Hudbay Minerals has begun construction at its open-pit Constancia copper mine in Chumbivilcas province in southern Peru following approval by its board of directors of a $1.5-billion investment in the project. The Constancia development schedule contemplates nine quarters of construction, with initial production in late 2014 and full production beginning in the second quarter of 2015. Production of contained copper in concentrate is expected to average approximately 118,000 mt/y during the first five full years of production (2015-2019) and 77,000 mt/y in subsequent years. Mine life will exceed 16 years. The concentrate will include molybdenum, silver, and gold byproduct credits.
Plant throughput at Constancia is planned to average 28.1 million mt/y. The strip ratio in the Constancia main pit will be 1.31:1.
Operating cash costs, net of byproduct credits, are expected to average $0.66/lb of copper for the first five years of production and $1.11/lb thereafter. The project capital cost estimate of $1.5 billion includes a project contingency of 14.6% of the remaining at-risk project costs.
As of June 30, 2012, Hudbay had fixed-price orders and supplier commitments for approximately $252 million in project equipment, including grinding mills and mobile equipment, and had spent an additional $62 million, excluding project equipment, of the total estimated capital cost of the project.
Exploration drilling at Constancia is ongoing, and Hudbay believes that additional higher-grade mineralization can be discovered in satellite deposits. An initial resource was announced in April 2012 for the higher-grade Pampacancha satellite deposit, and two drills are currently concentrating on infill drilling at the deposit, as well as testing the extension of the deposit to the north and west.
Proven and probable reserves at Constancia as of August 8, 2012, totaled 403 million mt, grading 0.37% copper, 100 g/mt molybdenum, 3.25 g/mt silver, and 0.42 g/mt gold. Measured and indicated resources totaled 463 million mt grading 0.21% copper, 59 g/mt molybdenum, 2 g/mt silver, and 0.035 g/mt gold. Proven and probable reserves at Pampacancha total 47 million mt grading 0.48% copper, 149 g/mt molybdenum, 4.49 g/mt silver, and 0.285 g/mt gold.
Precious Metals Stream Transaction with Silver Wheaton: Hudbay also reported it entered into a precious metals stream transaction with Silver Wheaton, whereby Hudbay will receive aggregate upfront deposit payments of $750 million against delivery of 100% of payable gold and silver from Hudbay’s 777 mine in Manitoba until the later of the end of 2016 or satisfaction of a completion test at Constancia, and delivery of 50% of payable gold and 100% of payable silver for the remainder of the 777 mine life. The stream transaction also includes delivery of 100% of payable silver from the Constancia project.
Upon closing, expected to occur in the third quarter of 2012, Silver Wheaton will pay $500 million of its upfront payments. The remaining $250 million will be due in two equal installments once $500 million and $1 billion, respectively, in capital expenditures have been incurred at Constancia.
The stream transaction does not include gold production at Constancia, precious metals production from Hudbay’s Lalor project in Manitoba, or the company’s land package in Peru outside of the Constancia and Pampacancha deposits. Along with the upfront payments, Hudbay will receive the lesser of the market price or $400/oz for gold and $5.90/oz for silver, subject to 1% annual escalation after three years, for gold and silver delivered to Silver Wheaton.