UPDATE 3-Antofagasta resumes pricey Antucoya project after cost review

Wed Mar 27, 2013 4:12pm EDT

Related Topics

* Antucoya now seen costing $1.9 billion

* Miner says has renegotiated key construction contracts

* Antucoya annual output seen 85,000 tns for first 10 yrs

LONDON/SANTIAGO, March 27 (Reuters) - Chilean miner Antofagasta said on Wednesday it was resuming construction of its Antucoya copper mine after halting the expensive project in December to carry out a review of its costs.

Antofagasta said the full review gave it greater certainty over development costs, citing a "renegotiation of principal construction contracts for the project, additional detailed engineering, and an updated resource model following further drilling of the deposit."

The London-listed miner said Antucoya was now expected to cost $1.9 billion, up from a previous estimate of $1.7 billion, and produce an average of 85,000 tonnes of copper cathodes during the first ten years of its mine life.

That would put the cost per tonne of annual production a little over $22,000, making it one of the most capital intensive projects in the industry.

"The detailed review of the Antucoya project and the measures we have taken since December 2012 have provided us with the level of certainty in relation to the development costs for the project that we sought, thereby enabling us to resume construction," said Antofagasta's CEO Diego Hernandez.

The company said on Wednesday mining operations are expected to start during 2015.

Antofagasta, which is controlled by Chile's wealthy Luksic family, approved the project in 2011, selling a 30 percent stake to Japanese trading house Marubeni Corp to help shoulder the burden of the costs.

SPIRALLING COSTS

The project located in the arid, northern Atacama region, around 45 km east of Antofagasta's Michilla mine, is emblematic of soaring costs in mining.

For miners in world No.1 copper producer Chile, steep power prices are one of the biggest headaches.

Antofagasta said roughly $500 million had been spent on the project before it was suspended. Part of the remaining costs could be partially funded via "project finance at the asset level," the company added.

Antofagasta warned when it published 2012 production numbers earlier this year that it would not increase output this year, while costs would jump by over a third due to greater spending at two key mines, Esperanza and Los Pelambres.

Copper production last year came in at 709,600 tonnes, beating Antofagasta's full-year forecast of 700,000 tonnes, and 11 percent higher than the previous year.

Shares of Antofagasta closed 0.39 percent stronger on Wednesday, before the announcement to resume Antucoya's development was made, outperforming a broadly flat sector.

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