43-101 independent technical report · minera agua rica - agua rica project 43-101 independent...

Minera Agua Rica - Agua Rica Project 43-101 Independent Technical Report

PR318265.018 Rev. 0, Page i

PR318265-018 - NI-43-101 - Technical Report Rev 0.Doc © Hatch 2006/03

Table of Contents

1. Cover Page

2. Table of Contents

3. Summary ................................................................................................................................................. 8

3.1 Project Overview ........................................................................................................................... 8 3.2 Geology......................................................................................................................................... 8 3.3 Mining ........................................................................................................................................... 9 3.4 Metallurgy.................................................................................................................................... 10

3.4.1 Metallurgical Testwork ....................................................................................................... 10 3.4.2 Process Plant and Associated Facilities ............................................................................... 10 3.4.3 Tailings .............................................................................................................................. 11

3.5 Infrastructure................................................................................................................................ 11 3.5.1 Power................................................................................................................................. 11 3.5.2 Water ................................................................................................................................. 11

3.6 Environmental and Social Work ................................................................................................... 11 3.7 Employment and Training ............................................................................................................ 12 3.8 Marketing..................................................................................................................................... 12 3.9 Capital Cost ................................................................................................................................. 12 3.10 Operating Costs ........................................................................................................................... 13 3.11 Financial Evaluation ..................................................................................................................... 14 3.12 Conclusions and Recommendations............................................................................................. 14

3.12.1 Conclusions ....................................................................................................................... 14

4. Introduction .......................................................................................................................................... 16

4.1 General........................................................................................................................................ 16 4.2 Report Contributors...................................................................................................................... 16

5. Reliance on Other Experts..................................................................................................................... 20

5.1 General........................................................................................................................................ 20

6. Property Description and Location ....................................................................................................... 21

7. Accessibility, Climate, Local Resources, Infrastructure and Physiography ............................................ 24

7.1 Accessibility................................................................................................................................. 24 7.2 Climate ........................................................................................................................................ 24 7.3 Local Resources ........................................................................................................................... 24 7.4 Physiography ............................................................................................................................... 24

8. History .................................................................................................................................................. 25


Table of Contents PR318265.018 Rev. 0, Page ii


9. Geological Setting ................................................................................................................................. 27

9.1 Regional Geology ........................................................................................................................ 27 9.2 Local Geology.............................................................................................................................. 27 9.3 Lithology...................................................................................................................................... 30

10. Deposit Types........................................................................................................................................ 31

11. Mineralization....................................................................................................................................... 32

12. Exploration............................................................................................................................................ 33

13. Drilling.................................................................................................................................................. 34

14. Sampling Method and Approach ........................................................................................................... 35

15. Sample Preparation, Analyses and Security........................................................................................... 36

16. Data Verification................................................................................................................................... 37

16.1 Results of the QA/QC Programme................................................................................................ 37 16.2 Bulk Sampling Programme........................................................................................................... 38 16.3 Other Information ........................................................................................................................ 38

17. Adjacent Properties............................................................................................................................... 39

18. Mineral Processing and Metallurgical Testing ....................................................................................... 40

18.1 Process Plant................................................................................................................................ 43

19. Mineral Resource and Mineral Reserve Estimates ................................................................................. 45

19.1 Raw Data Analysis ....................................................................................................................... 45 19.2 Composites .................................................................................................................................. 45 19.3 Geologic Model ........................................................................................................................... 47

19.3.1 Variography ....................................................................................................................... 48 19.4 Block Model ................................................................................................................................ 50 19.5 Block Grade Interpolation ............................................................................................................ 50 19.6 Bulk Density ................................................................................................................................ 54

19.6.1 Onsite Method 1 ................................................................................................................ 54 19.6.2 Density Measurements at CIMM......................................................................................... 55 19.6.3 Conclusions ....................................................................................................................... 58

19.7 Classification of Resource............................................................................................................. 59 19.7.1 Introduction ....................................................................................................................... 59 19.7.2 Results................................................................................................................................ 60

19.8 Mineral Reserves.......................................................................................................................... 62

20. Other Relevant Data and Information................................................................................................... 64


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21. Interpretation and Conclusions ............................................................................................................. 65

21.1 Conclusions ................................................................................................................................. 65

22. Recommendations................................................................................................................................. 68

23. References............................................................................................................................................. 71

24. Letters of Qualification, Dates and Signatures ...................................................................................... 74

24.1 Hatch Ltd - (John Wells) ............................................................................................................... 74 24.2 Giroux Consultants Ltd. - (Gary H. Giroux) .................................................................................. 75 24.3 Hatch Ltd. – (Callum Grant) ......................................................................................................... 76 24.4 AMEC – (Gerritt Vos) ................................................................................................................... 77 24.5 Previously Hatch Ltd. – (Paul Hosford)......................................................................................... 78 24.6 Hatch Mott MacDonald – (Dean Brox)......................................................................................... 79 24.7 BGC – (Iain Bruce) ....................................................................................................................... 80 24.8 Ian Hayward International – (Joe Chesham).................................................................................. 81 24.9 WMC – (John McCartney) ............................................................................................................ 82 24.10 WMC – (David Sellars)................................................................................................................. 83 24.11 Brass Engineering – (Brad Ricks)................................................................................................... 84

25. Additional Requirements....................................................................................................................... 85

25.1 Introduction ................................................................................................................................. 85 25.2 Block Model ................................................................................................................................ 87 25.3 Open Pit Optimization................................................................................................................. 88 25.4 Open Pit Design .......................................................................................................................... 94

25.4.1 Geotechnical Evaluation..................................................................................................... 94 25.4.2 Design Parameters and Summary ....................................................................................... 94

25.5 Pit Design Tonnages..................................................................................................................... 95 25.6 Waste Material Handling.............................................................................................................. 96 25.7 Mine Plan .................................................................................................................................... 96

25.7.1 Summary............................................................................................................................ 96 25.7.2 Pit Sequencing ................................................................................................................... 97 25.7.3 Pre-production Mine Development and Production............................................................ 99

25.8 Mining Equipment and Manpower ............................................................................................. 100 25.9 Mine Water Management........................................................................................................... 100 25.10 Mine Capital Cost Estimate......................................................................................................... 100 25.11 Metallurgy.................................................................................................................................. 101

25.11.1 Metallurgical Testwork ..................................................................................................... 101 25.11.2 Process Plant and Associated Facilities ............................................................................. 103

25.12 Processing.................................................................................................................................. 103 25.13 Design Criteria ........................................................................................................................... 104 25.14 Tailings Disposal........................................................................................................................ 105 25.15 Copper Concentrate Handling.................................................................................................... 106 25.16 Tailings and Waste Rock Storage................................................................................................ 106


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25.17 Infrastructure – On-Site .............................................................................................................. 106 25.17.1 Minesite Facilities............................................................................................................. 107 25.17.2 Plantsite Facilities ............................................................................................................. 107 25.17.3 Andalgalá ......................................................................................................................... 108 25.17.4 Site Power Distribution .................................................................................................... 108 25.17.5 Tunnel.............................................................................................................................. 109

25.18 Infrastructure – Off-Site .............................................................................................................. 110 25.18.1 Access Roads ................................................................................................................... 110 25.18.2 Water Supply ................................................................................................................... 111 25.18.3 Power Supply................................................................................................................... 112 25.18.4 Concentrate Pipeline ........................................................................................................ 115

25.19 Marketing................................................................................................................................... 115 25.19.1 Metal Prices ..................................................................................................................... 115 25.19.2 NSA Price Summary and Recommendation...................................................................... 117 25.19.3 Copper Smelter Terms – Introduction............................................................................... 118

25.20 Project Plan of Execution ........................................................................................................... 126 25.20.1 General ............................................................................................................................ 126 25.20.2 Project Planning ............................................................................................................... 126 25.20.3 Procurement and Logistics................................................................................................ 127 25.20.4 Construction Management ............................................................................................... 127 25.20.5 Start-Up and Commissioning ............................................................................................ 128

25.21 Environmental and Social Work ................................................................................................. 128 25.22 Taxation..................................................................................................................................... 130

25.22.1 Tax Rates.......................................................................................................................... 130 25.22.2 Depreciation .................................................................................................................... 130 25.22.3 Tax Losses ........................................................................................................................ 130 25.22.4 Value Added Tax (VAT).................................................................................................... 130 25.22.5 Turnover Taxes................................................................................................................. 131

25.23 Capital Costs .............................................................................................................................. 131 25.23.1 Summary.......................................................................................................................... 131 25.23.2 Basis of Estimate............................................................................................................... 133 25.23.3 Owner’s Cost ................................................................................................................... 146 25.23.4 Exclusions ........................................................................................................................ 146 25.23.5 Contingency..................................................................................................................... 147

25.24 Operating Cost Estimate ............................................................................................................. 147 25.24.1 Summary.......................................................................................................................... 147 25.24.2 Scope of Estimate ............................................................................................................. 150 25.24.3 Basis of Estimate............................................................................................................... 150 25.24.4 Details by Area................................................................................................................. 157

25.25 Financial Analysis ...................................................................................................................... 168 25.25.1 Qualifications, Assumptions and Exclusions ..................................................................... 169 25.25.2 Production Parameters ..................................................................................................... 171 25.25.3 Taxation ........................................................................................................................... 174 25.25.4 Financial Indicators .......................................................................................................... 177 25.25.5 Sensitivity Analysis ........................................................................................................... 178

25.26 Contingency............................................................................................................................... 182 25.26.1 Definition......................................................................................................................... 182 25.26.2 Contingency Calculation – Results ................................................................................... 182 25.26.3 Recommended Contingency ............................................................................................ 182


