Xstrata has approved, subject to final Australian Government approval, a $360 million investment to more than double capacity at Xstrata Zinc’s McArthur River mine in the Australia’s Northern Territory from 2.5 million metric tons per year (mt/y) of ore to 5.5 million mt/y from 2014.

The Phase 3 Development Project will increase annual zinc production to 380,000 mt and lead production to 93,000 mt. Advanced processing technology on site will enable McArthur River for the first time to produce a separate zinc concentrate acceptable to all smelters from its bulk zinc-lead concentrate.

The project will reduce average unit costs by more than 20%, reserves will increase by around 70 million mt to 115 million mt, making McArthur River the largest zinc resource in the world. The mine life will extend to 2038 and the project will deliver robust returns at conservative price assumptions, according to Xstrata. The project will earn Xstrata’s cost of capital at a zinc price of $1,340/mt. Following approvals, the Phase 3 Development will commission in 2013 and reach full production in 2014.

Xstrata Executive Director and Xstrata Zinc Chief Executive Santiago Zaldumbide said the highly capital and energy efficient, brownfield growth expansion will secure McArthur River’s position as one of the world’s premier zinc mines. “When we acquired the McArthur River mine in 2003 as part of our Mount Isa Mines acquisition, Xstrata inherited an uneconomic asset with an estimated mine life of less than five years, rising costs and an underground operation that could only exploit two of the eight available ore bodies,” Zaldumbide said. “Following our conversion of the operation into a 2.5 million mt/y open cut mine with a 15-year life in 2010 to open up access to MRM’s vast resource, the Phase 3 project will enable us to unlock fully its potential.

“The next phase of McArthur River’s development will complete our transformation of a failing and unprofitable operation nine years ago into a world class, low cost, large scale and long life open cut mine,” Zaldumbide said. “We expect new production to flow into the market at a time of projected deficit in the global zinc concentrate market and McArthur River will be well positioned to meet demands from both our own smelters and external customers.”

The project proposes expanding the current pit within the existing permit from a footprint of 145 hectares to 210 hectares and the depth from 210 m to 420 m. The existing tailings storage facility will be increased and the existing Cell 3 and proposed Cell 4 will be lined with a high-density polyethylene barrier. The additional 530 million mt of waste rock will be stored in one existing and two new overburden emplacement facilities A 20-year electricity supply agreement has been secured with Energy Developments Ltd. to develop a new gas-fired power station at McArthur River generating 40 mw/y to service the expanded operations from 2014.