Evaluation of the Justa Mine.pdf

Curtin University Graduate School of Business

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Mineral and Energy Capstone 603

Capstone Case Study – MSc. Mineral Economics

Financial evaluation of Mina Justa Copper-Gold-Silver Mining project in Peru

Lecturer:

Brian Maybee

Student:

Jafet I. Carpio Vera

http://www.google.com.au/imgres?q=copper+cathode&um=1&hl=en&sa=N&biw=1680&bih=869&tbm=isch&tbnid=h7m1AUXpGIpu2M:&imgrefurl=http://ccne.mofcom.gov.cn/208547&docid=14sra_BlOhc3kM&imgurl=http://pic.ccn.mofcom.gov.cn/duomeiti/10229410/0011.jpg&w=300&h=201&ei=wBmtTu-dDvDImAX258HSBw&zoom=1&iact=rc&dur=16&sig=117073181509889264926&page=3&tbnh=151&tbnw=212&start=58&ndsp=29&ved=1t:429,r:25,s:58&tx=93&ty=56

CAPSTONE CASE STUDY – MINERAL AND ENERGY ECONOMICS CAPSTONE 603

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STATEMENT OF AUTHORSHIP

I, the undersigned author, declare that this case study is my own account of my research

and contains as its main content work which has not been previously submitted for a degree

at any tertiary educational institution.

The report is my own composition and, the information derived from published or

unpublished work of others has been acknowledged in text and the list of references.

Jafet I. Carpio Vera 30th Nov, 2011

……………………… ……………………… ………………………

(Name) (Signed) (Date)


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ACKNOWLEDGMENT

I would like to convey my appreciation and thanks to Dr. Bryan Maybee of Curtin Graduate

School of Business (CGSB) for guidance, advice and teaching me the Mineral Finance and

project evaluation 601 unit, and to Professor Pietro Guj for Resource Sector Finance 602 unit

which assisted me to understand and develop a DCF simplistic, stochastic and MAP of my

project.

My thanks are also to my family and a special girl that gives me the force and motivation to

continue studying.


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Table of Contents

ACKNOWLEDGMENT .................................................................................................................. 3

LIST OF FIGURES ......................................................................................................................... 7

LIST OF TABLES ........................................................................................................................... 8

LIST OF ABBREVIATIONS ............................................................................................................ 9

EXECUTIVE SUMMARY ............................................................................................................. 10

PART 1: INTRODUCTION .......................................................................................................... 11

1.1 Background to the topic area explaining why it is of interest ................................ 11

1.2 Copper industry overview ........................................................................................ 11

1.3 Case Study Objectives .............................................................................................. 12

1.4 Methodology ............................................................................................................ 12

1.5 Project limitations .................................................................................................... 13

1.6 Project timetable ...................................................................................................... 14

PART 2: LITERATURE REVIEW ................................................................................................... 15

2.1 Location of the project ............................................................................................. 15

2.2 Major characteristics of Justa Mine project ............................................................ 16

2.3 Mine .......................................................................................................................... 16

2.3.1 Pit Optimisation 16

2.4 Oxide plant .................................................................................................................... 18

2.4.1 Crushing circuit 18

2.4.2 Vat Leaching 19

2.4.3 Clarification 19

2.4.4 Solution ponds 19

2.4.5 Ripios 20

2.4.6 Solvent extraction 20

2.4.7 Electrowinning (EW) 21

2.5 Sulphide ore plant ......................................................................................................... 21

2.5.1 Comminution 21

2.5.2 Flotation 22


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2.5.3 Concentrate handling 23

2.5.4 Tailings thickening and disposal 23

2.6 Products: ........................................................................................................................ 24

2.6.1 Copper Cathode 24

2.6.2 Copper concentrate 24

2.7 Copper supply ................................................................................................................ 24

2.8 Copper demand ............................................................................................................. 25

2.9 Strategic analysis ........................................................................................................... 26

PART 3: MODEL INPUTS, RESULTS AND DISCUSSION .............................................................. 28

3.1 Inputs and Assumptions ................................................................................................ 28

3.1.1 Pricing basis: 28

3.1.2 Annual production schedule-Mining and processing 29

3.1.3 Capital Expenditure (CAPEX) 31

3.1.4 Operating Expenditure (OPEX) 35

3.1.5 Royalties and taxes 35

3.1.6 Interest, borrowing and discounts 36

3.1.7 Stochastic Model-Copper 36

3.1.8 Sensitivity Analysis 36

3.1.9 Risk simulation (Monte Carlo) 37

3.2 Results and Discussions ............................................................................................ 38

3.2.1 Base case DCF-Stochastic 38

3.2.2 Sensitivity analysis: One input-One output 39

3.2.3 Sensitivity analysis: Many inputs - One output 40

3.2.4 Risk Analysis (Monte Carlo simulation) 42

3.2.5 Stochastic Model 44

Part 4: CONCLUSIONS AND RECOMMENDATIONS .................................................................. 45

4.1 Conclusions .................................................................................................................... 45

4.2 Recommendations ........................................................................................................ 45

References: .............................................................................................................................. 46


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APPENDICES ............................................................................................................................. 47

Appendix 1: Gold and silver prices ..................................................................................... 48


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LIST OF FIGURES

Figure 1: Mina Justa Copper Project - General Location

Figure 2: Pit design

Figure 3: Mina Justa- Oxide circuit flow sheet

Figure 4: Justa Mine - Sulphide circuit

Figure 5: World refined copper production

Figure 6: World refined copper consumption

Figure 7: Present value of net cash flow of Justa mine project

Figure 8: NPV and WACC

Figure 9: Sensitivity analysis-Tornado diagram

Figure 10: Sensitivity analysis-Spider diagram

Figure 11: Monte Carlo-Histogram

Figure 12: Monte Carlo-Cumulative probability and NPV

Figure 13: Copper price stochastic model


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LIST OF TABLES

Table 1: Project timetable

Table 2: Pit Inventory

Table 3: world production and consumption of copper

Table 4: Annual production schedule from 2011 to 2016-mining


Table 6: Annual production schedule from 2011 to 2016-processing


Table 8: Oxide and mining plant capital costs

Table 9: Sulphide plant capital costs

Table 10: Sustaining and deferred capital

Table 11: Closure costs

Table 12: Operating expenditure for Justa Mine project

Table 13: Inputs of sensitivity analysis

Table 14: Inputs of Monte Carlo simulation

Table 15: Sensitivity analysis-NPV values

Table 16: Comparison of DCF simplistic, stochastic and MAP


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LIST OF ABBREVIATIONS

Ag: Silver

Au: Gold

Bt: Billion of tones

CAPEX: Capital expenditure

Cu: Copper

DBPB: Discounted payback period

DCF: Discount cash flow

dmt: Dry metric tons

EW: Electro winning

IRR: Internal rate of return

K/E: Capital efficiency factor

LME: London metal exchange

MAP: Modern asset pricing

Mt: Millions of tones

NCF: Net cash flow

NPV: Net present value

NSR: Net smelter return

OPEX: Operating expenditure

pH: Potential of hydrogen

PLS: pregnant leaching solution

ROM: Run on mine

SX: Solvent extraction

t:t: tons: tons

WACC: Weighted average capital cost


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EXECUTIVE SUMMARY

The case study has evaluated the financial performance in Justa copper-gold-silver mining

project in Peru, and had found that the project was lucrative and would maximize returns to

shareholders.

