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Metminco slims down

TIP UPDATE: A switch of tack from the copper miner prompts us to change our sell recommendation
January 9, 2013

The Los Calatos project in Peru run by Metminco (MNC) is one of the world's largest undeveloped copper mines, but it may be uneconomic because most of the deposit in the open cast pit is low-grade ore. So Metminco's bosses have changed tack. Rather than focusing on sheer scale, they are now looking to focus on mining just the higher-grade ore. While they haven't finished the financial side of the studies yet, the company has released a resource update for the project and outlined a new plan - prompting us to upgrade the company's shares to a 'hold' from a 'sell'.

IC TIP: Hold at 3.65p

Metminco now plans to develop a much smaller open pit and processing plant, which will both reduce capital costs and the pay-back period. Consequently, the mineable resource has shrunk from around 2.3bn tonnes of rock to just 274m tonnes in the open pit and 1.07bn tonnes in an underground mine. Yet the average grade mined would be about 16 per cent higher.

Overall, the new resource makes the deposit look similar to porphyry deposits in the region that are being mined. That said, the quality of the Los Calatos ore may still be too poor to justify the costs of underground mining.