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4/11/09

Cerro Casale capex and those dubious neighbour plays

Any professional analysts at the Can'o'corn feeling stupid about pumping the Exeter Caspiche story yet? Cerro Casale is just down the road from Yale's dog of a project, remember. Same rocks, same grades, same lack of water, same altitude...same same same. (Hint to Mr Z; Next time you go on a site visit make sure you leave the comfort of the deluxe hotels and spend more than four hours at the mine site.

Oh, then there's that dubious Volcan under Andina Minerals (ADM.v). Same place. Then those utter criminals at Capella (KPS.v). Same place. As mentioned many times before not all gold ounces are the same, so check out below what Kinross and Barrick have suddenly discovered! My, doesn't it remind you of that Noront Ring of Fire thing from a couple of years ago.......
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A key development project for mining giants Barrick Gold Corp. and Kinross Gold Corp. has run into massive capital cost escalation, raising more doubts from experts that it will get built any time soon.

The project in question is Cerro Casale, a huge, low-grade gold-copper deposit in northern Chile. Kinross filed a technical report this week that pegged the construction cost of the project at a whopping US$3.6-billion.

That is an increase of 86% over the last estimate of about US$2-billion, made in August, 2006.

"This number is obviously going to have pretty big implications," said Dundee Securities analyst Paul Burchell, who used to work at Cerro Casale.

"It suggests to me that a project difficult to justify five years ago is probably more [difficult] today."

Experts are also concerned with the aggressive pricing assumptions made in the Cerro Casale study. Kinross is using a gold price of US$725 an ounce and a copper price of US$2 a pound, which is actually higher than the current copper price.

"It's a tough project economically because of the capex and the prices required to make it work. In this market, it will probably be deferred," said David Whetham, a resource fund manager at Scotia Cassels.