It was developed a simplistic DCF model, DCF Stochastic and MAP model. For this study was

considered the DCF stochastic model like the main model and based in this it was

constructed a sensitivity and a Monte Carlo analysis.

The sensitivity analysis has categorized variable inputs of the project which have been

critical to the NPV. The risk analysis from Monte Carlo simulation has indicated the expected

NPV for the project, and the cumulative probability.

Furthermore, it was developed a forecast model of copper price for the time of the project

in order to reduce the uncertainty of the price. The report has four parts. The part 1

introduced the background of the case study, objectives, methodology, limitations and

timetable. The part 2 presents the literature review of the project reviewed; the part 3

shows the inputs and assumptions used in the financial model and discussed the results.

Finally, the part 4 concluded the report and provided some recommendations.


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PART 1: INTRODUCTION

1.1 Background to the topic area explaining why it is of interest

The demand of copper in the future will continue to be met by the discovery of new

deposits, technological improvement, and efficient product design and by taking the

advantage of the renewable nature of copper through reuse and recycling (Agrawal, 2010).

In addition, other metals such as gold and silver will have strong demand. Thus, mine copper

projects with contents of gold and silver are very attractive for investors; based in this view

the Justa mine copper project which is located in Peru can be very profitable (Charriot

Resource, 2009).

This project consists in develop a mine, an oxide plant (cathode copper), and a sulphide

plant (copper concentrate) with some quantity of gold and silver. The project is interested

because will permit to know costs and profitability of this kind of deposits integrated the

copper chain. In the case of copper oxides it is produced from 0.5 % to 99.9 % of purity

approximately and in the case of copper sulfides it is obtained from 1.37 % to 37.4 %.

1.2 Copper industry overview

According to international copper study group data (2010), world copper mine production

increase by 18% during the 10-year period from 13.6 million metric tons (Mt) in 2001 to 16.1

Mt in 2010: copper in concentrates rose by 16% while solvent extraction-electro winning

(SX-EW) production rose by 28%.

South America holds 45% of copper mine production, Asia and Europe are also major

importers of concentrate and South America is the greatest provider. Regarding to global

copper reserve base is close to 1Bt, (38% of global copper reserves are located in Chile) and

at the present rate of production, will be depleted in 62 years approximately ignoring

potential new deposits and scrap recycling (Boston consulting group, 2010).

Mines, refineries and semi-fabricators are not concentrated in the same geography, for

example mines are highly concentrated in South America, mainly in Chile, refineries are

more equally distributed across the globe and 72% of semi-fabricators are located in Asia

and Western Europe (Boston consulting group, 2010).


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1.3 Case Study Objectives

- Construct a base case Discount Cash Flow model (financial-technical) under assumed

certainty and under probabilistic condition to identify Justa mine profitability

through investment decision criterion based on Net present value (NPV):

When NPV > 0 invest in Justa Mine project;

When NPV = 0, invest only if there is not better projects like this;

When NPV < 0, reject the project.

- Establish the profitability of Mina Justa based in CAPEX, OPEX, percentage of finance

and other inputs.

- Develop a stochastic model in order to do a forecast of copper price for the time of

the project.

- Highlight the effects on the outputs of the project through Sensitivity Analysis.

- Simulate risk (Monte Carlo)

1.4 Methodology

The following methodology will be used in constructing a financial model for the Justa mine

project:

- Base case DCF modelling for Copper, Gold and Silver commodity.

- The inputs from feasibility study and Peruvian government’s mineral taxation and

royalty regimes will be analysed. Some assumptions and justifications will be made.

- The general inflator, real price escalator and cost escalator.

- The real dollars value of prices and costs will be converted to normal dollar value

using general inflator, real price escalator and cost escalator.


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- The gross revenue, net smelter return (NSR) and royalty will be calculated.

- Operating expenses will be calculated.

- The before tax profit and after tax profit will worked out.

- The Net Cash Flow (NCF), NPV and cumulative discount cash flow will be calculated.

- Detail capital investment in real and nominal dollars.

- Depreciation schedule.

- Sensitivity analysis and Monte Carlo simulation

- Forecasting, analysis of supply and demand, and strategic view of copper.

Forecasting of the copper price

Copper supply

Copper demand

Strategic analysis

1.5 Project limitations

The data limitations have impacts on this case study and thus, assumptions will be made

necessarily to develop the base case Discount Cash Flow (DCF) model.


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1.6 Project timetable

Number Activity Duration Start Finish

1 Pro forma 3 days 10/08/2011 12/08/2011

2 Proposal 7 days 13/08/2011 24/08/2011

3 Data collection 4 days 25/08/2011 28/08/2011

4 DCF base case 10 days 29/08/2011 7/09/2011

5 Risk analysis 4 days 8/09/2011 11/09/2011

6 Scenario analysis 5 days 12/09/2011 16/09/2011

7 Mineral

Forecasting

7 days 17/09/2011 23/09/2011

8 Strategic-Analysis

of supply

6 days 24/09/2011 29/09/2011

9 Strategic-Analysis

of demand

10 days 30/09/2011 09/10/2011

10 Project writing 22 days 10/10/2011 31/10/2011

11 Presentation

preparation

3 days 20/11/2011 22/11/2011

11 Project

presentation

1 day 23/11/2011 23/11/2011

12 Project corrections 2 days 24/11/2011 25/11/2011

13 Project editing 2 days 25/11/2011 26/11/2011

14 Project submission 1 day 30/11/2011 30/11/2011

Table 1: Project timetable


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PART 2: LITERATURE REVIEW

2.1 Location of the project

The Mina Justa Copper project is a project that owned 70% by Charriot resource limited,

30% by KOREA corp. and LS-Nikko Copper Inc. The property is located approximately 400km

southeast of Lima in Peru (Figure 1) and has been intensively explored. The mineralisation to

be exploited is consisted of a main deposit and smaller satellite deposits. The main deposit

extend over an area of approximately 2,100m north-south by 1,500m west-east, and range

in thickness from a few meters up to 150 m. The mine will be developed by open pit mining,

and processed oxide ore by leaching, solvent extraction-Electro winning (SX-EW) to produce

cathode (99.99% Cu) and sulfide ore by flotation to produce concentrate with some content

of gold and silver.

