First Quantum has its work cut out on Cobre Panama – by Pav Jordan (Globe and Mail – March 14, 2013)

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It took six months and more than $5-billion for First Quantum Minerals Ltd. to get its hands on Cobre Panama, one of the world’s largest copper projects.

The trick now will be to build the mine on time and on budget in a world where costs have skyrocketed and the outlook for metals prices is murky. Moreover, Cobre is to be built in a country, Panama, that has virtually no mining industry to speak of.

Vancouver-based First Quantum gained control of the project this week with the hostile takeover of Inmet Mining Corp., and hopes it can shave as much as $1-billion (U.S.) from the $6.2-billion construction cost budgeted by its current owner.

The mine, already fully financed under Inmet, will be the largest ever in Central America and represents the most ambitious development project in Panama since the building of the Panama Canal. After it comes into production in 2016, it is expected to produce about 300,000 tonnes of copper a year for 40 years.

Analysts are divided on whether First Quantum can build Cobre Panama more cheaply than Inmet, pointing to such massive cost escalation across the mining industry that it has felled free-spending CEOs and decimated smaller companies.

Specific challenges at Cobre Panama include the scale of the project, which is much bigger than anything First Quantum has built to date, and working in the Panama rainforest. The company will need to work with the government and local communities to assure them the project will proceed as planned under Inmet.

“The company has provided no information about where they think they could save on the costs as estimated by Inmet, and given their lack of experience in that part of the world … my assumption is that they won’t find any cost savings,” said Salman Partners Inc. analyst Raymond Goldie, pointing out the industry has seen cost inflation of about 15 per cent in the past year alone.

TD Securities Inc. analyst Greg Barnes said in a recent report that costs could be as high as $7-billion, and also forecast the project might take a year longer to build than Inmet’s base case scenario.

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