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List of Tables

Table 3-1: Measured, Indicated, and Inferred Resource (0.2% Cu) .............................................................. 8 Table 3-2: Movement of Total Material Tonnage........................................................................................ 9 Table 3-3: Capital Cost Summary – Base Case 90,000 tpd Mill ($K) .......................................................... 13 Table 3-4: Metal Price Estimates................................................................................................................ 14 Table 4-1: Consultants and Responsibilities............................................................................................... 17 Table 4-2: Qualified Persons Responsibilities ............................................................................................ 18 Table 8-1: Summary of Historical Resources (0.20% Cu cutoff) ................................................................. 26 Table 16-1: Average of Copper Results for 1,245 samples (ppm)................................................................. 37 Table 16-2: Average of Copper Results from re-assay program (ppm) .......................................................... 37 Table 16-3: DDH versus Bulk Sample Comparisons.................................................................................... 38 Table 18-1: Ore Types Classification........................................................................................................... 41 Table 18-2: Agua Rica Metallurgical Sampling Program – 2005 Sample Selection....................................... 41 Table 19-1: Summary of Statistics from Drillhole Samples.......................................................................... 45 Table 19-2: Summary of Statistics from 15 m Composites as a Function of Mineral Types .......................... 47 Table 19-3: Parameters for Semivariogram Models at Agua Rica Clean Domain......................................... 49 Table 19-4: Parameters for Semivariogram Models at Agua Rica Dirty Domain.......................................... 49 Table 19-5: Search Parameters Used for Ordinary Kriging Clean Zone ....................................................... 52 Table 19-6: Search Parameters Used for Ordinary Kriging Dirty Zone ........................................................ 53 Table 19-7: Agua Rica Blocks Classed Measured - Feb. 2006 Estimate ....................................................... 60 Table 19-8: Agua Rica Blocks Classed Indicated - Feb. 2006 Estimate ........................................................ 61 Table 19-9: Agua Rica Blocks Classed Inferred - Feb. 2006 Estimate .......................................................... 62 Table 19-10: Proven and Probable Mineral Reserves as of October 2006...................................................... 63 Table 21-1: Net Present Value of Discounted Cash Flow............................................................................ 65 Table 21-2: Copper Concentrate Grades and Recoveries for the Life of Mine. ............................................. 67 Table 21-3: Molybdenum Concentrate Grades and Recoveries for the Life of Mine..................................... 67 Table 25-1: Metallurgical Code Grouping ................................................................................................... 88 Table 25-2: AMinpro to Mine NSR Script Comparison ................................................................................ 89 Table 25-3: Net Smelter Return Calculation Parameters .............................................................................. 89 Table 25-4: Pit Optimization Parameters..................................................................................................... 91 Table 25-5: Combined Proven and Probable Reserves With Dilution.......................................................... 96 Table 25-6: Mine Production Forecast (Diluted) .......................................................................................... 97 Table 25-7: Production Equipment Purchase and Replacement Schedule (Annual).................................... 100 Table 25-8: Mine Operating Costs............................................................................................................. 101 Table 25-9: Concentrate Pipeline Capacity................................................................................................ 115 Table 25-10: Summary of Assumptions for Treatment & Refining and

Other Commercial Terms for Copper Concentrates ................................................................ 119 Table 25-11: Summary of Key Assumptions for Revenue Calculations Agua Rica Copper Concentrates .... 123 Table 25-12: Summary Assumptions for Revenue Calculations – Agua Rica Copper Concentrates .............. 125 Table 25-13: Summary of Water Quality and Quantity Mitigation and

Management Measures for the Minesite and Process Plant .................................................... 129 Table 25-14: Capital Cost Summary - Base Case, 90,000 tpd Mill ($000’s) ................................................. 132 Table 25-15: Capital Cost Breakdown - Base Case - 90,000 tpd Mill ($000’s) ............................................. 132 Table 25-16: Origin of Pricing for Materials and Equipment....................................................................... 137 Table 25-17: Currency Exchange Rates Used in the Estimate...................................................................... 137 Table 25-18: Plant Equipment Price Percentage Distribution...................................................................... 138 Table 25-19: Bulk Material Price Percentage Distribution........................................................................... 138 Table 25-20: Direct Labour Rate by Discipline and Main Subcontract........................................................ 141 Table 25-21: Opex Cost Summary ............................................................................................................. 149 Table 25-22: Project Summary Electrical Power Consumption ................................................................... 151


Table of Contents PR318265.018 Rev. 0, Page vi


Table 25-23: Manning Levels ..................................................................................................................... 152 Table 25-24: Shift Allowances and Payments ............................................................................................. 152 Table 25-25: Wage Categories and Rates for the Agua Rica Project ............................................................ 153 Table 25-26: Work Shift 7 x 7, 12 Hours.................................................................................................... 154 Table 25-27: Consumables......................................................................................................................... 155 Table 25-28: Consumable - Consumptions and Costs................................................................................. 156 Table 25-29: Maintenance and Supplies..................................................................................................... 157 Table 25-30: Mine Personnel ..................................................................................................................... 159 Table 25-31: Plant Administration, Operations and Maintenance............................................................... 163 Table 25-32: Concentrate Filter Plant – Personnel...................................................................................... 166 Table 25-33: Port Personnel ....................................................................................................................... 168 Table 25-34: Port Operating Cost............................................................................................................... 168 Table 25-35: Metal Price Estimates............................................................................................................. 169 Table 25-36: Concentrate Impurities Cost .................................................................................................. 170 Table 25-37: Ore Grades and Stripping Ratios for the Mine Plan................................................................ 172 Table 25-38: Base Case Financial Model.................................................................................................... 173 Table 25-39: Taxation Treaties Between Argentina and Other Countries .................................................... 176 Table 25-40: Base Case Summary -- Cash Flow Through Payback of Investment ........................................ 177 Table 25-41: Rate of Return ....................................................................................................................... 177 Table 25-42: Net Present Value of Discounted Cash Flow.......................................................................... 178 Table 25-43: Base Case Sensitivity ............................................................................................................. 178 Table 25-44: Sensitivity to Copper and Molybdenum Price (Gold Price $465, Silver Price $8) .................... 181 Table 25-45: Average 2003-2006 metal prices as per SEC guidelines .......................................................... 181


Table of Contents PR318265.018 Rev. 0, Page vii


List of Figures

Figure 6-1: Location Site Map .................................................................................................................... 21 Figure 6-2: Location Map and Regional Geology........................................................................................ 22 Figure 6-3: Outline of Current Mineral Rights............................................................................................. 23 Figure 9-1: Schematic Geology .................................................................................................................. 29 Figure 18-1: Agua Rica Plane, Plan 3000.00 ................................................................................................ 42 Figure 19-1: Showing Isometric Projection of Drillhole Composites Colour Coded by Mineral Type. ........... 46 Figure 19-2: Cumulative Frequency Plot Showing Copper and Gold Distributions in

Clean and Dirty Domains......................................................................................................... 48 Figure 19-3: Comparison Between Density Measured by Geometric Method at CIMM and

Wax Displacement Method at CIMM ....................................................................................... 55 Figure 19-4: Compare Density by Displacement (Wax Coating and Displacement - CIMM) and

Onsite Geometry (One Measurement Method)......................................................................... 56 Figure 19-5: Comparison Between Density Measured by Geometry at CIMM and

Onsite Measurements (One Measurement Method) .................................................................. 56 Figure 19-6: Density Data Collection Methodology...................................................................................... 57 Figure 19-7: Compare Density by Average Method and One Measurement Method .................................... 57 Figure 25-1: Site Drawing (Aerial View) ....................................................................................................... 87 Figure 25-2: Whittle Pit-By-Pit (Nested Shells) Output .................................................................................. 92 Figure 25-3: Pit Shells, Section 6969250N ................................................................................................... 93 Figure 25-4: Pit Shells, Plan 3240................................................................................................................. 93 Figure 25-5: Pit Shells, Section 763900E ...................................................................................................... 94 Figure 25-6: Ore Tonnage By Pit Phase ........................................................................................................ 98 Figure 25-7: Head Grades by Pit Phase (NSR $/tonne).................................................................................. 98 Figure 25-8: Head Grades by Pit Phase (%Cu).............................................................................................. 99 Figure 25-9: Conveyor Tunnel Cross Section.............................................................................................. 109 Figure 25-10: Mine Access Road Options .................................................................................................... 111 Figure 25-11: 270 kV Transmission Line - Option 1,2A and 2B Shown ........................................................ 113 Figure 25-12: 220 kV Transmission Line Between El Bracho and Andalgalá for Option 2A and 2B ............. 114 Figure 25-13: Sensitivity Analysis of Metal Prices on NPV (Pre-Tax, Pre-Royalty).......................................... 179 Figure 25-14: Sensitivity Analysis of Metal Prices on IRR (Pre-Tax, Pre-Royalty) ........................................... 179 Figure 25-15: Sensitivity Analysis of CAPEX and OPEX on NPV (Pre-Tax, Pre-Royalty) ................................. 180 Figure 25-16: Sensitivity Analysis of CAPEX and OPEX on IRR (Pre-Tax, Pre-Royalty)................................... 180 Figure 25-17: Cost Overrun Probability........................................................................................................ 183

Minera Agua Rica - Agua Rica Project

43-101 Independent Technical Report

Summary PR318265.018 Rev. 0, Page 8PR318265-018 - NI-43-101 - Technical Report Rev 0.Doc © Hatch 2006/03

3. Summary

3.1 Project Overview The Agua Rica project, located 25 km north of the town of Andalgalá in the province of Catamarca, Argentina has been under exploration since the early 1960’s. The project is a large copper-gold-molybdenum porphyry deposit.

In July 2005, Northern Orion Resources Inc. henceforth (NNO) awarded the Feasibility Study Update (henceforth FSU) to Hatch, Vancouver. A grouping of specialist consultants were brought together, under the overall management of NNO and Hatch.

This study is an update of the Initial Feasibility Study produced in August 1997 by BHP and NNO. At that time, the project was a 70/30 joint venture between the two parties. In 2003, NNO bought out BHP’s interest in the project, to hold 100%. In 2004, NNO initiated an update of the 1997 work to support a more complete study. That update included extensive programs for pit geotechnical data, groundwater investigation, metallurgical samples and testing, environmental research focused on the Campo El Arenal and a program for formal social consultations. This report consolidates and summarizes the findings using all the available data for the project up to 31st August 2006.