Figure 1: Mina Justa Copper Project - General Location


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2.2 Major characteristics of Justa Mine project

Total probable reserve: 163.4Mt @ 0.8 % Cu

Waste: 402.4Mt

Oxide reserve: 114.6 Mt @ 0.56 % Cu

Sulphide reserve: 48.8 Mt @ 1.37 % Cu

Strip ratio: 2.45

Mine life: 12 years

Average pit slope: 45˚

(Access: single ramp with 10% gradient, 20m bench)

Preproduction stripping: 27.9Mt

Resources indicated: 336.8 Mt @ 0.76 % Cu (Cut off 0.3 % Cu)

Resources inferred: 64.6 Mt @ 0.82 % Cu (Cut off 0.3 % Cu)

2.3 Mine

The Justa mine deposit is located at low altitude in an arid area of moderate topography.

Rock strengths are low to moderate. There is no groundwater at planned mining depths and

insignificant rainfall. These factors suggest that open pit mining should be routine and low

cost. With the objective to minimise dilution and mining losses it was selected 10 m benches

and 5 m mining flitches (Charriot resource, 2009).

2.3.1 Pit Optimisation

The resource model prepared by Snowden was based on 25x25x5 m parent block size with

5x5x1 m sub-cells. Several regularised mining models were prepared to simulate the impact

on dilution and mining losses relative to the in-situ resource model, and a block size of 10 x

10 x 5 m was selected as the basis for mine planning.

Pit optimisation of the mining model (Indicated mineralisation only) was carried out using

Whittle Four-X software. Optimisation input parameters were based on then-current

information, including overall slope input (41° to 44°) from Knight Piésold (Charriot

resources, 2009).


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The table 1 shows the pit inventory of the mine.

Pit Inventory

Unit Main Pit Northern

Oxide

Copper 40 Magnetite

Manto

Total

Vat Ore Mt 90.4 17.0 2.6 4.6 114.6 Concentrator Ore Mt 48.0 - 0.8 - 48.8 Waste Tonnes Mt 329.5 43.5 10.9 18.5 402.4 Total Material Mt 467.9 60.5 14.3 23.1 565.8 Strip Ratio SR t:t 2.38 2.56 3.23 3.96 2.46

Table 2: Pit Inventory

Pit design is shown in figure 1.

Figure 2: Pit design


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2.4 Oxide plant

The Mina Justa Project utilises sulphuric acid leaching to extract copper from the Oxide ore.

The leached copper is purified and upgraded by solvent extraction (SX) to provide a rich

electrolyte to the electrowinning (EW) plant, producing copper cathodes. The feed to the

leaching process is prepared by crushing and screening to achieve a -8 mm product size.

Throughput is 12 Mt/a. The Oxide ore process flow sheet is depicted in Figure 3.

2.4.1 Crushing circuit

This is sized to handle 1712 t/h, assuming overall 80% availability. Ore is delivered by 220 t

mine haul trucks tipping directly into the run on mine (ROM) bin, although provision is made

for stockpiling and feeding for the process.

The crushing circuit is composed by:

- Primary crushing - Secondary crushing - Tertiary crushing - Quaternary crushing

Figure 3: Mina Justa- Oxide circuit flow sheet


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2.4.2 Vat Leaching

According chariot resources (2009), crushed ore (-8 mm) is sent to the fine ore bin, which

provides a surge capacity of one hour. The crushed ore is drawn from the fine ore bin, and is

sprayed with dilute sulphuric acid as it passes from one discharge conveyor to another to

promote leaching. The acidified ore is transported by conveyor for loading into leaching

vats.

The vats are composed by concrete shells (30 m wide, 40.5 m in length and 7.6 m high), and

capable of holding 12,800 t of ore for a six day leaching cycle. At any one time, 16 vats

participate in the leaching process. Furthermore, 18 vats have been designed to allow for

loading, unloading, filling, draining and maintenance.

At the end of the leaching cycle, the remaining solution is drained from the vat and the

moist waste solids (“ripios”) are removed by a clamshell grab, placed into a hopper and

discharged onto a conveyor system for transfer to the ripios dump. The solution (PLS) is sent

to the next step which is clarification (figure 3).

2.4.3 Clarification

After leaching the PLS is clarified using flocculants, as a result is obtained a solution without

solids which is the overflow who is sent for the solution ponds and the underflow solids are

pumped to the vats.

2.4.4 Solution ponds

The PLS pond is 6 m deep and has been sized to contain 24 500 m3 of solution. The pond

provides over 24 hours of surge capacity, as the advance flow to SX is 980 m3/h. This allows

for some PLS blending and settlement of any remaining suspended solids. The raffinate

pond is also 6 m deep and has been sized to contain 15 800 m3 of solution. It is not covered.

It also serves as an emergency reservoir in case one of the vats is drained by accident or


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intentionally in an emergency. Allowing for the liquid volume from one vat, the surge

capacity ahead of the vats is over 10 hours (chariot resources, 2009).

2.4.5 Ripios

The ripios remaining after the leaching stage are removed from the vat by an unloading

crane with a 22 m3 clamshell grab.

The clamshell discharges the ripios into a hopper that feeds the ripios receiving conveyor.

This material is then transported to the ripios area via three discharge conveyors. The last

ripios conveyor feeds a bin, from which haul trucks are loaded for final disposal in the

adjacent ripios dump.

2.4.6 Solvent extraction

According chariot resources (2009), the SX process involves the selective extraction of

copper from the dilute PLS to produce a high purity, high tenor copper sulphate solution

suitable for the EW process. The SX system is composed of a single train that includes two

extraction mixer-settlers treating the PLS. These are in series with a loaded organic wash

mixer-settler and then an extraction mixer-settler, which produces the rich electrolyte feed

to electrowinning. At the nominal PLS copper tenor of 7 to 8 g/L and pH at 1.9, copper

recovery in SX is projected at 94%. Both extraction and strip units are expected to run in the

organic continuous mode.

Solution is pumped from the PLS pond to the extraction circuit where it is contacted with

the organic phase to extract copper from the aqueous phase.

Spent electrolyte from the EW process enters the strip circuit at the primary mix tank and is

mixed with the loaded organic stream prior to passing through the strip settler for

disengagement of the aqueous and organic phases. Copper-rich electrolyte flows by gravity

to the “strong electrolyte” tank. Strong electrolyte contains minor amounts of particulate

solids and entrained organic, which are removed prior to EW using CoMatrix dual media

filters.

A reverse flow design is selected for the mixer/settler layout to minimise plant footprint and

pipe run length. Primary and secondary single mix tanks are utilised for each stage. The


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settlers are constructed with concrete walls lined with FRP. The settler roofs are constructed

of steel cladding with access ports for maintenance.

The SX area includes a series of floor drains that drain to a set of sumps/firetraps. This

arrangement eliminates pooling of corrosive or combustible fluids in the bund.

Crud from various areas within the SX plant is pumped through the crud centrifuge that

splits the crud into its three constituent phases. The aqueous phase is returned to the SX

circuit, whilst cleaned organic phase is either returned to the SX circuit or treated with

activated clay. Contaminated solids are collected for separate disposal.

