Xstrata Keeps Las Bambas Cost at $5.2 Billion, Sees Output 2015

Xstrata Plc, the copper producer whose $37 billion takeover by Glencore International Plc is close to completion, maintained the cost of its Las Bambas mine in Peru at $5.2 billion after raising it last year.

“Las Bambas is now in full construction phase and is set to produce 400,000 tons of copper per annum from 2015 for at least the first five years,” Xstrata said. “The project delivers robust financials, earning Xstrata’s cost of capital at a life of mine flat copper price of $1.89 per pound.”

The latest estimate of $5.2 billion compares with an initial figure of $4.2 billion when the board approved the project in 2010. The company raised the estimate to $5.2 billion in August because of permitting delays, infrastructure costs and costs associated with relocating communities.

Mining companies are facing cost overruns and delays in building projects because of cost inflation and declining commodity prices. Xstrata is seeking to increase the output of its commodities ranging from thermal coal to zinc and nickel by 50 percent at the end of next year.

More than 90 percent of engineering work and 80 percent of procurement and contracts were completed by the end of 2012 at Las Bambas, Xstrata said today in a statement.

“We expect the news to be taken well given any fear of a capex blowout should abate, and therefore the likelihood of project execution under the merged group increases,” Liberum Capital Ltd. said in note. “Nevertheless, we don’t rule out modifications to the project following the capital allocation review which we expect to follow merger completion.”

Won Approval

Glencore this week won approval from South Africa’s antitrust regulator for its takeover of Xstrata, leaving Chinese agreement as the sole outstanding requirement for the deal. The companies extended the deadline for completing the deal to March 15 from Jan. 31.

Xstrata began copper production at its $1.5 billion Antapaccay project in southern Peru in November. The mine will produce an average of 160,000 tons of copper annually over the first five years.

“Las Bambas represents the next major stage in Xstrata copper’s Peruvian development plans that will result in combined annual production levels in the country of around 700,000 tons of high margin copper from 2015,” Charlie Sartain, Xstrata’s head of copper, said in today’s statement.

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