3.2 Geology The Agua Rica deposit is a large medium grade Cu-Mo-Au porphyry deposit with a polymetallic epithermal overprint. It is hosted by a Miocene intrusive complex that has been emplaced in Palaeozoic metasediments and granite. Three major stages of alteration/mineralization are clearly recognized: early porphyry Cu-Mo-Au, later epithermal Cu-Au-Ag-As-Pb-Zn, and supergene Cu enrichment.

Overall, the mineralogy is complex and highly variable. Considerable effort has gone into the characterization of the orebody variability by mapping lithology, alteration and mineralogy. The resource at 0.2% copper and 0.4% copper cut-offs is:

Table 3-1: Measured, Indicated, and Inferred Resource (0.2% Cu)

Resource (0.2% Cu Cut-off)

Tonnes Cu (%)

Mo (%)

Au (g/t)

Measured 412,000,000 0.56 0.034 0.24

Indicated 698,000,000 0.42 0.032 0.19

Total 1,110,000,000 0.47 0.033 0.21

Inferred 651,000,000 0.34 0.034 0.12




(0.4% Cu)

Cut Off (0.4% Cu)

Tonnes Cu (%)

Mo (%)

Au (g/t)

Measured 269,000,000 0.69 0.037 0.28

Indicated 317,000,000 0.57 0.036 0.24

Total 586,000,000 0.63 0.037 0.26

Inferred 187,000,000 0.50 0.049 0.14

In addition to areas where mineralization is still open, exploration potential still remains in the immediate vicinity of Agua Rica, particularly around Filo Amarillo and to the north near Quebrada Alumbrera. Other possibilities to consider are the potential for an Au rich vuggy quartz alteration zone and the presence of an exotic copper occurrence in the area due to erosion of the Agua Rica system.

3.3 Mining The mine plan has been developed from the resource model using the computer mine modeling program MEDSYSTEM. The development of the mine plan was complex due to the requirement to maximize value while producing a saleable concentrate by controlling the deleterious element content (specifically arsenic and to a lesser extent zinc).

In order to develop the mine to provide design tonnage to the mill, prestripping quantities are significant. The material to be moved includes the overburden over the ore itself plus all the material to cut roads into the steep terrain so that they are wide enough to accommodate 290 t haul trucks. The total tonnes of material to be moved are shown in Table 3-2.

Table 3-2: Movement of Total Material Tonnage

Year -3 Year -2 Year -1 Total

Mine Prestrip 0 30,240,000 75,156,000 105,395,000

Road & Infrastructure 27,055,000 21,444,000 23,521,000 72,020,000

Total 27,050,000 51,684,000 98,677,000 177,416,000

The average grade for the first five years is 0.8% Cu with 0.33 g/t Au and 0.03% Mo. Life of mine grades are 0.52% Cu, 0.22 g/t Au and 0.035% Mo. A total of 1.6 billion tonnes of waste will be mined during the life of the project. There is very little room to store waste in the mine area, due to the terrain and the concern about controlling ARD from the waste rock. Therefore most waste will be primary crushed and conveyed out of the mine area. A location has been defined below the truck shop area that will hold 200 Mt of material, adequate to hold all prestrip generated until the conveying system is operating.

Management of run off water will be crucial in the pit area due to seasonal intense storms and almost instantaneous runoff from the steep slopes in the rainy season (November through February). Considerable design work has gone into controlling this water.




3.4 Metallurgy

3.4.1 Metallurgical Testwork The deposit was divided into three main ore zones (Seca Norte, Quebrada Minas and Trampeadero) and seven main ore types have been identified based on their metallurgical characteristics. Of these ore types, two are “clean” (contain low levels of arsenic and/or zinc) and the other five are “dirty”. The metallurgical testwork was carried out on composites and samples of the ore types. Almost all copper ore is covellite or chalcocite. The recoveries vary with head grade for each ore type.

The “clean” ore represents approximately 28% of the mineral reserves and will be the first ore mined. The ore types are all compatible for simultaneous processing but have been identified separately in the block model to allow blending strategies to be developed for the control of concentrate grades for marketing.

Control of contaminants in the concentrate will be important, especially arsenic and zinc. Certain ore types, especially the brecciated material from the Quebrada Minas fault area will be of particular concern. The mine plan has attempted to provide a blended feed to the mill. However, once in operation, it may prove necessary to campaign ore to produce separate concentrates that can be blended to meet the penalty requirements of smelter contracts.

The testwork data confirms that the Agua Rica ore is treatable using conventional grinding and flotation technology. The ore has a low average work index of 10.7 kWh/t. The ore mineralization is relatively coarse grained and therefore requires a primary grind of 80% passing 150 µm to achieve acceptable recoveries. However, fine regrinding of concentrates to 80% passing 45 µm is required to produce acceptable concentrate grades. Concentrate grades and metal recoveries will vary by ore type. Arsenic contamination is anticipated to be problematic for some ore types, especially the “dirty” types identified above. Zinc will be problematic on occasions, but in most years should be below penalty levels in the concentrate. Ongoing work (September 2006) is investigating methods to deal with these.

3.4.2 Process Plant and Associated Facilities The process starts at the mine with twin relocatable primary gyratory 60-113 crushers, one dedicated to ore and one dedicated to waste. The crushed ore is then transported to the 270,000 t coarse ore stockpile (90,000 t live) located near the process plant. The waste rock is conveyed to the Cazadero valley near the mill for disposal by stackers.

The primary grinding will be performed using a single circuit of one 40 ft diameter SAG mill and two 26 ft diameter ball mills in closed circuit with cyclones. The grinding circuit will process 90,000 tpd to grind to 80% passing 150 µm. The pulp will pass through a rougher, regrind and cleaning flotation circuit, to produce a bulk copper/gold/molybdenum concentrate. This concentrate is sent to the copper/gold/molybdenum separation circuit where the molybdenum will be separated by flotation to form a saleable molybdenum concentrate. The expected molybdenum concentrate will contain approximately 52% Mo and less than 1% Cu. The molybdenum concentrate will be thickened, filtered, dried and bagged for road transport, assumed to be a facility in Chile. The “tailings” from the molybdenum separation circuit will be the final copper-gold concentrate. The copper concentrate will contain between 22% and 36% copper on an annual basis, depending on the ore being treated.




The project will produce an annual average of 526,000 t of copper concentrates containing 136,000 t of copper and 124,600 ounces of gold and 13,750 t of molybdenum concentrates containing 7,150 t of molybdenum over the life of the mine.

The copper concentrate will be pumped through a 213 km concentrate pipeline to a filter plant located next to the NCA rail line at Tucuman. The plant will be a stand alone filter plant with its own offices, warehouse and tree farm. The filtered concentrate will be loaded into rail cars and transported to the port facilities at Rosario on the Paraná River.

3.4.3 Tailings Cost estimates prepared for dry stacking and traditional tailings impoundment options indicated that the life of mine costs for dry stacking are less than for conventional tailings, when the cost of water supply and tailing dam construction is included. It is also believed a dry stacking system has significant environmental and social benefits and will facilitate permitting. The dry stacking system has higher up front capital costs.

Tailings will be “dry stacked” in an impoundment area in the Cazadero valley, located near the mill in a desert area with limited rainfall. The same valley will be used to stack waste rock from the mine. The waste rock is potentially acid generating and the containment provided by the valley will assist in managing any water that runs off during storm events.

3.5 Infrastructure

3.5.1 Power Power for the project will come from the national grid. The main supply substation will be at El Bracho, near Tucuman where a new 220 kV switching system will be built, connected to a new 50 km 220 kV line to the switching station at Villa Quinteros. From there, the existing 132 kV power line to Andalgalá will require upgrading to 220 kV.

3.5.2 Water The water supply for the project will come from an underground water resource in the Campo El Arenal, the same area that Minera Alumbrera draws its water from. Modeling based on a drilling program done for this study shows that the Campo El Arenal basin will be able to supply the water requirements for a 90,000 tpd mill, even with Alumbrera continuing to operate but that the project may need to supply some makeup wells for local agriculture to mitigate minor seasonal reductions in the flow of the Rio Santa Maria.

3.6 Environmental and Social Work The primary social and environmental issues for the Agua Rica Project are anticipated to be as a result of alterations to water quality and quantity at the minesite and process plant. The high sulphide content of the ore, waste rock and dry tailings is expected to cause generation of acid rock drainage (ARD) and metal leaching (ML). Water, which will be obtained by a combination of pit dewatering and groundwater abstraction from the Campo El Arenal, will be required for the process plant. Since water is an essential resource to residents of communities surrounding the project, it will be vital to avoid any change in availability or quality of water from traditional sources. Mitigation and management measures have been developed to address potential effects on water quality and quantity at the minesite and process plant.




3.7 Employment and Training The construction and operation of the minesite will generate direct jobs and associated employee benefits. In addition, the project will create a substantial number of indirect and induced jobs through direct and indirect business opportunities and the procurement of goods and services. These effects will be experienced most directly in the local communities such as Andalgalá, but also in regional economic centres, such as Catamarca, that will provide additional skills, goods, and services.

Worker health and safety will be top priorities and will be supported by the development of a worker health and safety plan. Worker participation in the development, monitoring, and adaptive management of the plan will ensure its effectiveness.

At mine closure the employment strategy will assist employees to find alternative jobs and provide re-training opportunities.

3.8 Marketing Northern Orion Resources has had discussions with every major smelter over the last year and the interest level is very high.

It is noted the copper concentrates are relatively clean, except for arsenic, which is becoming more of an issue with smelters around the world and this concern will likely increase in the future.

Arsenic grades in the final copper concentrate is predicted to be approximately 0.2% for the first six years under the proposed mine plan and will then rise to levels in the range of 0.3% to 0.5% for the next five years, coming down to the 0.2% to 0.3% range for the following five years. There exists potential to mitigate the arsenic levels in the copper concentrate by judicious blending of ore to the process plant and thereby reducing the overall arsenic levels to at or near the acceptable smelter penalty level of 0.3% arsenic

Based on information available, there is every reason to assume the copper concentrates can be marketed, despite the arsenic content. The next stage of discussions with smelters will be to present a detailed mine plan showing the quantity and quality profiles. However, given the level of smelter interest, it is believed this is not an insurmountable obstacle.