2.4.7 Electrowinning (EW)

The EW circuit utilises permanent cathode technology to produce LME Grade A cathode

copper (around 99.99%). EW is conducted using a total of 122 cells at a nominal current

density of 320 A/m2. Copper plating is continuous over a period of six days before the

cathodes are removed and processed for dispatch.

The copper-rich electrolyte (“strong electrolyte”) passes to the EW circuit where copper is

recovered in the form of copper cathodes. Electrolyte that has been depleted of copper

during the EW process (“spent electrolyte”) is recycled to the strip stage in the SX circuit

(Charriot resource 2009).

2.5 Sulphide ore plant

The overall process flow sheet for the Sulphide plant is shown in figured 4:

2.5.1 Comminution

The comminution circuit is designed to treat 5 Mt/a of sulphide ore to produce a product

size of P80 150 μm. It is composed by (figure 4):

• Primary crushing circuit

• Primary Grinding and Pebble Crushing circuit


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• Secondary Grinding and Classification

2.5.2 Flotation

The flotation circuit is composed by bulk flotation, concentrate regrind, cleaner flotation

and recleaner flotation (figure 4).

• Bulk flotation: cyclone overflow from the secondary grinding circuit, at a pulp density of

35% solids and pH of 9, reports to the rougher/scavenger circuit. The rougher flotation stage

consists of two 70 m3 tank cells, and the scavenger flotation stage consists of four 70 m3 tank

cells. The total installed residence time for the rougher-scavenger flotation circuit is 20

minutes. Rougher/scavenger flotation concentrates are pumped to the regrind circuit for

further grinding.

• Concentrate regrind: the rougher and scavenger concentrates report to the regrind ball

mill circuit for fine grinding. A P80 in regrind cyclone overflow of approximately 49 μm is

achieved.

• Cleaner/recleaner flotation: selective flotation is achieved in the cleaner flotation circuit

through the addition of collector and frother, and by increasing the pulp pH to 11. Cleaner

flotation is carried out in four 38m3 cells with a total nominal residence time of 10 minutes.

Cleaner concentrate is transferred for further cleaning in the recleaner circuit. The

recleaners consist of three 16 m3 u-shaped flotation cells with a total nominal residence

time of 10 minutes.

The recleaner concentrate is pumped to the concentrate handling area. The cleaner

flotation tailings flow to cleaner scavenger flotation. The cleaner scavengers consist of three

38 m3 u-shaped flotation cells with a total nominal residence time of 10 minutes. The

cleaner scavenger flotation tailings are transferred to the tailings disposal circuit (Charriot

resources, 2009).


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2.5.3 Concentrate handling

The recleaner concentrate is screened to remove debris from the slurry, in order to protect

the thickener and downstream filter operation. Thickening of the concentrates is conducted

using a 15 m diameter high-rate thickener to produce a product at 65% solids.

The thickened stream is transferred to the filter feed-tank, which provides a storage

capacity equivalent to 12 hours. The concentrate solids are dewatered by a pressure filter.

The filter discharges moist concentrate directly onto a storage slab below the filter. The

filtrate returns to the concentrate thickener (figure 4).

Concentrate is transferred from the stockpile into a storage shed by a FEL, which is also used

to load road trucks for shipment (Charriot resources, 2009).

Figure 4: Justa Mine - Sulphide circuit

2.5.4 Tailings thickening and disposal

Two tailings streams are produced by the concentrator, the cleaner scavenger tailings (CST)

stream with potential for acid generation, and the rougher scavenger (RST) tailings stream

with low acid generation potential (figure 4).


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2.6 Products:

Mina Justa will produce two kinds of products which are: copper cathodes and copper

concentrate with some content of gold and silver.

2.6.1 Copper Cathode

The copper cathode has 99.99 % of purity and it will be sold in South Korea.

2.6.2 Copper concentrate

The average of copper concentrate is 37.38 % with 0.727 g/t of gold and 337.2 g/t of silver.

2.7 Copper supply

According to ICSG data (2011), world copper refined production rose by 14.8 Mt in 2000 to

19.48 Mt in 2011 (table 3). Between 2000 and 2010 this is basically explained because

during this period there were some changes such as: a 680,000 t increase in Chilean

production, a combined 1.9 Mt increase due to the revival of the African copper belt and

expansions/new projects in Peru and China, and a combined decline of about 625,000 t

(18%) in Canadian, Indonesian, Mexican and U.S. production. On a regional basis,

production increased by 157% in Africa (800,000 t), 24% in Latin America (1.4 Mt), 26% in

Asia (660,000 t) and 12% in Europe (170,000 t), and declined by 19% in North America

(450,000 t) and 4% in Oceania (45,000 t).


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Figure 5: World refined copper production

2.8 Copper demand

World annual refined copper usage increased from 15.19 to 19.68 Mt between 2000 and

2011. Growth was driven by China where apparent usage over the 10-year (2000-2010)

period increased by around 5.1 Mt. World usage excluding China in fact decreased by 6%

(750,000 t) during the period, with particularly weak usage in 2008 and 2009 due to the

world economic recession. On a regional basis, usage grew in Africa by 119% (155,000 t), in

Asia ex-China by 22% (800,000 t), and in Europe ex-EU by 58% (312,000 t). Usage decreased

in the Americas by 27% (1.1 Mt), in the EU by 22% (935,000 t), and in Oceania by 24% (ICSG,

2010).

0

2

4

6

8

10

12

14

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mto

nn

es

Years

World refined copper production


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Figure 6: World refined copper consumption

Year Supply (Mt) Demand(Mt)

Refined production Refined consumption Difference

2000 14.80 15.19 -0.39 2001 15.64 15.01 0.62 2002 15.35 15.21 0.14 2003 15.27 15.72 -0.45 2004 15.92 16.83 -0.91 2005 16.57 16.68 -0.11 2006 17.29 17.06 0.23 2007 17.93 18.24 -0.31

2008 18.20 18.06 0.14 2009 18.28 18.09 0.19 2010 19.04 19.39 -0.35 2011 19.48 19.68 -0.20

Table 3: world production and consumption of copper (ICSG, 2010-2011).

2.9 Strategic analysis

Some important points to be considered for copper projects:

0

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4

6

8

10

12

14

16

18

20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mto

nn

es

Years

World refined copper consumption


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- Based in supply and demand for copper of the last 12 years, it is expected that

copper demand will continue growing in the near future. In fact new projects such as

“La Granja” owned by Rio Tinto (Rio Tinto, 2011), the expansion of Olympic Dam

(BHP Billiton, 2011) and the new expansion in Codelco (Codelco, 2011) reflects the

necessity to cover this actual demand for copper.

- According to chariot resource (2009), the operating expenditure of copper projects

are very attractive in developing countries (16.70 US$/t).

- Some issues in developing countries such as social conflicts, poverty, royalties, risk

country and closure of mines need to be addressed and discussed.

- The NPV (US$ 906.27M) of Justa mine give to investors an important view of

profitability of this kind of copper deposits in developing countries.


