The Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo (DRC) may cost around $1,9-billion to build, nearly double an October estimate of $1-billion, US miner Freeport-McMoRan Copper & Gold said on Wednesday.
Freeport operates the project and owns an effective 57,75% stake, while Vancouver-based Lundin Mining holds 24,75% and DRC State-owned miner Gecamines owns the balance.
The new cost estimate, prepared this month, included an additional $385-million in cost escalations, $170-million as a result of scope changes and $170-million for additional infrastructure, CEO Richard Adkerson said.
Miners around the world are rushing to bring new mines into production and expand existing ones, to take advantage of record metals prices.
However, rising costs for equipment, fuel and labour mean that capital projects are becoming increasingly expensive.
The issue of cost inflation was particularly acute in the DRC, Adkerson said.
“It's challenging to do business there, that's not a surprise.”
Besides the cost creep besieging the industry in general, a large part of the increase was owing to additional and improved infrastructure that was being put in place in anticipation of future expansions and additional projects at Tenke Fungurume, Adkerson said.
“Our expectation is that we will be able to undertake a series of development projects,” he said on a conference call with investors.
The scope changes related to a decision to increase mill throughput from the initially-planned seven-million tons to eight-million tons a day, and the company was also building a larger tailings facility, and investing more in housing, roads, railways and health facilities.
The company will also supply a loan to the DRC State power utility to fund investment in regional power infrastructure.
The investment includes infrastructure to support a larger scale operation than the initial phase of the project, including the provision of expanded electrical power-generation capacity and “improved power reliability”, Freeport said.
"We are setting the stage for aggressive subsequent development opportunities," Adkerson said.
The Arizona-based company is responsible for 70% of the project development cost, as well as for Lundin's share of certain project overruns.
About $475-million in project costs have already been incurred, Adkerson confirmed.
All long-lead-time equipment had been ordered and first production was still expected in the second half of 2009, the firm said.
The mine, which Freeport has said could contain the largest, undeveloped, high-grade copper/cobalt deposit in the world, will produce an average of 250-million pounds of copper and 18-million pounds of cobalt a year.
The Tenke Fungurume contract with Gecamines is one of about 60 identified for renegotiation in a review commissioned by the DRC government.
However, Adkerson said that Freeport was confident that the contract was negotiated transparently and was "very fair" to the government.
"We are responding to issues that the government has raised, we are meeting with an interministerial group that's been formed to review the contracts, and we feel very positive about the direction of those discussions."
"We have confidence...that we will be able to proceed with our project in a satisfactory way."