Solaris values Ecuador copper mine at $4.6B

[Ben Graham]

Solaris Resources’ Warintza copper-gold project in Ecuador. Credit: Solaris Resources

Swiss mine developer Solaris Resources (TSX: SLS; NYSE: SLSR) says a prefeasibility study shows its Warintza copper-gold project in southeastern Ecuador would generate an after-tax net present value of $4.6 billion if it goes ahead.

Based on a long-term copper price of $4.50 per lb., Warintza would have a 26% after-tax internal rate of return with a post-tax payback period of 2.6 years, Solaris said Thursday in a statement. Initial capital for the project is estimated to be $3.73 billion, including a 16% contingency.

Solaris, which left Canada for Switzerland last year over Ottawa’s crackdown on Chinese investments in Canadian mining companies, envisions an open-pit operation producing 240,000 copper-equivalent tonnes a year over a 22-year mine life. This would include about 300,000 copper-equivalent tonnes over the first five years of operation.

“Put together, the prefeasibility study highlights Warintza as an operationally simplistic project offering size and scale utilizing conventional methods,” BMO Capital mining analyst Rene Cartier said in a note.

Cash generation

Free cash flow could average $1.3 billion annually for the first five years and $1 billion over the first 15, Solaris said. All-in sustaining cost would be C$0.85 per lb. of payable copper for the first five years and $1.07 per lb. of payable copper during the first 15 years.

Located in Ecuador’s Morona Santiago province, about 500 km south of Quito, the property includes nine metallic mineral concessions covering 268 sq. km. Solaris announced an option agreement to buy 10 other concessions next to Warintza, covering about 40 sq. km, which are considered prospective for porphyry copper and epithermal gold mineralization.

Warintza holds 1.3 billion proven and probable tonnes grading 0.31% copper, 0.02% molybdenum, 0.04 grams gold per tonne and 1.3 grams silver, according to the new study.

A possibility exists to extend the mine life by 25 to 30 years beyond the mineral reserves, which represent less than one-third of the resource endowment, the company said.

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Tailings options

While current reserves are constrained to 1.3 billion tonnes due to the capacity of the tailings management facility, “we anticipate subsequent tailings locations would be permitted when appropriate to support resource life extension” given the large land package and favourable topography, National Bank Financial mining analyst Shane Nagle said in a note.

Nagle called Warintza a “world-class copper development project” that bolsters the potential for Solaris to eventually sell it to a larger mining company.

“When combined with support from the government of Ecuador and impact and benefits agreements signed with local communities, we see little to deter a large-scale mining company from looking to acquire the project,” he said.

Solaris rose 0.9% to C$9.44 Friday morning in Toronto, boosting the company’s market value to about C$1.6 billion ($1.1 billion). Earlier the stock hit C$9.70, its highest level since June 2022, TMX Group data show.