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PART 3: MODEL INPUTS, RESULTS AND DISCUSSION

3.1 Inputs and Assumptions

Some inputs are based in the feasibility report of chariot resources 2009 (Charriot

resources-technical report NI 43-101, 2009), some web pages, and other reasonable

assumptions were done based in mineral finance and project evaluation 601, and resource

sector finance 602 units.

3.1.1 Pricing basis:

- Copper: The price is based in the LME prices between 1998 and 2011 and with this

data it was done the stochastic model in order to predict the prices for the time of

the project (2012-2023). For copper concentrates grading 35% Cu or more it was

paid 96.5% and for copper concentrates grading less than 35% Cu it was paid 96.5%.

- Gold: The price of gold is based in the average of 2011 of LME (1499.5 US$/Oz).

Payable gold: Less than 0.5 g/dmt, 0% (assumption); between 0.5 and 1 g

Au/dmt,70% (assumption); between 1 g Au/dmt and 3 g, 90%; 3 g Au/dmt or more.

- Silver: The price of silver is based in LME, and for the project is based in the average

of 2011(36 US$/Oz).

Payable silver: Less than 30 g Ag/dmt, 0; 30 g Ag/dmt or more, 90%.

- Copper Price participation is ±10% on the basis of ¢90/lb.

- Treatment charge 87 US$/t-copper concentrate.

- Refining charge 1.9 US$/t-copper concentrate.

- Au (5 US$/payable oz) -Refining charge

- Ag (0.4 US$/payable oz) -Refining charge

- The ocean freight from Peru to Korea for copper cathodes was 56.91 US$/t.

- The ocean freight from Peru to Korea for copper concentrates was 45.5 US$/t.


29

3.1.2 Annual production schedule-Mining and processing

The annual production for mining and processing is shown in tables 4, 5, 6 and 7.

3.1.2.1 Annual production schedule mining

Item

2011 2012 2013 2014 2015 2016

Mining Total

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Vat-Oxides ('000 t) 114,602 215 10,845 20,157 13,846 7,768 11,329

Cu (%) 0.56 0.55 0.58 0.61 0.56 0.54

Ore-Sulphides('000 t) 48,794 11 4,901 5,038 5,062

Cu (%) 1.37 1.37 1.28 1.99

Au (g/t) 0.030 0.02 0.02 0.03

Ag (g/t) 14.11 10.9 11.1 20

Total ore ('000 t) 16,3396 215 10,845 20,168 18,747 12,806 16,391

Waste ('000 t) 402,363 4,171 47,190 39,764 41,726 47,807 43,723

Total Mining ('000 t) 565,759 4,386 58,035 59,932 60,473 60,613 60,114

Strip ratio 2.45 19.40 4.35 1.97 2.23 3.73 2.67


Item 2017 2018 2019 2020 2021 2022 2023

Mining Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12

Vat-Oxides ('000 t) 14,923 10,484 9,109 9,411 5,750 765

Cu (%) 0.59 0.59 0.57 0.52 0.51 0.48

Ore-Sulphides ('000 t) 4,803 5,172 5,024 5,010 5,048 5,632 3,093

Cu (%) 2.00 1.18 1.03 1.04 1.09 1.42 1.30

Au (g/t) 0.03 0.02 0.02 0.03 0.04 0.05 0.04

Ag (g/t) 22.8 12.4 11.2 11.2 10.2 15.2 15.6

Total ore ('000 t) 19,726 15,656 14,133 14,421 10,798 6,397 3,093

Waste ('000 t) 40,669 44,743 46,097 29,740 11,308 4,440 985

Total Mining ('000 t) 60,395 60,399 60,230 44,161 22,106 10,837 4,078

Strip ratio 2.06 2.86 3.26 2.06 1.05 0.69 0.32



30

3.1.2.2 Annual production schedule-Processing

Item Total 2011 2012 2013 2014 2015 2016

Total processing-total

3,550 11,699 16,421 17,000 17,002

Vat-Oxides ('000 t) 114,602 3,550 11,699 12,001 11,999 12,001

Cu (%) 0.56 0.55 0.58 0.61 0.56 0.54

Cu Recovery (%) 74.84 79.00 75.40 70.70 72.90 75.70

Cu in cathode (t) 478,852 15,397 50,721 52,011 48,985 49,058

Float ore feed ('000 t) 48,794 4,420 5,001 5,001

Cu (%) 1.37 1.37% 1.28% 1.99%

Au(g/t) 0.03 0.02 0.02 0.03

Ag(g/t) 14.11 10.95 11.18 20

Cu rec to conc (%) 92.77 91.00 91.90 94.70

Au rec to conc (%) 80 80 80 80

Ag rec to conc (%) 80 80 80 80

Concentrate (Dry t) 1’665,086 137,016 137,232 223,411

Cu con grade(%) 37.4 40.10 42.70 42.10

Au con grade(g/t) 0.73 0.39 0.56 0.48

Ag con grade(g/t) 337 299 329 397

Cu in concentrate (t) 621,376 54,943 58,598 94,056

Au in concentrate (oz) 38,421 1,718 2,471 3,448

Ag(oz) 18’151,295 1’317,140 1’451,581 2’851,578

Total Copper(t) 1’100,228 15,397 50,721 106,955 107,583 143,114



31

Item 2017 2018 2019 2020 2021 2022 2023

Processing total 16,999 17,000 17,000 17,000 17,000 8,353 4,372

Vat-Oxides (‘000 t) 11,999 12,000 12,000 12,000 12,000 3,353

Cu (%) 0.59 0.59 0.57 0.52 0.51 0.48

Cu Recovery (%) 71.80 71.90 76.30 78.50 77.00 74.00

Cu in cathode (t) 51,089 51,078 52,006 49,172 47,401 11,935

Float-ore-feed('000 t) 5,000 5,000 5,000 5,000 5,000 5,000 4,372

Cu (%) 2.00 1.18 1.03 1.04 1.09 1.42 1.30

Au (g/t) 0.03 0.02 0.02 0.03 0.04 0.05 0.04

Ag (g/t) 22.86 12.43 11.23 11.27 10.24 15.21 15.69

Cu rec to conc (%) 94.40 92.40 91.60 92.10 92.40 93.90 93.30

Au rec to conc (%) 80 80 80 80 80 80 80

Ag rec to conc (%) 80 80 80 80 80 80 80

Concentrate (Dry t) 273,076 143,342 127,154 145,406 14,8882 181,404 148,165

Cu con grade (%) 34.50 38.00 37.10 33.00 33.70 36.70 35.90

Au con grade(g/t) 0.63 0.7 0.67 0.88 1.17 0.98 0.81

Ag con grade(g/t) 319 340 375 288 256 370 399

Cu concentrate (t) 94,211 54,470 47,174 47,984 50,173 66,575 53,191

Au concentrate (oz) 5,531 3,226 2,739 4,114 5,600 5,716 3,859

Ag (oz) 2’800,689 1’566,902 1’533,031 1’346,377 1’225,385 2’157,934 1’900,678

Total Copper (t) 145,300 105,548 99,180 97,157 97,574 78,510 53,191


3.1.3 Capital Expenditure (CAPEX)

The estimated total costs are summarised in table 2 and 3. This capex is in real dollars and

was converted to nominal dollars. The pre-production striping was 28.9 US$M which also

was converted to nominal dollars. In addition, it was done the depreciation schedule

(diminishing value-premium 200%).