3.9 Capital Cost The estimated capital cost for a 90,000 tpd project is US$ 2,123 million in June 2006 US dollars. This estimate has an intended level of accuracy of -5 +15%, with no allowances for escalation beyond the base date of the estimate (Second Quarter 2006) or for currency fluctuations.

The capital cost estimates were prepared by Hatch with the assistance of Techint, a large Argentine engineering company with in-country construction experience and AMEC (who prepared the mining costs).




The capital cost for the following areas have been included in this estimate:

• Mine development

• Mine equipment

• Mine power distribution

• Mine waste management

• Ore transport

• Process plant

• Power supply

• Water supply

• Access roads

• Tailings management and sustaining capital cost

• Concentrate pipeline

• Port storage and unloading

• Ship loading facilities including sampling station

• Owner’s costs

• Contingency

The Capital Cost is summarized as follows:

Table 3-3: Capital Cost Summary – Base Case 90,000 tpd Mill ($K)

Description $ ‘000 Responsible Party

Mine 391,462 AMEC

Concentrator 569,035 Hatch

Infrastructure 400,308 Various

Total Directs 1,360,805

Indirects 334,030

EPCM 129,587

Contingency 255,419

Owner’s Cost 43,527 NNO

Total Indirects 762,563

Total Estimate 2,123,368

3.10 Operating Costs The life of mine average processing cost for mining and milling for the production of copper and molybdenum concentrates is US $6.84/tonne ore milled. These costs are up to and including loading of the ships at the port. Ocean freight and smelting and refining charges are excluded, but are included in the financial model.




Labour rates and commodity costs are expressed in June 2006 US dollars. The cost of electrical power used was US $0.025/kWh and reflects current Argentinean rates.

3.11 Financial Evaluation This financial evaluation of the project has been undertaken on a discounted cash flow (DCF) basis for a 90,000 tpd processing rate. Production is assumed to commence in January 2010, 32 months after receipt of project permits. Mining of current reserves will be complete after 24 years.

At the estimated copper prices, the Agua Rica Base Case provides an Internal Rate of Return (IRR) of 15% over the 23-year period on an initial investment of US$ 2.123 billion. Payback is approximately four years after start of production.

This analysis is based on the following metal price estimates; in US dollars (2006):

Table 3-4: Metal Price Estimates

Year Copper (US$/lb)

Gold (US$/oz)

Silver (US$/oz)

Molybdenum (US$/lb)

2010 2.40 795 8.00 10.00 2011 2.16 835 8.00 10.00 2012 1.53 465 8.00 8.50 2013 1.45 465 8.00 8.50 2014 1.38 465 8.00 8.50 2015 1.38 465 8.00 8.50 2016 1.40 465 8.00 8.50 2017 1.35 465 8.00 8.50 2018 1.36 465 8.00 8.50 2019 1.37 465 8.00 8.50 2020 1.25 465 8.00 8.50 2021 1.26 465 8.00 8.50 2022 1.32 465 8.00 8.50 2023 1.25 465 8.00 8.50 2024 1.23 465 8.00 8.50 2025 1.31 465 8.00 8.50 2026 1.29 465 8.00 8.50 2027 1.27 465 8.00 8.50 2028 1.30 465 8.00 8.50 2029 1.21 465 8.00 8.50 2030 1.26 465 8.00 8.50 2031 1.26 465 8.00 8.50 2032 1.26 465 8.00 8.50 LOM Average 1.40 495 8.00 8.63

3.12 Conclusions and Recommendations

3.12.1 Conclusions The 2005-2006 Agua Rica Feasibility Study Update, (FSU), has been completed and illustrates the technical viability and financial strength of the project as at the date of the FSU. The project has been estimated to have a Capital Cost of US$ 2.123 billion and average life of mine total operating costs of 6.84 $/tonne of ore milled. The Net Present Values (NPV), pre-tax and after tax, at an 8% discount rate, are US$868 million and US$372 million respectively.




The geology of the deposit was evaluated by two independent geologists, Grant and Giroux, both of whom are regarded as experts in this field.

The Agua Rica deposit is a large, medium grade copper-molybdenum -gold porphyry ore body. Overall the mineralogy is relatively complex and highly variable, and as a result considerable effort has gone into the characterization of the orebody.

The measured and indicated resource, estimated by AMEC, at copper cut-off grades of 0.2% and 0.4% are 1,110,000,000 tonnes @ 0.47% Cu and 586,000,000 tonnes @ 0.63% Cu respectively. The mine plan calls for ore production of 90,000 tonnes per day for a 23-year mine life. The average, life of mine, feed grades to the mill are 0.50% Cu, 0.231 g/t Au and 0.033% Mo. However, the average grades for the first five years are 0.8% Cu, 0.33 g/t Au and 0.03% Mo, and these higher grades have a positive impact on the project economics.

The site topography is challenging and as a result mine development will need to commence three years prior to the first ore to the mill, notably the construction of the access and haul roads and the tunnel.

The metallurgy is relatively complex when compared to other similar sized porphyry copper projects. Two of the seven ore types identified are defined as clean, containing low levels of arsenic and zinc and the levels will not result in penalty for the copper concentrates. The clean ore represents approximately 28% of the mineral reserves and will provide most of the ore to the mill feed in the early years of the operation.

Penalties are applied to copper concentrates with arsenic levels in excess of 0.20% As. In the first four years arsenic levels are predicted to be between 0.11% As and 0.42% As, thus the average arsenic penalty in dollar terms for those four years will be approximately US$2.1 million per annum. In subsequent years the arsenic in concentrate generally varies between 0.5% and 1.0%, except for years 2029 and 2030 when it is 1.25% and 1.15% respectively. Arsenic penalties for the period 2014 to 2032 are therefore expected to average US$ 6.5 million per annum. This, although significant, should be viewed in relation to the total average annual net smelter return of over US$400 million.

Zinc penalties are incurred at values in excess of 3.0% Zn in concentrates. The predicted concentrate grades during the first four years of operation will not exceed this level. In the subsequent years the zinc in concentrate is predicted to average between 4 and 5% zinc, resulting in average annual penalties of US$ 3.1 million dollars.

The process plant will be conventional, with one SAG mill and two Ball mills, that will grind 90,000 tonnes per day of ore to the desired 80% passing 150 microns product size followed by a conventional flotation circuit and regrind circuit.

It is proposed to obtain water for the project from the aquifer/well field in the Campo El Arenal. This aquifer is currently being exploited by the Alumbrera operation. As water is seen as a critical issue, particularly in semi arid areas such as this, a considerable effort has gone into the evaluation of the water resources, as well as a study of the implications on water quantity and quality in the areas below and surrounding the operation. The impacts of the Agua Rica project are concluded to be minimal and as is shown in this FSU, can be mitigated by taking the appropriate steps.



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4. Introduction

4.1 General Copper mineralization at Agua Rica has been known for at least a century. Currently, Northern Orion Resources Inc. is evaluating the feasibility of developing the Agua Rica Project. The Agua Rica property is located in the southern half of the Sierra de Aconquija mountain range, situated 200 km east of the main Andean Cordillera.

Agua Rica is a large copper-molybdenum-gold porphyry style deposit located in northwest Argentina approximately 34 km due east of the operating Bajo de la Alumbrera mine.

In the 1990s, Agua Rica was extensively explored by a Joint Venture between BHP Minerals (“BHP”) and Northern Orion Explorations Ltd. (“NNO”), now Northern Orion Resources Inc. Over a period of 4-5 years, the Joint Venture proportionally funded extensive and systematic exploration of the deposit including geological and structural mapping, ground geophysics, and diamond drilling, a bulk sampling program in two tunnels, and several work programs to support an Initial Feasibility Study (IFS) issued in August 1997, and updated in mid-1999. At that time, the project was a 70/30 joint venture between the two parties.

The IFS considered all aspects of the project, assessed potential plant and tailings sites, and included economic assessment for two production rate cases – 60,000 tpd and 120,000 tpd of ore. Preliminary geotechnical testing was carried out to support the location and design of the plant, tailings, and waste facilities, and for the open pit slope assessments. A drilling program was also carried out to evaluate water supply potential, although this proved inconclusive. The JV also carried out extensive environmental baseline studies during this period.

Since 1999, the property has remained dormant apart from basic care and maintenance at the site and ongoing environmental monitoring baseline programs.

In 2003, NNO bought out BHP’s interest in the project, acquiring full control of the property and in November 2004, commissioned Hatch to carry out a Feasibility Study Update (FSU) of the project on behalf of Minera Agua Rica (MAR), a hundred percent owned Argentine subsidiary.

The FSU included extensive programs for pit geotechnical data, groundwater investigation, metallurgical samples and testing, environmental research focused on the Campo El Arenal and a program for formal social consultations. This report consolidates and summarizes the findings using all the available data for the project up to 31st August 2006.

A grouping of specialist consultants were brought together, under the overall management of NNO and Hatch. All of their individual input has been compiled into the FSU document by Hatch. Although reviewed for completeness by Hatch, each specialist consultant retains the responsibility for his work.

4.2 Report Contributors A number of suitably qualified consultants were contracted to carry out specific technical and economic studies for the FSU. These are listed below, together with their respective responsibilities:




Table 4-1: Consultants and Responsibilities

Subconsultants Abbreviation Responsibilities

Amelunxen • Metallurgy

Brass Brass • FS assessment of concentrate slurry systems

Bruce Geotechnical Consultants BGC

• Geotechnical assessment and design for tailings and waste rock storage, plant and minesite structures

• Geohazard evaluation for roads, tunnel portals, powerline routes and site

• Seismic study for site

Giroux Consultants Ltd. Giroux • Resource modelling and geostatistics

Hatch Mott MacDonald HMM • Geotechnical Assessment of access tunnel routes and FS design

Ian Hayward & Associates IHI • Assessment of powerline routes and FS design

Krupp Krupp • Conveyor and Stacking

Mehling Mesh • Environmental and ARD Consultant

Piteau Associates Piteau • Open pit geotechnical field program, and design of open pit slopes

Rahco RAHCO • Conveyor and Stacking

Ruiz and Associates Ruiz • Access road routes and FS design

Sandwell Engineering Inc. Sandwell • Port design and FS report

SGS Lakefield SGS • Metallurgical testwork and report

Stacey and Associates Stacey • Expert peer review of pit geotechnical design

Water Management Consultants WMC

• Pit dewatering testwork and design • Water supply field program, modelling and design • Geochemical testwork, modelling and assessments • Surface water management design

AMEC AMEC • Reserve estimation • Mine design capital and operating costs

British Columbia School of Technology BCIT • Develop a training survey and plan for training and

operations

Business for Social Responsibility BSR • Support strategy for social engagement

Neil Seldon and Associates NSA • Smelter contracts, metal price forecasts.

