Last summer, I heard about Coro Mining (TSX: COP), a brand new gold and copper mining company with the bold ambition to become a mid-tier production firm in under three years.
Prior to going public, everything looked great; Coro was built by proven mine-finders and developers who have extensive geologic knowledge of the region and strong relationships with local communities, and the known resources on the company’s earn-in projects totaled over 2 billion pounds of copper.
The plan was to fast-track the company’s San Jorge copper/gold project through the development stage and into production. But because of a new environmental law, which was passed right before Coro began trading publicly, the company ran into a slight bump on the road to production for San Jorge. As a result Coro’s share price took a hit right off the bat.
The months passed. The seasons changed. And despite ever climbing—and record breaking—metal prices (including an all-time high for gold of $1,032/oz and copper of over $4/lb), COP continued to fall even further over the past several weeks as part of the overall global market downturn.
Generally speaking, there has been a lowering valuation tide for junior firms specfically market-wide, fueled in part by higher energy prices, the sub-prime mortgage meltdown, and the devaluing of the US dollar. This ebbing of the tide, however, has revealed some pearls in the junior mineral branch of the larger stock market river and presented a few solid investment opportunities for guys like you and me. And Coro Mining is one of these pearls, even despite the issues with the mining legislation.
San Jorge: The Copper Mining Resource
Coro Mining has the option to earn a 100% interest in the 115,000 hectare San Jorge copper/gold project, which is remotely located in the Province of Mendoza, Argentina approximately 45km north of the town of Uspallata and 250km northeast of Santiago, Chile.
The property is situated in the El Indio mineral belt and regionally near many large open-pit and underground mines including Los Pelambres and El Teniente.
Los Pelambres is the world’s fifth-largest copper mine and is owned 60/40 by Antofagasta PLC (LSE: ANTO) and a Japanese consortium, which includes Mitsubishi Materials Corp. and Nippon Mining and Metals Company Ltd. Los Pelambres currently produces about 320,000 tonnes of copper concentrate annually.
El Teniente (The Lieutenant) is owned and operated by Corporación Nacional del Cobre de Chile (CODELCO), the largest copper mining company in the world. El Teniente is the largest underground mine in the world, having 2400km of underground tunnels. CODELCO’s mining plan for El Teniente includes total reserves and resources of 122 million tonnes of copper plus additional identified resources of 196 million tonnes of copper.
So, in general, the San Jorge property is certainly in the right neighborhood for large copper deposits.
Last year Coro completed a drill program at San Jorge that comprised 27 diamond drill holes totaling 4,177 meters, which included stepout and infill drilling. Based on the results of this program, Coro was able to add further in-ground resources to the San Jorge project.
On January 18, 2008, Coro announced a newly revised copper and gold resource estimate for San Jorge. Results from the new National Instrument 43-101 complaint estimate showed total measured and indicated resources of 2,050,979,000 pounds of copper and 1,257,000 ounces of gold.
The new estimate also included inferred mineral resources of 592,182,000 pounds of copper and 337,000 ounces of gold.
The table below shows the details from the most recent resource estimate.
Despite this rather attractive resource, however, there is a small hiccup in actually getting the metal out of the ground. And that’s the mining legislation that I mentioned earlier.
San Jorge: Mining Legislation
In response to environmental activism in the region, the Mendoza Provincial Legislature passed a new law in June 20, 2007 that prohibits the use of toxic chemicals including sulfuric acid in metalliferous mining activities in the Province.
This means that Coro Mining, or any other company working in Mendoza, is not be permitted to produce copper from with a low-cost heap leaching operation.
Heap leaching is the process of stacking crushed ore into heaps on a sloping impermeable pad usually made of rubber. A leaching agent (sulfuric acid in the case of copper mining) is then pumped to the top of the heap through hoses and sprinkled or dripped out to percolated through the ore. The leaching agent slowly dissolves the copper, and/or other valuable metals, to create a pregnant solution, called leachate, which is collected in a reservoir at the bottom, or toe, of the heap. This leachate can then be processed into copper cathode, the raw material for the production of continuous cast copper rod for the wire and cable industry. Cathodes are also used to produce high quality copper tube, brass and other extruded copper products.
Below is a very basic illustration of how a heap leaching operation works.
Now, the resources at San Jorge contained within the oxide material (see the resource estimate table above) can only be processed by heap leach methods. But due to the new Provincial legislation that prohibits the use of sulfuric acid in metalliferous mining operations, heap leaching the copper from ore produced at San Jorge is out of the question.
However, and this is very important to remember, the enriched and primary material (see the resource estimate table above), which accounts for 81% of the measured and indicated resources and 98.5% of the inferred resources, can be processed by the flotation method, a different production method that does not use sulfuric acid and does not conflict with the new provincial mining legislation.
Flotation is a process by which mineral particles are induced to become attached to bubbles and float while others sink. This process separates valuable minerals and concentrates them. These concentrates are then sold to refineries for further processing.
The most important factor of the flotation process for Coro and its shareholders, however, is the fact that sulfuric acid is not used. And the new legislation and existing environmental regulations do not preclude conventional flotation treatment.
The oxide material can not be economically processed by flotation and has to be heap leached. This is the main reason the stock sold off last summer. But I believe investors overlooked the fact that the oxide material only accounts for 18.5% of the measured and indicated material and 1.5% of the inferred resources. See the resource estimate table above for exact figures.
San Jorge: The New Road to Production
In Feburary, Coro announced that the company has commissioned a Preliminary Economic Assessment to evaluate a 10 million tonnes per year flotation operation capable of producing 35,000 to 50,000 tonnes of copper concentrate annually.
The assessment will examine producing these concentrates from the enriched and primary material only at the San Jorge project. Oxide material would be treated as waste and stockpiled separately.
In the cross section below you can see that the oxide material can be essentially scraped off the top to reveal the enriched and primary sulfides.
The Preliminary Economic Assessment is scheduled for completion in the second quarter, and assuming a positive outcome, Coro says that it intends to complete an Environmental Impact Study and initiate permitting activities.
San Jorge: Hope for Heap Leaching Persists
In July 2007, after the Mendoza Provincial Legislature passed the new law banning the use of sulfuric acid in mining, Coro filed an action to have the legislation declared unconstitutional. Several other organizations also filed similar actions. The company says that there are ongoing negations with officials to get this law overturned or at least amended.
San Jorge is located in an area with a very low population and no competing agricultural interests. There is also no competition for water resources and the project is not upriver from any agricultural activities.
An Environmental Baseline Study has been completed and shows no significant issues. So there is still a chance that the province will allow Coro to heap leach the copper out of the ore from San Jorge in the future.
A new pro-mining Governor was just elected into office. On October 28, 2007, Mr. Celso Jaque was elected as Governor of Mendoza and has stated that he will revisit the legislation and its constitutional status. Of course there’s never a guarantee with politicians.
But in the event that the new environmental legislation is overturned or amended so that sulfuric acid is allowed to be used at the San Jorge property, Coro is also finalizing a 25,000 tonne per year copper cathode leach only pre-feasibility study which examine treatment of the oxide and enriched material by heap leaching. This study is also scheduled for completion in the second quarter.
The San Jorge project is the company’s flagship property and represents a solid opportunity for Coro to quickly become a mid-sized copper/gold producer. However, the project is only one of the ten properties the company is currently working…
Editor, Gold World