Feasibility Study Abacus Mining and Exploration Corp. for Ajax low-grade open-pit copper mine

Firstly the estimated capital investment increased by 48.6% from $535,000,000 to $795,000,000 from the original Project Summary dated December 6, 2010. The estimate does not take into consideration any environmental mitigation expenses they will likely face due to the many issues to be identified during the environmental assessment process and the inevitable cost over runs during the construction phase. There will also be significant off balance sheet liabilities such as the cost of potential damage to homes close to the mine from blasting, water table issues and shifting of soils. There will also be a requirement for a significant bond to be posted to ensure that proper site remediation is carried out after the resources are depleted or if the mine is forced to shut down during an economic down turn.

 

Secondly, the cost to produce a pound of copper has increased by 9.4% from $1.17 to $1.28 per lb. from their original estimates. In reality it is much more than that if the 55% increase in the netback in the price of gold is taken into consideration. The production cost estimates are extremely conservative and likely be much higher if gold prices drop and the cost of labor and fuel increase during the 23 year life span of the mine.

 

As far as copper prices, the commodities analysts’consensus is for stagnate world demand with China’s consumption increasing by 8% until 2016 and then reducing to 2% thereafter, right about the time Ajax is scheduled to start up. With many other projects scheduled to start up at the same time and demand stabilizing, it should put pressure on copper prices.

 

What does this all mean? Ajax will be a very marginal operation at best and likely to close down if the world economy goes through a down turn which is extremely likely over the next quarter of a century.

 

We must also remember the purpose of a feasibility study. It is a tool to attract investors. In this case it is KGHM Polska Miendz S.A. that Abacus is trying to attract. KGHM will have until March 31 2012 to accept the study and take a majority interest in Ajax as well as provide the financing to complete the project.

 

KGHM is one of the largest and most profitable copper mining companies on the planet and did not get there by making bad investments. They will look at this marginal operation with escalating costs and weigh the environmental and social risks of a low-grade open-pit in a vibrant community and walk away.

 

 

John Schleiermacher
Kamloops