32

3.1.3.1 Oxide plant and mining

Area Area Description Total Cost(USM)

1 General Plant 12.32

10 Crushing and Screening 1.21

11 Primary Crushing 13.08

12 Primary Stockpile and Reclaim 5.90

13 Sec-Screen-Crush/Tertiary Crushing 21.52

14 Tertiary-Screen/Quater Crushing 24.36

15 Quaternary Screening 11.18

20 Vat Leaching 73.54

30 Solvent Extraction 20.87

40 Electrowinning 32.16

50 Reagents – Oxide 2.64

60 Services – Oxide 3.87

70 Infrastructure – Oxide 23.63

79 Mobilisation and Demobilisation 3.27

80 Temporary Facilities 4.79

81 Commissioning – Oxide 2.22

82 Vendor Representatives 1.16

83 First Fills and Spares 12.66

84 Loose Tools and Equipment 1.34

95 Power Supply 12.70

96 Plant Access Road 8.10

97 Construction Camp and Village 18.71

98 Water Supply 18.85

200 Mining 123.38

Direct Costs – Subtotals 453.44

EPCM 56.19

Indirect Costs – Subtotals 509.62

Owner’s Costs 37.24

Totals 546.87

Table 8: Oxide plant and mining capital costs


33

3.1.3.2 Sulphide plant

Area Area Description Total Cost(USM)

1 General Plant 5.51

98 Water Supply 4.06

110 Sulphide Primary Crushing 17.22

120 Sulphide Grinding 40.35

130 Sulphide Flotation 19.85

140 Sulphide Concentrate Thickening and Filtration 8.63

160 Sulphide Tailings Thickening and Disposal 17.86

170 Sulphide Reagents 2.86

180 Sulphide Services 8.86

188 Mobilisation and Demobilisation 2.43

190 Temporary Facilities 2.44

191 Commissioning 0.56

192 Vendor Representatives 0.62

193 First Fills and Spares 4.41

Direct Costs – Subtotals 135.65

EPCM 22.13

Indirect Costs – Subtotals 157.78

Owner’s Costs 10.53

Totals 168.31

Table 9: Sulphide plant capital costs

3.1.3.3 Sustaining and deferred capital

Sustaining capital represents the amount of capital investment, required to sustain and

support the process plant operation at its most productive and efficient level. Table 10

shows the sustaining and deferred capital in real dollars.


34

PLANT DESCRIPTION TOTAL COST (USM)

Deferred Capital

Sulphide Recleaner concentrate pump 2 0.03

Sulphide Tailings Storage Facility – Phase 2 3.22

Sulphide Tailings Storage Facility – Phase 3 4.64

Sulphide Pressure Filter Upgrade 0.51

Sub-Total Deferred Capital 8.40

Sustaining Capital

Oxide/Sulphide Replacement of computers 1.41

Oxide/Sulphide Mining Sustaining Capital 15.19

Oxide/Sulphide Vehicles Sustaining Capital 7.86

Sub-Total Sustaining Capital 24.46

TOTAL 32.86

Table 10: Sustaining and deferred capital

3.1.3.5 Closure cost

Table 11 present the schedule in real dollars and was converted to nominal dollars.

Summary of Project Closure Costs

2017 2018 2019 2020 2021 2022 2023 2024

Progressive Closure 0.69 0.32 0.16 1.66 0.85 - - -

Final Closure - - - - 3.01 5.56 3.22 0.14

Total (USM) 0.69 0.32 0.16 1.66 3.86 5.56 3.22 0.14

Table 11: Closure costs


35

3.1.4 Operating Expenditure (OPEX)

It is based in the feasibility study of chariot resource 2009 and also it was assumed that it is

nominal.

Summary of Project Operating Costs (US$/t ROM processed)

Area Period

Yr-1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Mining 0 9.88 5.47 3.72 3.6 3.68 3.84 3.74 3.74 2.98 1.85 2.24 2.07

Oxide Plant 0 5.76 5.68 5.68 5.69 5.69 4.5 4.49 4.52 4.52 4.46 4.57 -

Sulphide Plant 0 - - 4.9 4.82 5.2 5.12 5.06 4.81 5.24 4.8 5.16 4.92

General/Adm 0 2.14 1.3 1.08 1.04 1.05 1.05 1.05 1.05 1.04 1.03 1.88 2.95

Corporate

Office (Lima)

0 0.25 0.15 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.22 0.38

Transport/

Marketing

0 0.23 0.23 3.42 3.08 4.74 4.88 2.65 2.6 2.66 2.61 7.18 11.9

Total 0 18.26 12.8 18.9 18.3 20.4 19.5 17.1 16.83 16.55 14.8 21.2 22.2

Table 12: Operating expenditure for Justa Mine project

3.1.5 Royalties and taxes

3.1.5.1 Royalties:

According to the Peruvian government the royalties are:

- Royalties @ 1% first 60 M

- Royalties @ 2% first 60 M

- Royalties @ 3% excess 120M

3.1.5.2 Taxes:

- Corporate tax (Peruvian government): 32%


36

3.1.6 Interest, borrowing and discounts

- Average inflation (2001-010): 2.3%

- Real cost of equity rate (feasibility study): 8%

- Nominal cost of equity: 10.48%

- Nominal cost of debt (assumption): 10%

- Real price escalation rate (assumption): 1%

- Real cost escalation rate (assumption): 2%

- Nominal bank interest rate (assumption): 7.5%

- Percentage of CAPEX borrowed: 70%

- Nominal risk free rate: 6.6% (trading economies, 2011)

3.1.7 Stochastic Model-Copper

- Cu LME spot price used was 12 October 2011

- Cu expected spot prices were calculated for 12 years

- S&P 500 index and LME Cu prices were used for correlation

3.1.8 Sensitivity Analysis

3.1.8.1 Sensitivity analysis: One input-One output

It was analysed the behaviour of WACC and NPV

3.1.8.2 Sensitivity analysis: Many inputs - One output

In relation to copper price, copper in concentrate, copper in cathode and OPEX it was used a

factor with the objective to do a sensitivity analysis.


37

Inputs

Low Base High

Copper Price (US$/t)

0.7 1 1.3

Initial CAPEX-Nominal-1 year (US$ million)

399.44 570.6 741.82


150.30 214.7 279.14

Au (US$/payable oz) -Refining charge

3.50 5.0 6.50

Ag (US$/payable oz) -Refining charge

0.25 0.4 0.46

Cathodes: South Korea, $/t -Ocean freight

39.84 56.9 73.98

Concentrates: South Korea, $/t -Ocean freight

31.85 45.5 59.15

Price-Au (US$/oz)-2011

1049.66 1499.5 1949.38

Price-Ag (US$/oz)-2011

25.18 36.0 46.75

Nominal Before-tax WACC (% p.a.)

