Barrick – Low Grade Realities in Copper (& Chemaf/Chinese)

Analysis By Tshepo Magagane

NB: while on the other side – [Ivanhoe Mines is entering a new phase of strong free cash flow generation, following the completion of peak capital expenditures at its flagship Kamoa-Kakula copper complex] – dear me, he called it right!!

1.  Lumwana – Zambia

Low grades realities – Barrick using USD3/lb and cut-off of 0.14% – Lumwana

Construction capital of USD2bn

Growth capital of USD2bn

Sustaining capital of USD1.7bn

Capitalised Stripping of USD8.7bn

LOM operating costs of USD2.62/lb

IRR at USD3/lb is 10% (8yr payback) and at USD4.03/lb is 

49% (2yr payback)

2. Reko Diq – Pakistan

Low grades realities – Barrick using USD3/lb (USD1,300/oz Au) and cut-off of 0.14% – Reko

Project Development of USD8.8bn

Sustaining capital of USD3.8bn

LOM operating costs of USD1.24/lb (remember the gold)

IRR at USD3/lb (USD1,300/oz) is 12.9% (8.6yr payback) 

3. Chemaf / Chinese

China’s bid for Chemaf – if you now anything about this mine, you would know that if China was just a financial buyer, they would not have bid for it!

They understand the lack of ore out there – ask Trafigura about this asset…

But the Chinese are fighting this hard to get it.

They view everything through the entire supply chain, even if they lose upstream, as long as they can feed the ore into their downstream.

See in Mongolia as well with Xanadu – would not exactly say “scraping the bottom of the barrel” but they are aggressively increasing their stake there as well.

The Chinese can always take a long-term view – replacement costs for SAmerican low grade are 8x current prices…that simple!

Things like these dont even bother the West as they dont grasp this one bit…