Josemaría Resources seeks US$3bn for its Argentina copper mine

Josemaría Resources will seek financing for the development of the Josemaría copper, gold and silver mine in Argentina’s San Juan province, while it advances with the environmental impact study (EIS).

“It will be US$3bn to go into production, some component of that will be a little capital, but can we transfer the money? I'm sure we could do a transmission deal on the gold side. We could sell a percentage of the deposit,” Adam Lundin, CEO of Josemaría Resources, which belongs to Lundin Group, said at a webinar.

“I think all options are open when you own 100% of a large underground project,” he added. In the past, Lundin resisted a hostile offer from Barrick to take over Josemaría mine.

Projects vice president Arndt Brettschneider added at the same event: “It is bankable and most importantly, of course, it is safe and adds value to Argentina, to our investors, to our employees and to all other interested parties, within an acceptable period of time.”

The mining ministry is confident that the Canadian company will obtain financing because it has a quality asset and great potential. The asset contains a percentage of gold that adds value, even though it is essentially copper-focused, a source close to the ministry told BNamericas, asking for anonymity.

Josemaría has proven and probable copper reserves of 6.7Blb, 7Moz gold and 30.7Moz silver. According to the feasibility study from October 19, it could produce an average 136,000t of copper, 231,000oz of gold and 1.16Moz of silver annually during a 19-year mine life. The resources could respectively represent 71%, 27.5% and 1.50% of its income.

“These are realistic defensible numbers, everything has been analyzed, reducing the level of variability, and we will continue advancing happily with the reserves. It is super exclusive to have this type of reserve statement. You know that there is a lot of gold together with copper,” Lundin said.

However, a former energy ministry official, who also asked to remain anonymous, told BNamericas that “for large metal projects it will be difficult to get financing because under these exchange conditions, nobody is going to attract dollars to Argentina. For them to be attractive, it will be necessary for the government to pass some investment promotion law.”

Mario Hernández, president of the San Juan’s mining chamber and exploration companies association Gemera, told Mining Press that “there is still a long way to go to especially coordinate new projects. We are working on this project-by-project at the table convened by [mining minister] Alberto Hensel. We are hopeful that a special framework can be provided for new projects that need to have shorter investment repayment periods.”

Josemaría trusts that the project and the emerging conditions in the global metal market will attract investors and counteract Argentina’s negative macroeconomic conditions, the legal uncertainty and lack of clear rules.

"We will continue seeing the price of copper rise over time and the electrification of the world will lead to higher demand and, more importantly, the last five years has been a difficult time in the mining space and not many people have moved projects forward," Lundin said.

“We have been fortunate to have large shareholders that have allowed us to continue promoting this project and now, when we publish the feasibility study and look around us, there are not too many companions and we are in a league of our own. I don't see much competition when the big companies want to start developing or acquiring projects.”

The company has started preparing the EIS, which it expects to finish during the first quarter of 2021 while it expects the approval process to last until early 2022.

“Right now, our focus is on continuing our constructive and open dialogue with the local and federal governments with whom we have been working for a very long period of time completing our comprehensive environmental assessment and with our commitment to communities,” Brettschneider said.

In parallel, the company will work on obtaining the sectoral permits and carry out engineering works, which it expects to complete in early 2023.

In the second half of next year, the company plans to start initial works. By then, the financing should be closed, since in 4Q21 it plans to start construction of the mine infrastructure and processing plant.

Works will last until mid-2025, so Lundin expects to start production later that year or early 2026.

According to the feasibility study, the project's net present value is US$1.53bn at a discount rate of 8%. The project has an internal rate of return of 15.4%, calculated at copper prices of US$3/lb, gold at US$1,500/oz and silver at US$18/oz.

Josemaría Resources aims for average annual production during the first three years of 166,000t of copper, 331,000oz of gold, and 1.25Moz of silver, which would allow a recovery of the investment in 3.8 years from the start of works on the 152,000t/d processing plant.

In Argentina, the company must pay 25% income tax and 3% royalties to San Juan province. However, the feasibility study does not include export withholdings, because they frequently change and the plant will start operating only in several years, making calculations impossible.

At present, companies must pay three pesos for every dollar on copper sold abroad, while the gold and silver rate has been 8% since October.

Metals produced at the mine will be transported via 360t trucks to San Juan city and from there by train 950km to Rosario port in Santa Fe province, where they will be shipped for export.

This trajectory was also a government request. Lundin was mulling transport across the Andes and commercialization via the Pacific.

“Initially we analyzed both options in the study and made a trade-off considering not only cost but also practicality coming from the steep side of the Andes,” Brettschneider said. 

“A significant investment is required to operate safely and continuously pull trucks off the steep side of the Andes, and from a cost perspective there is no point in adding another capital cost aspect in a tougher permitting environment with a completely new set of approvals that would be necessary to concentrate through Chile and export through a Chilean port.”