Rescan Environmental Consultants Rescan

• EIA • Permitting • Baseline Studies

Sigla Sigla • Power supply system planning and impact studies • Assessment of transmission route options

Techint Techint • Develop construction unit rates and indirect costs to

support the Capital Cost Estimate under Hatch supervision.

In December 2005, SRK were retained by NNO’s financial advisors to act as Independent Engineers. They subsequently carried out a number of reviews of all aspects of the project.

The persons taking responsibility for certain sections of this Report, and the extent of their responsibility for each section are set out in the table below.




Table 4-2: Qualified Persons Responsibilities

Responsible Person

Ind. QP

Company Primary Areas of Responsibility

Relevant Sections

John A. Wells Yes Hatch Ltd. Study Compilation, Construction, Cost Estimates and Financial Analysis

3.11, 5, 20, 22, 23, 25.20, 25.21, 25.25, 25.26.

Gary H. Giroux Yes Giroux Consultants Ltd.

Resource Estimates, 3.2, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19.1 – 19.7.

Callum Grant Yes Previously Hatch Ltd.

Geology Mineralogist, Drilling and Sampling

3.2, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19.1 – 19.7.

Gerrit Vos Yes AMEC Mining and Reserve Estimates

3.3, 19.8, 25.1 – 25.10.

Paul Hosford Yes Previously Hatch Ltd.

Metallurgical Testing and Mineral Processing, Tailings disposal and copper concentrate handling.

3.1, 3.4,.3.9, 3.10, 3.12, 4, 7, 18, 21, 25.11 – 25.15, 25.18, 25.23, 25.24, 25.25

Dean Brox Yes Hatch Mott Macdonald

Tunnel 25.17.5

Iain Bruce Yes BGC Geotechnical Evaluation 25.16, 25.17.1, 25.17.2 Allan Guy Yes IHI Power Supply 3.5.1, 25.17.4, 25.18.3 John McCartney Yes WMC Water Management 3.5.2, 25.18.2 David Sellars Yes WMC Water Management 3.5.2, 25.18.2 Brad Ricks Yes Brass Pipeline 25.18.4




IMPORTANT NOTICE

This report was prepared by the qualified persons listed in Table 4-2. Each QP assumes responsibility for those sections or areas of this report that are referenced opposite their name in Table 4-2. None of the QPs, however, accepts any responsibility or liability for the sections or areas of this report that were prepared by other QPs.

This report was prepared to allow Northern Orion Resources to reach informed decisions respecting the development of the Agua Rica Project. Except for the purposes legislated under provincial securities law, (a) any use of this report by any third party is at that party's sole risk, and none of the QPs (nor any of the companies for whom they work) shall have any liability to any third party for any such use for any reason whatsoever, including negligence, and (b) each of the QPs hereby disclaims responsibility for any indirect or consequential loss arising from any use of this report or the information contained herein.

This report is intended to be read as a whole, and sections should not be read or relied upon out of context. This report contains the expression of the professional opinions of the QPs, based upon information available at the time of preparation. The quality of the information, conclusions and estimates contained herein is consistent with the intended level of accuracy as set out in this report, as well as the circumstances and constraints under which the report was prepared which are also set out herein.

As permitted by Item 5 of Form 43-101F1, the QPs have, in the preparation of this report, relied upon certain reports, opinions and statements of certain experts. These reports, opinions and statements, the makers of each such report, opinion or statement and the extent of reliance is described in Section 5 of this report. Each of the QPs hereby disclaims liability for such reports, opinions and statement to the extent that they have been relied upon in the preparation of this report, as described in Section 5.

As permitted by Item 16 of Form 43-101F1, the QPs have, in the preparation of this Report, relied upon certain data provided to the QPs by Northern Orion Resources and certain other parties. The relevant data and the extent of reliance upon such data is described in Section 16 of this Report.



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5. Reliance on Other Experts

5.1 General In the preparation of this Report, the following reports and opinions of third party experts have been relied upon without independent verification (and neither Hatch nor any of the other contributors takes any responsibility for the accuracy or completeness of the information set out in such reports or opinions):

(a) For all information related to the title to the Agua Rica property and the related leases and claims, the information is from a legal due diligence report on the property status by Northern Orion's lawyers, Beretta, Kahale, Godoy of Buenos Aires issued July 25 2006.

(b) For all information related to corporate income tax and mining royalty systems, the information is from two sources: (i) Sections 19 and 21 of a Fiscal Stability Application submitted in July 1998 by BHP Minerals Argentine Branch and Recursos Americanos Argentinos S.A. for the Agua Rica Project, and (ii) the due diligence report from Beretta, Kahale, Godoy referred to above;

(c) Metal prices and marketing information were provided by the following parties: (i) metal prices were obtained from a report by Neil S. Seldon & Associates ("Seldon") dated October 2006, (ii) current prices and certain other assumptions for copper concentrate marketing were obtained from Bloomsbury Mineral Economics Ltd and Barclays Capital, and (iii) future price estimates for copper, gold, silver and molybdenum were, unless otherwise specified, obtained from Seldon.

(d) Certain of the information used by Hatch in the financial analysis that is set out in Section 25.24 has been provided by Endeavour Financial.

(e) For the environmental and social information we relied on the report from Rescan Environmental titled “Agua Rica Copper/Gold Project Environmental Baseline Work Plan”, dated June 2006.



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6. Property Description and Location Agua Rica is situated at 66° 24’ West longitude, 27° 13’ South latitude, in north-western Argentina at the foot of the Sierra de Aconquija, near the northern limit of the Sierras Pampeanas, which is located 200 km east of the main Andean cordillera. The Agua Rica project, located 25 km north of the town of Andalgalá in the province of Catamarca, Argentina has been under exploration since the early 1960’s.

The project is a large copper-gold-molybdenum porphyry deposit.

Figure 6-1: Location Site Map




Figure 6-2: Location Map and Regional Geology




Figure 6-3: Outline of Current Mineral Rights

The property covers an area of approximately 12.5 square km with its centre point at approximately latitude of 27º 26' South, longitude 66º 16' West. Figure 4-2 provides details of the location of the mining claims making up the core “minas” concessions, and the surrounding mineral rights that on average extend for some 30kms north-south and 20kms east-west.

In addition, several land easements covering access routes and potential water sources were acquired by the BHP NNO Joint Venture in the 1990s. Future production from a mining operation at Agua Rica would be subject to a 3% “mine-mouth” royalty payable to the provincial Catamarca government. This equates to about a 2% Net Smelter Royalty equivalent.

To Hatch’s knowledge, no environmental liabilities apply to the property.



Accessibility, Climate, Local Resources, Infrastructure and Physiography

PR318265.018 Rev. 0, Page 24


7. Accessibility, Climate, Local Resources, Infrastructure and Physiography

7.1 Accessibility Site access is via the principal road developed for exploration programs. This route to the site follows the Potrero valley northwards from Andalgalá, over a distance of some 20 km. An alternative route via the town of Capillitas (to the north of the project site) is more circuitous and longer in both distance and time.

7.2 Climate The climate in this part of Argentina is generally mild, typical of this arid north-western region. The mountain ranges of Catamarca interrupt the passage of humid air from the north east that causes the heavy summer rainfall. The flanks of the mountain range to the north of Agua Rica tend be drier than the immediate area around the project site and also towards the south where olives are intensively cultivated around Andalgalá. Annual precipitation is in the order of 300 mm, with the highest rainfall occurring in January (114 mm measured in Quebrada Minas in 1996). The warmest months are December and January (~30º C), while in the winter months of June, July, and August the temperatures can fall to below 0º C at higher elevations.

7.3 Local Resources Andalgalá is a town of some 15,000 inhabitants and serves as the local centre for agriculture in the area, principally the cultivation of olives and walnuts. The town provides adequate facilities for small commercial businesses, automobile shops, some fabrication, small hotels, schools, and a hospital.

7.4 Physiography The property lies in a rugged range of mountains known as the Sierra de Aconquija, that runs northeast-southwest through this eastern flank of the Andes. South and north of the Sierra de Aconquija, the mountain range gives way to gentler terrain as the basinal areas known as Campo El Arenal (in the north) and Salar de Pipanaco (in the south and west). Locally around the property itself, the elevation reaches to over 3,500 m and is dissected by steeply eroded V-shaped valleys covered by partially consolidated scree, poorly developed soils (< 1m thick), and scrubby, sparse vegetation. The terrain in the area is rugged, with more than 80 percent having slopes greater than 25 degrees, and over 40 percent with slopes over 35 degrees. Sediment control and water erosion during the summer rainy season are issues that will require mitigation in any development activities at the site.



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8. History Since the early 1900s, the mining of copper and the semi-precious stone rhodochrosite has been recorded from several small-scale, artesanal mines in the region around Agua Rica, principally at Capillitas immediately to the west of the project site. Activities at Agua Rica itself date back to 1959-1965, when a restricted area known as Mi Vida was explored around Quebrada Minas and three small adits were driven.

The first systematic exploration work at Agua Rica dates back to the early 1970s, when Compañia Cities Services Argentina S.A. examined the property (known at that time as Mi Vida). Cities Services completed several drillholes from pads located at the lower elevations of the geological sequence (i.e. close and adjacent to Quebrada Minas). While they recognized the significant potential for a porphyry type of copper occurrence, other aspects such as the epithermal “overprint” carrying precious metals and the potential for supergene enrichment at higher elevations was not fully appreciated, so little follow-up work was carried out. By the late 1970s, the property had reverted back to its original Argentine owner, Recursos Americanos Argentinos S.A. (RAA).

