Avalon Minerals (ASX:AVI) has released a scoping study which it deems to justify the continued development of the Viscaria copper project, and claims the project ‘demonstrates robust project fundamentals’. However, when we had a closer look at the economics of the project, we aren’t impressed at all.
Okay, the initial capex of just US$102M is very decent and it definitely sounds financeable, but an all-in cost of $2.1 per pound of copper is quite high considering the average copper production will be just 26 million pounds on an annual basis. This means that even if you’d use a copper price of $2.75/lbs, the payback period would be approximately 7 years (whereas the total mine life is anticipated to be just 8 years although it is quite likely the mining inventory will be increased).
Avalon has used a copper price of $3.25/lbs as its base case scenario and even though this is quite an aggressive move (as the base case copper price is 50% higher than the current spot price), the pre-tax NPV7% is just US$74M whilst the pre-tax IRR remains limited to 22% (indicating a post-tax NPV and IRR of respectively <60M and <20%, and that’s not something we can be excited about.
Go to Avalon’s website
The author holds no position in Avalon Minerals. Please read the disclaimer
