A Vancouver copper reclamation company plans to double its production under a deal with a Chilean mining giant that will give it access to valuable mine waste.
Since 2003, Amerigo Resources Ltd. (TSX:ARG) has built a profitable business on the leavings of Chile's El Teniente mine – said to be the world's largest underground copper mine.
El Teniente, which has been operating since 1905, has three tailing dumps. Since 2003, Amerigo has been processing the new and historical waste ore from one of those tailings deposits through its Minera Valle Central Chilean subsidiary, which produces about 45 million tonnes of copper concentrate per year, as well as a small amount of molybdenum.
Under an agreement signed in April with the company that owns the mine – Codelco – Amerigo will get access to a second nearby tailings deposit.
“It's a company-changer for us,” said Michael Kuta, Amerigo's corporate secretary. “We estimate we're going to [recover] 90 million pounds of copper a year from 45 [million pounds] today. So it's massive.”
The agreement extends the company's arrangement with El Teniente from 2021 to 2037.
“We think it's going to take about 20 years to process the tailings in that additional deposit,” Kuta said.
Amerigo estimates it will produce 1.7 billion pounds of copper and 43 million pounds of molybdenum over two decades.
Amerigo's business is based on the one-man's-junk principle. It operates like a mine but without all the overhead involved in pulling ore from underground. It pays Codelco a royalty to reprocess the mine's tailings.
To a behemoth like Codelco – the world's largest copper producer – processing its own tailings is not worth the investment. But to a small company like Amerigo, there is profit in processing waste ore from tailings from a mine that is as old, large and rich as El Teniente.
“It's been cash-flow positive every year since inception, even during the global financial crisis,” Kuta said.
The company is finalizing the environmental approvals it needs and obtaining the financing to build new roads and expand its processing plant.
“We hope that it'll start within the next three months,” Kuta said.
That may be an ambitious timeline, said Raymond Goldie, senior mining analyst for Salman Partners, who nonetheless likes Amerigo's prospects.
Expanding its operations will cost Amerigo between US$140 million and US$150 million. The company plans to raise most of that – about $130 million –through debt financing.
Unlike some other mining sectors, copper mines are still profitable, and Amerigo is associated with the largest copper mining company in the world – all of which should weigh in its favour with the banks, Goldie said.
“I think that the likelihood that one of Chile's biggest corporations is behind the project will act in their favour. My guess is they will get the financing entirely by banks without having to raise any money on the stock market.”