In the early 1990s, RAA optioned the property to BHP Minerals Inc. (BHP) on the basis of 30% RAA, and 70% BHP. Also at that time, Northern Orion Explorations Ltd. (NNO) of Vancouver, Canada concluded an agreement with RAA to acquire a majority share of its exploration holdings throughout Argentina, including Agua Rica. NNO then became the JV partner with BHP in the subsequent extensive exploration of the property from 1994 until late 1998. During this period, the Joint Venture carried out a series of field programs, including basic mapping, geochemical (rock chip) sampling, and geophysics. From this, the larger potential of the property was recognized, particularly related to zones of secondary enrichment and evidence pointing to a post-porphyry epithermal stage of precious metals mineralization.

By 1995, a major program of diamond drilling was undertaken, together with:

• More detailed mapping and surface sampling;

• Aerial photography for generation of accurate topography;

• Metallurgical testwork (principally at BHP’s Reno laboratory);

• Geophysical investigations to identify locations for the supply of water for a future mining and milling operation; and

• Various work programs to examine technical issues to support an Initial Feasibility Study of the project (1997).

In 1997, the JV completed an Initial Feasibility Study (IFS) on the basis of an Inverse Distance Squared “103-hole resource model” in which two open pit options (one at 60,000 tpd and the other at 120,000 tpd) were investigated. This IFS was subsequently updated in 1998 (the kriged “150-hole model”) and again in 1999 (the “176-hole model”). A summary of these principal resource estimates is provided in Table 8-1, at a 0.20% Cu Cutoff Grade.



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Table 8-1: Summary of Historical Resources (0.20% Cu cutoff)

Measured & Indicated Resource Inferred Model Date

Mt Cu

%

Mo

%

Au

g/t

Ag

g/t

Mt Cu

%

Mo

%

Au

g/t

Ag

g/t

103-Model 02/1997 1,450 0.44 0.028 0.19 3.0 217 0.44 0.028 0.19 3.0

150-Model 01/1998 1,329 0.46 0.032 0.19 2.19 385 0.32 0.031 0.11 2.51

176-Model 03/1999 932 0.48 0.030 0.19 3.1 362 0.48 0.030 0.19 3.1

Source: BHP-NNO Report, March 1999

In 1999, the Joint Venture halted all further field exploration activities at Agua Rica and no additional work of any significance took place from that time until 2004.

In 2002, Northern Orion acquired full control of the property with its purchase of BHP’s remaining 70% and subsequently changed its name to Northern Orion Resources Inc.

In late 2004, NNO commissioned Hatch Ltd. to prepare a detailed update to the initial feasibility study to support development and financing of the project. This update focused on the development of a mine and processing facility at Agua Rica, with production planned to commence approximately three years after NNO obtains all necessary permits. Part of this study also included a re-estimation of the Agua Rica resources using the full 176-hole database previously developed by BHP.

Discussion of the estimates of mineral resources and mineral reserves is included in the Mineral Resources and Mineral Reserve Estimates section of this report (Section 19)



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9. Geological Setting

9.1 Regional Geology Agua Rica lies to the east of, and is spatially related to, the prominent Farallón Negro Volcanic Complex covering 700 km2 and hosting the producing Alumbrera open pit mine. At a regional and tectonic scale, this complex sits between the high mountainous plateau of the Puna to the northwest and the basin and range province of Sierras Pampeanas, of which the Sierra de Aconquija is one example. Within the Farallón Complex and its immediate vicinity, several metalliferous occurrences have now been exposed including Alumbrera and Agua Rica, other porphyry types such as Cerro Atajo and Bajo del Durazano, as well as smaller polymetallic and gold/silver vein deposits.

Significant structural deformation and movement has been recorded at Agua Rica, principally related to the prominent fault zone now occupied by the Quebrada Minas creek that is believed to have formed the locus and zone of weakness for intrusion of the porphyry stocks. Low-angle reverse faulting is believed to have contributed to thickening of leached zones particularly on the west of the deposit, while to the east (Trampeadero), north-south faulting has promoted deep leaching at a local scale. Rapid uplifting, “unroofing”, intrusion of breccias, and subsequent erosion is believed to have been the principal factors in the genesis of the varied primary and secondary enriched mineralization at Agua Rica.

9.2 Local Geology Agua Rica is a large, medium grade porphyry Cu-Mo-Au system overprinted by strong advanced argillic alteration and a high sulphidation, epithermal mineralization event. The deposit lies along the contact between early Palaeozoic metasediment of the Sierra Anconquija Complex and the Capillitas Granite. Intrusive rocks at Agua Rica have yielded dates of between 8.6 million years and 5.87 million years and are grouped with the Miocene aged Farallon Negro Volcanics, which also hosts the Bajo de Alumbrera porphyry system.

Intrusive rocks at Agua Rica are dominated by feldspar porphyries and many different phases of hydrothermal breccia. The early Melcho Intrusive Complex is a multiphase intrusive unit that is weakly mineralized and occupies the southern third of the project area. The main mineralized bodies are centrally located and consist of porphyry stocks at Quebrada Seca Norte and Trampeadero, with a large breccia pipe dividing them. The northern third of the project area contains the weakly mineralized igneous breccia and the largely barren biotite porphyry and diatreme breccia. Metasediment is the wallrock to the intrusive phases, and is mineralized near the contacts with these intrusives.

Mineralization at Agua Rica consists of three different stages:

1. Early porphyry stage mineralization is associated with the Seca and Trampeadero porphyries and occurs in quartz stockworks and as disseminations. Porphyry stage mineralization consists of pyrite, molybdenite, chalcopyrite and rare bornite and pyrrhotite.




2. Epithermal state mineralization followed the porphyry event and is found in the Quebrada Minas hydrothermal breccia pipe and the Trampeadero porphyry. Epithermal stage mineralization consists of pyrite, covellite, enargite, sphalerite and galena in veins and filling vugs within the breccias. Hypogene covellite has an extensive occurrence at Agua Rica. It is thought that this covellite formed by hypogene leaching of porphyry stage chalcopyrite and bornite.

3. Supergene stage mineralization is an immature supergene enrichment of hypogene chalcopyrite and covellite by supergene chalcocite and covellite. Remnants of what may once have been a continuous enrichment blanket across the Quebrada Minas Valley are present over both the Seca and Trampeadero porphyries and surrounding lithologies.

Alteration at Agua Rica is distinctive from many other porphyry systems by its lack of well-preserved potassic alteration. A large zone of advanced argillic alteration is centrally located within a district-wide cloud of quartz-sericite (phyllic) alteration. Advanced argillic alteration is defined as the occurrence of both pyrophyllite and alunite, although diaspore, dickite, kaolinite and zunyite are also present. Zones of relic potassic alteration are common but most biotite, potassium feldspar and magnetite was destroyed as the acidity of the system increased. Weak propyllitic alteration is locally present around the margins of the phyllic alteration.

Four distinct structural trends have been recognized at Agua Rica.

1. The northwest striking Quebrada Minas structure is thought to have controlled the emplacement of the various intrusives.

2. Southwest to westerly dipping, low to moderate angle thrusts have locally put unaltered granite on altered metasediment and thrust faulting may have been associated in time with the telescoping of the system and subsequent thickening of the enrichment blanket.

3. Steep dipping east-west structures like the Quebrada Seca structure had some control over both supergene and hypogene mineralization.

4. North-south trending normal faults have focused leaching and may have offset the leached cap.




Figure 9-1: Schematic Geology

Minera Agua Rica - Agua Rica Project43-101 Independent Technical Report


9.3 Lithology The Agua Rica intrusive complex, like those in most porphyry copper districts, contains porphyry units that are pre-, syn- and post-mineralization in age. Early geological work made an attempt to differentiate the porphyries based on texture, but correlation from place to place on this basis, especially with alteration which commonly obliterates the texture, is impossible. Even where there is continuous exposure in underground workings, and age relationships decipherable at intrusive contacts, differentiation of intrusive units is difficult. The combining of porphyries for the purposes of the feasibility and mine planning exercise is quite adequate.

The important distinction is between porphyries that have been altered and mineralized by the early, porphyry copper stage and those intruded after this stage. The early stage is most clearly recognized by the presence of A and B quartz veins. The late porphyries lack quartz veins and are intimately associated with the hydrothermal breccias. All intrusives and the breccias have been affected by late-stage advanced-argillic alteration and associated high-sulphidation mineralization.

In terms of competency and early alteration/mineralization, both Seca and Trampeadero porphyries are similar, but the Trampeadero side displays stronger and more pervasive late-stage alteration/mineralization, and possibly more shattering which might affect the continuity of grades.

The breccias appear to have been formed by a similar mechanism, i.e. shattering, fluidization and comminution by meteoric water mixed with magmatic fluid, pressurized and driven by contemporaneous igneous intrusion. There were multiple pulses of formation of breccia and late porphyry intrusion. All post-date quartz vein formation, and are pre-, syn- or post- strong advanced-argillic alteration with high-sulphidation mineralization.

The abundance of more or less rounded clasts in the Igneous Breccia is quite variable in the porphyritic matrix, and there are clear intrusive contacts between breccia with a rock-flour matrix and the porphyry. Like igneous breccias in many porphyry copper deposits, this one is clearly formed by a porphyry invading a clastic, hydrothermal breccia. One would expect to see more clasts and areas of residual rock-flour matrix higher up, and more porphyry with fewer clasts at depth. In drill core, the distinction between igneous breccia and hydrothermal breccia, both affected by strong advanced-argillic alteration and silicification, is very difficult. In terms of competency and style and continuity of mineralization, the igneous breccia is more similar to the hydrothermal breccia than it is to Trampeadero porphyry, with which it has been lumped for modeling purposes.

The Diatreme breccia was the last to be emplaced, except for minor pebble dikes. This post-dates almost all of the advanced argillic alteration and all but minor pyrite veining. Inward dipping bedding is typical of these and most volcanic diatremes, formed during fluidization of the pipe and subsequent collapse. At least 2 km. of erosion of this area between the time of early porphyry mineralization and the formation of the diatreme can be estimated. There is too little age dating so far to be sure of how long this all took, but it probably was at least 1 or 2 million years.


