Petaquilla costs double, mine seen "not slam dunk"

Friday, February 08 2008 @ 08:46 pm EST

Contributed by: Don Winner

By Jonathan Spicer TORONTO (Reuters) - Development cost estimates at the Petaquilla copper project in Panama have more than doubled in the past year to $3.5 billion, its stakeholders said on Friday, putting the future of the project in jeopardy. In a statement, stakeholders Inmet Mining , Petaquilla Copper , and Teck Cominco Ltd said they believe the project "still has potential," while Inmet Chief Executive Jochen Tilk acknowledged the three companies had debated about whether to go ahead with the project. "When you look at the capital costs and operating costs, it's not a slam dunk," he said in an interview. "But, going forward, we think this is a very consistent pattern in the industry. It's very hard to believe there is another project of the quality of Petaquilla that could be developed at any lower development cost." (more)

Toronto-based Inmet holds 48 percent of the project, while Panama's Petaquilla owns 52 percent. Vancouver-based Teck Cominco Ltd has the option of acquiring a 26 percent interest if it commits to fund 52 percent of development costs.

Teck said on Friday it wasn't sure whether it would come up with the funding.

"We will review the opportunities for reduction of capital costs over the next six weeks and make our decision at the end of March," spokesman Greg Waller told Reuters.

Shares of Inmet and Petaquilla were down sharply on the news.

The costs are up from a $1.7 billion estimate the companies issued just over a year ago. That was based on a 1998 feasibility study of Petaquilla, considered one of the biggest undeveloped copper projects in the world.

Cash costs are also seen higher, at about 85 cents per pound of copper, up from 76 cents a pound.

The rise is due to enhanced erosion control, water management and other environmental protection measures, as well as higher equipment and construction costs, they said.


At mid-afternoon, Inmet's stock was down C$4.11, or 5.8 percent, at C$67.04 on the Toronto Stock Exchange, while Petaquilla fell 25 Canadian cents, or 12.9 percent, to C$1.69.

Teck shares were down 17 Canadian cents at C$34.50.

Analyst Tony Lesiak of UBS Investment Research said Petaquilla's viability was now at risk and cut his price target on Inmet to reflect no value for the project. He lowered his 52-week share-price target to C$86 from C$105.

He suggested in a research note that Teck may want to renegotiate its investment agreement.

In its first 10 years, Petaquilla is expected to produce an average of 223,000 tonnes of copper a year and an average of 87,000 ounces of gold, although production is expected to rise over the 23-year life of the mine.

Construction is expected to take about 44 months after permits are issued. Permitting would follow the submission of a social and environmental impact assessment, expected to be completed in the fourth quarter of 2008.

This suggests a mine-start-up in 2013, a delay from previous estimates of 2011, Lesiak said.

($1=$1.00 Canadian)

(Additional reporting by Cameron French; Editing by Peter Galloway)

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