
Gold
87%
Silver
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May 2012
These scenarios were chosen because they are transparent, objective and customary.
However, we believe copper prices should be more robust during the early years of Cobre
Panamas operations as a result of a forecasted need for new capacity additions.
A decline in production at existing mines combined with a modest demand growth of 3.4% (the
60 year trend) should lead to a significant shortfall of copper supply without significant capacity
addition (Figure 11-2).
Figure 11-2 Gap Between Base Case Mine Production and Demand that Needs to be
Filled with Capacity Additions
The history of capacity additions from 2003-2010 suggests that although in 2003 forecasters
believed 3.5 mt of capacity would come on line from new, probable mines by 2010, only 2.0 mt
actually did come on line. Projects then, like today were challenged by permitting, financing and
project execution issues. The supply plug that stopped a massive deficit during that time was
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May 2012
In the Projects estimated remaining 25+ years of operations prices could also be robust as
grade declines that have caused the high end (price support region) of the cost curve to inflate
on a real basis relative to the average producer are expected to continue. Producing mines
would continue to deplete and so long as there is some demand growth, there could be a
periodic need to incent new capacity. Since incentive prices have seen significant escalation and
new projects are even more removed from infrastructure, this should help long-term prices.
11.4 Concentrate Quality
The copper concentrates from Cobre Panama should be of good quality with no significant
deleterious constituents. The anticipated quality of the copper and molybdenum concentrates to
be produced is based on extensive metallurgical testing carried out by Lakefield Research for
the 1998 feasibility study and by G&T Metallurgical Services for this study, and is discussed in
Section 2.1.3 Metallurgy of this report.
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Some forecasts for new projects now contain price participation but with caps on the order of
US6.0/lb to avoid an extreme situation. Adjusting 2006 for a price participation cap of
US6.0/lb changes the last 13-year average, including price participation, to US16.9 for a 26%
copper concentrate. Based on the historical TCRC analysis as well as our analysis of the future
supply and demand balance, the average TCRC, to be used for copper concentrates from the
Cobre Panama Project should be $US70/dmt and US7.0/lb of payable copper (combined
US19.7/lb of payable copper for 26% copper concentrate) with no price participation.
Copper Concentrate Freight Rates
Concentrate bulk freight rates have been received for routes from Coln, Panama, to various
worldwide destinations. As with other costs in this report, these rates have been adjusted to the
prices of oil and copper.
Based on a forecast breakdown of shipping destinations and the $US2.75/lb copper price
scenario, we forecast average concentrate shipping rates to be $US41/t.
11.6 Preliminary Copper Concentrate Sales Plan
Based on discussions with potential partners and customers and with export credit agencies, as
well as an analysis of freight cost advantages, we estimate that the Cobre Panama concentrate
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Sales terms
96.65 %, min deduction of 1 unit (10 kg)
$US70/dmt
US7/lb
$US5/oz
$US0.5/oz
92%
90%, if Ag>30 grams
90% 3 days after the arrival
10% 5 months after Departure
$US41/wmt
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May 2012
$US/dmt $US/lb Mo
Metal value
Process Deductions:
Leaching Fee for Copper
Processing Fee -6.5%
Metallurgical Loss -1%
17,196
15.00
(344)
(1,118)
(172)
(0.30)
(0.98)
(0.15)
(1,634)
15,562
(74)
15,489
(1.43)
13.57
(0.06)
13.51
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investor@inmetmining.com
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