7.10% 10.15% 13.19%

Cu in cathode-t (factor)

Cu in concentrate-t (factor)

0.7

0.7

1

1

1.3

1.3

OPEX- US$/t (factor)

0.7 1 1.3

Table 13: Inputs of sensitivity analysis

3.1.9 Risk simulation (Monte Carlo)

The table 14 shows the inputs of Monte Carlo simulation that was chosen:

Inputs Function


randlognormal(1,0.24)


randtriangular(399.44,570.63,741.82)


randtriangular(150.3,214.72,279.14)


randlognormal(5,1.22)


randlognormal(0.35,0.085)










randtriangular(7.1%,10.15%,13.9%)

Cu in cathode (t)

randtriangular(0.7,1,1.3)

Cu in concentrate (t)

randtriangular(0.7,1,1.3)

Table 14: Inputs of Monte Carlo simulation


38

3.2 Results and Discussions

3.2.1 Base case DCF-Stochastic

The base case DCF based on stochastic pricing method had the following results:

DCF 12 years (NPV): US$906.27 M

IRR: 25.96%

K/E: US$1.09

DPBP: 6 years

The present value of net cash flow is represented in figure 7 below:

Figure 7: Present value of net cash flow of Justa mine project

NPV: The NPV of Justa Mine was greater than 0 (US$906.27M) which means that the

project is very attractive for investors. This NPV is affected by the PV net cash flow which

according the figure 7 have some variations during the life of the project. The first 2 years is

negative because the investment was done, in 2012 began the production of copper oxides

(table 7: 3.55Mt), in 2013 the production increase to 11.699Mt and in 2014 the sulphide

plant (4.42 Mt) entered to work, as a result the total production increase to 16.421 Mt

which is reflected in the PV net cash flow. Between 2015 and 2021 the production has

similar rates of production but there were some changes in the head grade of the float ore

feed between 2018 and 2021(1.18%, 1.03%, 1.04% and 1.09) which basically affected the

-$600

-$400

-$200

$0

$200

$400

$600

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

PV Net cash flow


39

quantity of metallic copper recovered, as a result the cash flow was reduced. In 2022 oxide

production was reduced to 3.35 Mt and the production of sulphides was the same, but the

sulphide head grade (1.42%) and the concentrate grade (36.7%) increased, as a result, the

reduction in the cash flow was not strong when is compared with 2021. In 2023 there is not

production of oxides and this is reflected in the cash flow. In 2024 is only considered the

salvage value of assets, because the project will finish in 2023 (assumption 120% of written

down value).

IRR: The return on equity (profitability) of Justa Mine project was 25.96% which is

measured for the IRR.

K/E: The capital efficiency, which measures the value added per dollar invested for the Justa

project is US$1.09 per dollar invested.

DPBP: The payback period for Justa project to repay the initial investment was 6 years.

3.2.2 Sensitivity analysis: One input-One output

3.2.2.1 Internal rate of return

The figure 8 shows the relationship between NPV and nominal before tax WACC. The IRR

measures the project return on equity. The before-tax WACC was used as a discount rate for

Justa Mine where its NPV becomes zero at 25.96%.

The NPV at before-tax WACC in excess of 25.96% becomes negative. If the required rate of

return of Justa mine were higher than this, then the project would be rejected.


40

Figure 8: NPV and WACC

3.2.3 Sensitivity analysis: Many inputs - One output

3.2.3.1 Tornado diagram

The Tornado diagram re-orders inputs in decreasing sensitivity such as copper price, Cu in

cathode, Cu in concentrate, WACC, OPEX, CAPEX year 1, CAPEX year 2, silver price, ocean

freight concentrates, gold price, ocean freight cathode, silver refining charge and gold

refining charge (figure 9). For example the square swing for copper price is 51.4 % which means that it is the input

that has more influence in the model (table 15).

-500

0

500

1000

1500

2000

2500

3000

0% 10% 20% 30% 40% 50%

NP

V U

S$M


SensIt 1.30 Academic


41

Figure 9: Sensitivity analysis-Tornado diagram

NPV US$M

Corresponding Input Value Output Value Percent

Input Variable Low Output Base Case High Output Low Base High Swing Swing^2

Copper Price (US$/t) 0.7 1 1.3 215.11 906.27 1595.40 1380.30 51.4%

Cu in cathode (t) 0.7 1 1.3 558.27 906.27 1252.26 694.00 13.0%

Cu in concentrate (t) 0.7 1 1.3 560.11 906.27 1252.43 692.32 12.9%

Nominal Before-tax WACC (% p.a.) 13.2% 10.1% 7.1% 620.71 906.27 1288.82 668.11 12.0%

OPEX 1.3 1 0.7 643.87 906.27 1168.35 524.48 7.4%

Initial CAPEX-Nominal-1 year (US$ million) 741.82 570.63 399.44 750.85 906.27 1061.69 310.84 2.6%

Initial CAPEX-Nominal-2 year (US$ million) 279.14 214.72 150.30 853.18 906.27 959.37 106.19 0.3%

Price-Ag (US$/oz)-2011 25.2 36.0 46.8 859.33 906.27 953.22 93.89 0.2%

Concentrates: South Korea, $/t -Ocean freight 59.2 45.5 31.9 900.20 906.27 912.35 12.15 0.0%

Price-Au (US$/oz)-2011 1,049.7 1,499.5 1,949.4 903.73 906.27 908.81 5.09 0.0%

Cathodes: South Korea, $/t -Ocean freight 74.0 56.9 39.8 903.73 906.27 908.81 5.08 0.0%

Ag (US$/payable oz) -Refining charge 0.5 0.4 0.2 905.81 906.27 906.73 0.91 0.0%

Au (US$/payable oz) -Refining charge 6.5 5.0 3.5 906.26 906.27 906.28 0.02 0.0%

Table 15: Sensitivity analysis-NPV values

0.7

0.7

0.7

13.2%

1.3

741.82

279.14

25.2

59.2

1,049.7

74.0

0.5

6.5

1.3

1.3

1.3

7.1%

0.7

399.44

150.30

46.8

31.9

1,949.4

39.8

0.2

3.5

0 200 400 600 800 1000 1200 1400 1600 1800


Cu in cathode (t)



OPEX









NPV US$M



42

3.2.3.2 Spider diagram

Figure 10 shows how the mine project is typically highly sensitive to variation in factors

affecting its revenue.

Figure 10: Sensitivity analysis-Spider diagram

A rising slope indicates positive correlation between NPV and inputs and vice versa. The

steeper the slope the more sensitive the NPV is to the input in this case the copper price

and the last sensitive was the refining charge for gold.

