African Adventure

Wednesday, November 25th, 2009

During the financial turmoil late last year and early this year a number of mining projects were either put on hold or written off completely. This was due to two main reasons:

    • lack of funding availability through debt and equity markets
    • falling commodity prices making the projects uneconomical

Since March commodity prices have rallied off their lows. This has been led from returning demand from Asia and in particular China. Funding has also slowly returned to the market for higher quality projects, however a number of projects previously determined economically feasible when commodity prices were trading at all time highs may never be developed.

Clearly one lesson that has stayed with investors from the crisis is that there is a need to focus on high quality or tier one assets. These assets are low cost mines with a long mine life. Investors now appear willing to pay a premium for such assets no matter where they are located. Because of this Australian companies have looked offshore in recent times for high quality assets.Two such companies are Equinox Minerals (ASX:EQN) and Paladin Energy (ASX:PDN) who have both had success developing world class assets in Africa.

Equinox Minerals Limited (ASX:EQN)

Equinox Minerals Limited (ASX:EQN) is a copper and uranium exploration and development company with a focus is on the Lumwana open cut copper project in Zambia.

The Mine

The Lumwana mine began production in December 2008. Construction cost $841 million and took just over two years. The current mill on site has the capacity to process 20 Mtpa of ore which will provide output of between 160 -170k tonnes of copper per year. This will make it one of the top 20 copper producers in the world. Management estimate the cash costs of production to be between US$1.35 and $1.50 per lb and with current spot copper prices running at close to $3 per lb the mine is operating at a healthy margin.

The mine currently has resources of 6.3Mt Copper (or 13.8 billion lbs) and its production life is estimated at current rates is expected to be around 37 years.

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