TORONTO (Reuters) - Inmet Mining Corp IMN.TO raised projected developments costs for its Cobre Panama copper project in Central America by more than 25 percent to $6.2 billion, and investor worries about the higher costs sent Inmet shares tumbling 7.5 percent on Monday.
The base metal miner, which had previously considered selling a part of its interest in Cobre Panama to defray costs, said late on Sunday that it plans to develop the massive project on its own for now, using cash on hand, debt and other options.
Toronto-based Inmet said it will retain its 80 percent stake in the asset, but it did not close the door on selling a stake in Cobre Panama down the road. The remaining 20 percent in the Panamanian asset is owned by a South Korean consortium.
“Inmet’s funding plan appears credible and the company has taken material steps to de-risk the project,” TD Securities analyst Greg Barnes said in a note to clients.
“However, Cobre Panama is a massive project that will take four years to build and could face capital expenditure, regulatory and environmental challenges over that time.”
Shares of Inmet fell C$3.78 to C$46.47, also hit by a wider commodities-related sell-off sparked by concerns that election results in Europe clouded the region’s outlook as it continues to grapple with a sovereign debt crisis.
Inmet announced a $1 billion senior unsecured note offering to help finance the project. The mine is expected to produce an annual average 266,000 tonnes of copper over the 31 years of its expected life, as well as about 87,000 ounces of gold and 1.5 million ounces of silver a year.
The company said it is also mulling a $1 billion precious metals stream financing deal to help fund the construction.
“We are currently engaged in discussions with interested parties to sell a portion of future gold and silver production attributable to our 80 percent interest in Cobre Panama,” Inmet said in its statement.
Inmet also plans to utilize $1.7 billion of cash on hand, $1.5 billion of cash flow from its existing mines, and $1.4 billion from its partners LS-Nikko Copper Inc and Korea Resources Corp. It said it plans to raise a further $1 billion via the sale of additional equity, project debt financing or other options.
“We feel very comfortable with our financing arrangements,” Chief Executive Jochen Tilk said on a conference call. “We are not contemplating new issue in the equity at this point.”
Inmet had previously projected the capital cost for Cobre Panama at $4.32 billion. Its latest estimate includes roughly $650 million in costs for a power plant that was not part of its 2010 study as well as an increase of $400 in process plant capital costs and about $800 million in other cost increases.
Raymond James analyst Alex Terentiew noted that while the construction costs have risen, estimates on projected operating costs have fallen due to lower power costs.
“While labor and material cost estimates have risen by 60 percent and 23 percent, respectively, they were more than offset by a 55 percent decline in power costs as a result of sourcing power from a project-owned power plant,” he said in a note to clients.
($1= 0.99 Canadian)
Reporting By Euan Rocha; Editing by Janet Guttsman