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10. Deposit Types During exploration of the deposit, NNO geologists identified several different ore types at Agua Rica that were formalised into a classification system for block modelling and resource estimation. In general terms, these ore types fall within three main categories that in turn can be related to the evolutionary history of mineralization on the property, the interpreted geological model, and the style of the mineralization:

Stage 1: Early porphyry mineralization associated with the Seca and Trampeadero porphyries: quartz stockwork and disseminations of pyrite, molybdenite, chalcopyrite, and rare bornite and pyrrhotite

Stage 2: An overprinting epithermal event carrying precious metals and copper sulphosalts and best exemplified in the central Quebrada Minas breccia body that separates the Seca and Trampeadero porphyries, and in the Trampeadero porphyry itself;

Stage 3: Supergene enrichment of hypogene copper mineralization forming an extensive blanket of higher copper values, now partially eroded into remnants on both sides of Quebrada Minas.

These three stages and deposit types form the basis for Agua Rica’s resource and are found within three principal zones, namely Seca Norte on the west and Trampeadero on the east with Quebrada Minas breccia in the centre, all combining to form an elongated zone measuring ~2.75 kms long (east-west) by ~2.5 km wide (north-south). The principal characteristics of these three bodies are shown in Figure 9-1, and summarised as follows:

Seca Norte: An enriched porphyry sequence of Cu-Mo-Au, with a core rich in Cu-Mo flanked by a halo of Mo to the south and west. In area, measures ~400m by 400m over a vertical interval of ~500m (level 3,400m to below 2,950m);

Quebrada Minas: Dominated by epithermal sulphides within a funnel-shaped hydrothermal breccia unit that formed the conduit for deep-seated hydrothermal fluids. Outcrops in Quebrada Minas, measures ~300m by 300m between approximately level 3,000m to ~2,500m;

Trampeadero: Forming the eastern third of the deposit, displays both epithermal and porphyry styles of mineralization. Occurs over a vertical interval of 300m as an elongated unit 500m east-west by 400m north-south.


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11. Mineralization Ore types at Agua Rica have been formalized by NNO into a classification system that reflects both mineralogy and metallurgy. Classifications in the latest, 176-hole geological model are based principally on:

• Contaminant elements, principally on the basis of the As-bearing mineral, enargite;

• Mineralogy: for example primary and secondary copper minerals

Mineralogical texture: for example, coarse versus finer-grained covellite;

• Alteration: based on variations in clay facies alteration products.

A total of 13 ore type zones were classified using this scheme, and can be summarised as follows:

Major “Dirty” Ore Types: occur principally in the Trampeadero and Quebrada Minas zones with dominant mineralogy consisting of covellite, chalcocite, digenite, and enargite with minor sphalerite and galena, and abundant molybdenite locally (for example on the eastern fringe of the zone);

Major “Clean” Ore Types: generally confined to the Seca porphyry unit: covellite, chalcocite, chalcopyrite, and digenite. Locally abundant molybdenite.

These two ore types comprise over 80% of the mineralization at Agua Rica with the balance made up of Minor “Clean” and “Dirty” Ore Types within the three mineralized zones.The elements of economic interest at Agua Rica are Cu, Mo, Au and Ag, although some 70% of the value lies in Cu, depending on recovery and metal prices. Molybdenum is the most significant by-product. The contaminant elements of As, Pb and Zn are also present in quantities sufficient to be of local concern.


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12. Exploration Agua Rica has been explored through the sequential and systematic application of exploration programs involving basic mapping and sampling at the earlier stages; through more detailed investigations using ground geophysics and geochemistry; to a drilling campaign of 176 diamond drillholes; and underground bulk sampling to confirm grade and provide material for metallurgical testwork.

The principal programs and the relevant results can be summarized as follows:

• Cities Services (1970-1972): geological mapping, alteration studies, rock geochemistry, and diamond drilling with helicopter access aimed at a copper-porphyry target at the lower elevations in the Quebrada Minas and southern flank of the property; and

• The BHP-NNO JV: originally involving Recursos Americans Argentinos prior to its acquisition in 1995. This comprehensive exploration involved a 5-year period of geological mapping and rock geochemistry, a regional BLEG survey, an aerial photographic survey, a regional airborne magnetic/radiometric survey, and 176 diamond drillholes completed from 1994 through 1998. At an early stage of the Joint Venture, the work programs were based on recognition that Agua Rica offered greater exploration potential than indicated by the early work. This was principally due to the occurrence of blankets of secondary enrichment at the higher elevations of the property on the Seca and Trampeadero sides of Quebrada Minas, and the importance of a later epithermal over-printing event with associated precious metal mineralization. During this period, an extensive network of drill roads was developed to the highest levels of the mineral system.

The 1993-1998 exploration at Agua Rica was completed by BHP Minerals as the operator of the JV, and involved both BHP staff and contractors for specific field programs such as geophysics, drilling, and underground bulk sampling. Hatch believes that these work programs have been carried out to industry standards, and that the information generated provides a reliable database for resource estimation and evaluation of the production potential of the property.


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13. Drilling Drilling was carried out at Agua Rica between 1972 and 1998 in four campaigns:

1. Cities Services (1972-73): 7,927 m in 38 holes of less than 200 m in length successfully intercepted porphyry-style mineralization. Owing to poor recovery and the small size of the core (BX and AX), the assay results were not used in the subsequent resource estimates of BHP-NNO.

2. BHP-NNO, Phase 1 (1994/95): 14,802 m in 39 holes to depths of approximately 450 m were completed by the contractor Boytec (Chile), using HXWL and NXWL diamond core.

3. BHP-NNO, Phase 2 (1996): 26,995 m of HXWL and NXWL diamond core completed in 64 vertical and inclined drillholes of up to 700 m by a combination of contractors, including Connors, Perfoeste, and Boytec.

4. BHP-NNO Phase 3 (1997-98): the final phase of diamond drilling on the property totalled about 23,000 m for an accumulated total of about 65,000 m for the BHP-NNO Joint Venture.

In all of the BHP-NNO programs, core recovery was typically in the 80-90% range, and all holes were surveyed by down-the-hole instruments. The later phases of the drilling included holes specifically for geotechnical evaluation of the ground conditions for a future open pit operation.

The Phase 2 and 3 programs were designed to drill off the property on 100 m north-south sections across the east-west trend of the mineralization.

Following the completion of 176 drill holes during 1998, an updated geological model was built, incorporating all the new information and interpretation at that time (published by BHP/NNO in May 1999 as the “Geological and Mineral Resources Update”). Three holes, AR-5, AR-175 and AR-176 were drilled for metallurgical samples and not assayed.

For this Feasibility Study Update, 25 additional holes were completed for geotechnical and metallurgical purposes, and assay data from five of these holes were used to supplement the block model. The geological model and interpretation developed by BHP/NNO has been reviewed and accepted by Hatch as credible and adequate for the purposes of the FSU.


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14. Sampling Method and Approach The NNO sampling programs followed the following general methodologies:

• Standard 2 m core samples sawn in half at site, with one half being returned to the core box and the other bagged for sample preparation (in later stages, core shipped to Andalgalá for preparation);

• Logging by qualified geologists recorded an extensive data set of observations and measurements including lithology, alteration mineralogy, sulphide/oxide mineralogy, sulphide percentages, structural features, veining, and iron oxide characteristics;

• Geotechnical data collected by qualified technicians included RQD and fracture frequency by 2 m core intervals for use in subsequent geotechnical studies into open pit and underground mining;

• All core was routinely photographed before geological and geotechnical logging took place; and

• All data collected through the logging procedures has been computerized.

All sample preparation and assaying was completed by industry standard laboratories such as Bondar Clegg (early programs) and by SGS for the later programs.

As an example of the extensive data collected through the drilling programs, the following tabulation provides a partial listing of the information collected and used for coding into the geological model of the deposit (176-hole model of 1998/1999):

Table 12-1: Drilling Program Data 1998/1999

Lithologies Mineralogy Alteration Other

Metasediment Leached Unaltered Topography

Melcho Intrusive Partial Leached Potassic Faults

Porphyry Chalcocite (enriched) Phyllic RQD, FF

Seca Porphyry Advanced Argillic SAG Index

Trampeadero Porphyry Covellite

Hydrothermal Breccia Pyrite

Igneous Breccia Chalcopyrite

Biotite Porphyry Coarse Covellite

Diatreme Breccia

Clay-facies Breccia

The drilling and sampling programs covered the entire extent of known mineralization on the property both laterally and vertically, and provides a reliable basis for understanding the distribution of mineralization and variations with rock type, alteration, etc. In the central core of the deposit (Quebrada Minas), some deep holes to +700 m below surface elevation were stopped before reaching the limits of the mineralization.


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15. Sample Preparation, Analyses and Security Two different sample preparation protocols have been used at Agua Rica:

• Drillholes AR-1 to AR-39: at a sample prep facility supervised by Bondar Clegg in Coquimbo, Chile, samples were crushed, entire 2 m half-core to about 60% passing –8 mesh, with a further step of pulverizing of a 1/8 or 1/16 split to 150 mesh (30 g). Assaying completed by Bondar Clegg in La Serena, Chile, using fire assaying for Au, multi-acid digestion for AA assaying of Ag, Cu, Pb, Zn, Mo, and As; and

• Drillholes AR-40 through the end of the drill programs (i.e., the bulk of the drilling programs); core samples crushed under the supervision of SGS to produce a sub-sample at 50 mesh, (30 g). Sample preparation in Mendoza, Argentina, with assaying by SGS, Santiago, Chile, using fire assaying for Au (50 g) aqua regia digestion for AA analysis of Ag, Cu, Mo, Pb, Zn, As, Sb, and Fe.

In addition to assaying for contained metal values, density determinations are available for over 3,500 core samples collected from the drill programs. This data was collected from dried whole-core using the caliper method, and classified by lithology and mineralogy. In general, density increases with increasing Fe, Cu, Zn, and Pb content, reflecting the sulphide content. For block modelling and resource estimation, a density value was calculated for each rock type from this base data.

