Minsur acquisition of Marcobre stake is positive move, Celfin says

Tuesday, April 24, 2012

Peruvian miner Minsur's agreement to acquire the 70% of compatriot firm Marcobre owned by Hong Kong-based CST Mining is a positive move, according to a report by Chilean financial services firm Celfin Capital.

On Monday (Apr 23) Minsur announced an agreement to acquire the stake in Marcobre, whose main asset is the Mina Justa copper deposit in Ica region, for US$505mn.

"Given that the project is well advanced - according to CST Mining, the feasibility study was completed in August 2009 and the EIA was approved in September 2010 - the purchase price appears reasonable," Celfin said.

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Mina Justa has a resource base of over 3Mt of contained red metal, equivalent to US$0.10/lb in situ in resources, and recent comparison transactions for copper projects in Peru range from US$0.05-0.13/lb, according to the financial services firm.

However, the total could increase due to the relatively low long-term price used to estimate resources and the fact Marcobre has some 33,000ha of mineral rights.

"Resources were calculated in 2010, based on an estimated long-term copper price of US$1.65/lb (which should be revised upward, in our view), and the resource base could thus increase when the study is updated," Celfin said.

"We view this transaction as positive for Minsur, whose tin reserves have declined in recent years at its flagship San Rafael mine," Celfin said, adding: "In our view, it makes sense that Minsur is investing some of its cash flow from its high margin tin operations in developing other mining assets in the region."

According to CST, Mina Justa's estimated annual average production is 110,000t, consisting of 50,000t of cathodes and 60,000t in concentrate.

The project's expected capex is US$745mn at cash costs of US$0.90/lb over an 11.5-year minelife.

Celfin expects Minsur to conduct its own feasibility study before moving forward with a final mine plan and construction. In addition, capital and cash cost estimates are anticipated to be revised up as the study was completed in 2010, and inflation for both capex and opex has significantly boosted expenditures for Peru's mining industry.

Last July, Swiss-based Glencore International (LSE: GLEN) agreed to acquire 70% of Marcobre for US$475mn but the deal fell through in November when the former could not reach an agreement for the remaining stake, which is owned by South Korean firm LS-Nikko Copper and compatriot state company Kores.

Peru's only tin producer, Minsur also owns the Funsur smelter and refinery in Ica, and is controlled by local holding Grupo Brescia.