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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers

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To: Claude Cormier who wrote (19837)	9/3/2006 12:09:53 AM
From: loantech	Read Replies (1) of 78408

Here is the deal on POM over 5 billion free lbs of copper at conservative prices of by product and copper: <OPERATING COSTS/BREAKEVEN Our projections assume costs as set out in the 2004 study. Miners watch costs per tonne of rock – which indicates how efficiently a company actually mines – and the cost per tonne of ore – which, together with the grade of the ore and metallurgical recoveries determines the cost of producing a unit of metal. Of course, that final cost is what really matters. NorthMet is projected to have mining costs of US$0.64 per tonne, which is in line with other large scale operations using contract mining equipment. This equates to US$1.36 per tonne of ore based on a strip ratio of 1.1:1. Processing costs are currently estimated to be approximately US$6.59 per tonne of ore processed – the largest costs being consumables (37%), power (28%), and labor (18%.). Many polymetallic operations take the most important contributor to revenues and then apply revenues from other products against the costs of producing the singlemetal – the so-called by-product method. In our opinion, this is misleading and we prefer the co-product method where costs are allocated against each metal according to that metal’s contribution to revenue. Using this approach, we estimate the average cost of producing a pound of copper to be US$0.56 on a cash basis or US$0.62 per pound including capital. The full costs are little more than half of our base case assumptions and are below the bottom of the last cycle which we believe was skewed by the strength of the dollar at that time. Using the by-product method, where by-product revenues are taken as a deduction against costs, the cost of producing copper averages approximately zero over the life of the project – in other words, the nickel, platinum group and other metals cover all the operating costs. proteuscapital.com Page 21 of the report. Page 21 shows the very conservative cost table they used. Still gave a great IRR on the scoping study.

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