3.2.4 Risk Analysis (Monte Carlo simulation)

After 10,000 iterations the simulation generated an expected NPV of the Justa Mine project

of US$ 888.77 M, within a positively skewed of 0.7539 and standard deviation of US$ 567.99

M.

According to the histogram of Figure 11 has shown that minimum and maximum NPVs of

US$ -510.53 M and US$ 3813.48 M. The first quartile, median and third quartile is

respectively US$ 483.71 M, US$821.81 M, and US$1216.89 M.

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

1600.00

1800.00

50% 60% 70% 80% 90% 100% 110% 120% 130% 140%

NP

V U

S$M

Input Value as % of Base Case



Cu in cathode (t)



OPEX

Initial CAPEX-Nominal-1 year (US$million)

Initial CAPEX-Nominal-2 year (US$million)





43

Figure 11: Monte Carlo-Histogram

The cumulative probability distribution of Figure 12 shows that there is 2.701 % probability

of realising a negative NPV and 54.63% that the NPV will exceed the expected US$888.77

million.

Figure 12: Monte Carlo-Cumulative probability and NPV

Table 16 presents the differences between NPV, IRR, K/E and DBPB of 3 models which are:

DCF-simplistic, DCF stochastic and MAP. According to this figure the DCF simplistic have the

-1000 -500 0 500 1000 1500 2000 2500 3000 3500 4000

0

200

400

600

800

1000

1200

1400

1600

1800

2000

NPV

Fre

qu

en

cy

RiskSim 2.40 Academic - Histogram

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

-1000 -500 0 500 1000 1500 2000 2500 3000 3500 4000

Cu

mu

lati

ve P

rob

abili

ty

NPV US$M

RiskSim 2.40 Academic - Cumulative Chart

Mean 888.77St. Dev. 567.99Mean St. Error 5.68Minimum -510.53First Quartile 483.71Median 821.81Third Quartile 1216.89Maximum 3813.48Skewness 0.7539


44

best NPV, then MAP and finally DCF stochastic. This is explained because in the first case

using 10.15% of nominal discount rate, prices are inflated and escalated, this increase the

price considerably when is compared with the other models; in the case of MAP is used

nominal risk free rate of 6.6% and in the stochastic model it was used 10.15 % of nominal

discount rate which is reflected in the final NPV.

Item DCF Simplistic MAP DCF Stochastic

NPV (USM) 1678.37 916.47 906.27

IRR % 33.22% 21.14% 25.96%

K/E 2.01 1.10 1.09

DBPB 6 6 6

Table 16: Comparison of DCF simplistic, stochastic and MAP

3.2.5 Stochastic Model

The figure 13 shows the expected spot prices, forward prices and LME futures with 10 % of

under and upper confidence. It was used data between 5 January of 1998 and 13 October of

2011. In order to find NPV, in the case of the stochastic model it was used expected spot

prices, for MAP forward prices and for simplistic model price was inflated and escalated.

Figure 13: Copper price stochastic model-October 2011

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

$13,000

0 1 2 3 4 5 6 7 8 9 10 11 12

Cu

pri

ce

US

$/t

Years

COPPER PRICE STOCHASTIC MODEL As at October 2011

Expected spot price ($/unit) Forward price ($/unit)Lower 10% confidence Upper 10% confidenceLME FUTURES


45

Part 4: CONCLUSIONS AND RECOMMENDATIONS

4.1 Conclusions

- The financial model has NPV of US$906.27 M. This means that the project has strong

financial performance.

- It was done a sensitivity analysis using some inputs which shows that the model is

very sensitive to the copper price, then to copper in cathode, copper in concentrate,

WACC, OPEX, CAPEX year 1, CAPEX year 2, silver price, ocean freight concentrates,

gold price, ocean freight cathode, silver refining charge and finally for gold refining

charge.

- Justa Mine project has a probability of 2.701 % chance of NPV<0 based on the risk

simulation.

- The DCF stochastic model of Justa project used the expected spot prices of copper in

order to reduce uncertainty.

4.2 Recommendations

- It is recommended to invest in Mina Justa Project, because the project present a very

attractive NPV (US$906. 27M).

- It is recommended to do more geological exploration around the mine in order to

identify more resources.

- It is recommended to evaluate the possibility to build a smelter and refinery with the

objective to processes copper concentrates and also the option to buy some

concentrates of local producers if the smelter and refinery is constructed.


46

References:

Agrawal A. And K. Sahu. 2010. Problems, prospects and current trends of copper recycling in India: An overview. Resources, conservation and recycling 54(7): 401-416. http:// www.sciencedirect.com (Accessed August 22, 2011).

Charriot resources. 2009. Technical Report NI 43-101. http://www.sedar.com/FindCompanyDocuments.do?lang=EN&page_no=2&company_search=chariot+resources&document_selection=0&industry_group=A&FromDate=21&FromMonth=12&FromYear=2005&ToDate=21&ToMonth=06&ToYear=2011&Variable=FilingDate (Accessed June 25, 2011).

BHP Billiton. 2011. Olympic dam expansion. http://www.bhpbilliton.com (Accessed October

20, 2011). Boston consulting group. 2010. Copper industry overview.

Codelco. 2011. Proyectos en desarrollo. http://www.codelco.cl (Accessed October 20, 2011).

International copper study group. 2010. The world copper fact book 2010. http://

www.icsg.org (Accessed October 15, 2011).

___. 2011. Release of ICSG 2011 Statistical Yearbook. http:// www.icsg.org (Accessed October 16, 2011).

___. 2011. Copper Market Forecast 2011-2012. http:// www.icsg.org (Accessed October 16, 2011).

Rio Tinto. 2011. Explorando la Granja. http://www.riotintolagranja.com (Accessed October

19, 2011)

Trading economies. 2011. Peru government bonds. http://www.tradingeconomics.com/peru/government-bond-yield (Accessed November 28, 2011).

http://www.sciencedirect.com/

http://www.sedar.com/FindCompanyDocuments.do?lang=EN&page_no=2&company_search=chariot+resources&document_selection=0&industry_group=A&FromDate=21&FromMonth=12&FromYear=2005&ToDate=21&ToMonth=06&ToYear=2011&Variable=FilingDate




http://www.codelco.cl/

http://www.icsg.org/



http://www.riotintolagranja.com/

http://www.tradingeconomics.com/peru/government-bond-yield

http://www.sciencedirect.com.dbgw.lis.curtin.edu.au/science/article/pii/S0921344909002079


47

APPENDICES


48

Appendix 1: Gold and silver prices

Gold Silver

Year US$/oz US$/oz

2000 279.17 4.95

2001 272.65 4.43

2002 306.34 4.56

2003 363.59 4.88

2004 409.28 6.65

2005 444.90 7.31

2006 604.61 11.57

2007 696.76 13.39

2008 872.07 15.02

2009 972.98 14.65

2010 1225.08 20.16

2011 1499.52 35.97

Date post:	09-Feb-2016
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