August 18, 2014 / 7:26 AM / in 3 years

Australia miner Oz says copper find could reap billions in revenue

SYDNEY, Aug 18 (Reuters) - Oz Minerals Ltd said on Monday a copper and gold mine it wants to develop in Australia could generate A$22.1 billion ($20.58 billion) in revenue over more than 20 years but will require a partner to proceed.

The company’s projections, based on a target of 114,000 tonnes of copper and 117,000 tonnes of gold a year coming out of the company’s Carrapateena project, drove Oz Minerals shares 3 percent higher to A$4.40.

Copper mining is one of few sectors investors appear willing to risk capital in developing as commodities markets in general cool in step with slowing growth in China.

Morgan Stanley forecasts a supply surplus of copper concentrate will shrink to around 87,000 tonnes by 2018 from 580,000 this year.

BHP Billiton , the world’s biggest diversified mining house, includes copper as one of its “pillars of growth” and owns a majority stake in the world’s biggest copper mine in Chile.

Rio Tinto is investing heavily in Mongolian copper mining through its 51 percent stake in Canada’s Turquoise Hill Resources, while China’s MMG Ltd and its partners have paid $7 billion for the Las Bambas copper project in Peru.

Oz Minerals, capitalised at A$1.34 billion, has been looking for partners to help shoulder the A$2.985 billion it forecasts will cost to get the mine up and running later this decade. The deposit is located 100 kms (62 miles) from the BHP-owned Olympic Dam mine, another giant copper mine.

“We have reviewed in detail numerous copper-gold projects around the world over the past five years and there are very few like Carrapateena which offer the potential of multi-decade production at low operating costs,” said Oz Minerals Managing Director Terry Burgess.

OZ Minerals has put a net present value on the project of A$1.15 billion based on a pre-feasibility study, higher than previous estimates by analysts of around A$500 million.

“It doesn’t have a great return, it only has an internal rate of return at 13 percent, with a very very big price tag of A$3 billion so I think they’ll be quite challenged to find anybody that’s prepared to buy into the project at that kind of the price,” said Brenton Saunders, a portfolio manager with BT Investment Management.

“So to come out and say it’s now worth A$1.1 billion is quite a big difference so I guess the market is reacting to that,” Saunders said.

It is unlikely that OZ Minerals will have the financial capacity to bear all of the cost and project risk.

A sell-down of its interest through a joint venture could form part of the funding mix, the company said. (1 US dollar = 1.0738 Australian dollar) (Reporting by James Regan and Thuy Ong; Editing by Muralikumar Anantharaman)

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