Approximately 5% of the drill samples were randomly selected for check assaying at independent laboratories, as follows:

Early Drilling (AR-1 through AR-39):

• Primary laboratory: Bondar-Clegg, La Serena, Chile; and

• Check laboratories: Chemex (Toronto) and Acme (Vancouver).

Later Drilling (after AR-40):

• Primary laboratory: SGS, Santiago, Chile;

• Check laboratories: Bondar-Clegg (Chile), Chemex (Toronto), and Acme (Vancouver).

The standards program consisted of selecting pulps with less than a 10% relative difference from the four check laboratories, and inserting these pulps in the sample stream as their standards.


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16. Data Verification

16.1 Results of the QA/QC Programme In early 1998, Mineral Resources Development, Inc. (MRDI) was contracted to audit the sample and assaying QA/QC procedures employed by the BHP/NNO Joint Venture during its drilling programs at Agua Rica. This audit arose from statistical evaluation of the check assay results in 1997 indicating a relative low bias of 6% in copper assays from the primary SGS, Santiago laboratory compared to the check assay results at Chemex and Acme (using median values) as shown in Table 16-1 below.

Table 16-1: Average of Copper Results for 1,245 samples (ppm)

Bondar-Clegg SGS Chemex Acme

Average of Median

Mean

(Mean-Median)/Median

3,485

-2.2%

3,350

-6.0%

3,676

3.1%

3,628

1.8%

3,564

(Source: MRDI, January 1998)

Good agreement between assays for both Au and Mo were noted by MRDI during its audit. With respect to the copper bias, MRDI concluded in its report of January 1998:

“…MRDI found practices meet or exceed those found in the mining industry, excepting that the recently instituted check assaying program indicated a low bias exists in copper assays performed by SGS, Santiago; the relative difference compared to check assay results is estimated to be 6 relative percent. While the bias is conservative, inasmuch as copper is under-estimated, differences greater than 5 relative percent may effect mine planning, reserve estimation, and net present value; at a minimum, selective re-assaying is warranted.”

The statistical analysis of the check assay results by Cu grade also showed that the greatest inter-laboratory differences occurred at low copper grades of <0.05% Cu, which would not have a significant impact on resource calculations. Nevertheless, an additional check assaying program was undertaken in 1998. Samples that had returned significant (±20%) differences between the primary and the three original check laboratories were sent for assaying at Chemex Laboratories in Vancouver. This involved some 1,700 samples and replacement of the re-assayed Chemex assays in the Agua Rica assay database used for the 176-hole resource model (the latest and most up-to-date resource for the property). Comparisons of these Chemex results versus three independent check labs are shown in Table 16-2:

Table 16-2: Average of Copper Results from re-assay program (ppm)

Bondar-Clegg SGS Chemex Acme Average of Means Mean 4,693 4,571 4,812 4,804 4,720

(Source: BHP memorandum, June 1998)

An additional, more detailed, audit of the check assaying procedures at Agua Rica was completed in mid-1999 by Pincock, Allen & Holt (PAH). In their report, PAH concluded that the check error rates were within industry standards; the amount of cross-lab checking was “good” to “excellent”; and the assay database was suitable for a feasibility level study.


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Hatch concludes that any bias in copper assaying has been adequately addressed through the 1998 re-assay program. The database used for the latest 176-hole geological and resource model is therefore sufficiently reliable within industry standards of resource reporting.

16.2 Bulk Sampling Programme In late 1998, two underground adits with a combined length of 350 m were driven for the purposes of collecting metallurgical samples of different ore types and for grade confirmation. The two adits, one at Trampeadero (250 m) and the other at Seca (100 m), were driven by the contractor Redpath Más Errazuriz over a period of 58 days, during which four bulk samples were collected and shipped to the Mintek metallurgical plant in Johannesburg, South Africa.

Since the adits were driven horizontally along two pilot drillholes, a detailed comparison of the original assay results could be made against wall and face channel samples and muck samples, all of which were taken on a round-by-round basis. Average comparisons of the drillhole values (“DDH”) versus the bulk sampling face channels taken round by round (“Face”) provide additional support for the reliability of the drill data used for resource estimation as shown in Table 16-3.

Table 16-3: DDH versus Bulk Sample Comparisons

Cu %

Mo %

Au g/t

Ag g/t

Length (m)

DDH 0.53 0.022 0.41 0.88 SECA

Face 0.53 0.024 0.37 1.30

100

DDH 0.95 0.094 0.15 6.01 TRAMPADERO

Face 1.10 0.090 0.203 9.24

250

16.3 Other Information Hatch has relied upon certain information provided by NNO in the preparation of the capital cost estimate, operating cost estimate, and financial analysis set out in Section 25 of this Report. This information is set out in Section 25.25 (Owner’s Costs).


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17. Adjacent Properties (Extracted from Independent Technical Report, 2005 Resource Estimates, March 24, 2005)

Approximately 20kms to the west of Agua Rica, NNO holds title to a central portion of the Cerro Atajo copper property which forms a prominent gossan zone on the southwest facing slopes of the Aconquija range of mountains. In 2003, NNO applied to the province for the balance of the Cerro Atajo property which was vacant at that time. During the 1990s, the then Joint Venture explored and sampled an area of 15km2 around Cerro Atajo identifying a 1100m by 600m zone of vuggy silica, alunite, quartz and clay alteration centred over a swarm of dacite porphyry dykes with a peripheral zone of less intense alteration.

Although no fresh sulphides can be seen at surface, mineralization reported from drilling (by Placer Ltd.) in the 1970s records occurrences of pyrite, chalcopyrite, tetrahedrite, and chalcocite. Copper oxides are common at surface within the propyllitically altered volcanics at their contact with quartz-sericite altered vein zones. A total of 456 rock chip samples were collected by BHP-NNO and returned elevated values in the central quartz-alunite zone in Au (20 - 76 ppb), Pb (150 - 1,000 ppm), and Mo (10 - 21 ppm). BHP/NNO concluded from their field work that the alteration and geochemical zoning at Cerro Atajo suggests the presence of a large porphyry stock at depth, and possibly porphyry-style mineralization.

Further to the west of Agua Rica by approximately 34 kms, the Bajo de la Alumbrera mine (“Alumbrera”) is operated by Minera Alumbrera Ltd. (MAA), a joint venture between Xstrata of Switzerland (50%), NNO (12.5%), and Goldcorp (previously Wheaton River Minerals) (37.5%), with Xstrata acting as operator of the mine.

Alumbrera was originally discovered, explored, and studied by various parties in the 1960s and 1970s, but it was not until the 1990s that the property reached the production stage after MIMM acquired the Canadian company Musto Explorations who had completed a final program of drilling at the site. Following a construction period of ~3 years and expenditures of US$1.3 billion (a 32% over-run), the mine went into production at a rate of 80,000 tpd in early 1998.

For the year ended December 2004, the operation mined and processed 32.2 million tonnes of ore grading 0.56% Cu and 0.72g/t Au.

Alumbrera lies in the same general geological setting as Agua Rica but closer to the center of the regional Farallón Negro volcanic complex. It is a typical copper porphyry deposit with Proved and Probable open pit reserves of 394Mt grading 0.48% Cu and 0.53g/t Au as stated by MAA in June 2004 (includes stockpiled material).


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18. Mineral Processing and Metallurgical Testing The Agua Rica deposit is a large medium grade Cu-Mo-Au porphyry deposit with a polymetallic epithermal overprint; its mineralogy is complex and highly variable. Studies identified that almost all of the copper mineralization is covellite and chalcocite. There are some ores that contain minor amounts of chalcopyrite. All ore types were found to be rich in pyrite. Some ore types have been identified that contain enargite (arsenic bearing copper mineral) and sphalerite (zinc bearing mineral).

There were three stages of testwork performed on the Agua Rica ores:

• Stage 1: BHP-NNO, 1996-1998

• Stage 2:

Lakefield Research, Chile, 1998-1999

Mintek Laboratories, South Africa, 1999

• Stage 3: Lakefield Research, Santiago, 2005-2006

In 1996 to 1998, BHP-NNO (JV) tested drill core samples classified into three main ore zones: Seca Norte, Minas and Trampeadero according to the fundamental geology, mineralogy and variability across the ore body.

From August 1998 to January 1999, Lakefield Research, Santiago tested samples having head grades from 0.7% to 1.0% Cu and reclassified the ore types into 13 ore types, according to its mineralization, alteration and rock type as summarized in Table 18-1

Pilot testwork was done during the Stage 2 testwork. The pilot testwork was done under standard test conditions typical of molybdenum pilot plants at the time, including the use of cyanide and air for flotation. The results obtained from this testwork indicated that high recovery of molybdenum was possible with concentrate grades over 55% Mo. A grade of 52% Mo was used for concentrate grade in the financial modelling. The pilot work indicated that the Agua Rica copper-molybdenum separation stage would be straightforward.



Table 18-1: Ore Types Classification

Ore types classification Code

Major ore types (greater than 10%) Seca Enriched Porphyry SEP Seca Enriched Metasediments SEM Trampeadero Enriched Porphyry/ Igneous Breccia TEP Trampeadero Enriched Metasediments TEM Trampeadero Primary Porphyry TPP Primary Hydrothermal Breccia PHB Minor ore types Seca Primary Porphyry SPP Seca Primary Metasediments SPM Trampeadero Partial Leach TPL Trampeadero Primary Metasediments TPM Enriched Hydrothermal Breccia EHB Minas Coarse Covellite MCC Hydrothermal Breccia - Clay HBC

In May 1999, the second stage of testing also included work done at Mintek Laboratories in South Africa. The work included grinding, flotation and thickening testwork. A pilot plant for grinding and flotation for both copper and copper/molybdenum separation was run using ore from the two zones, Seca Norte and Trampeadero.

A metallurgical testwork program initiated in December 2005 at Lakefield, Santiago (Chile) and completed in May 2006, focused on the flotation characteristics (particularly kinetics) of seven ore types identified to represent the majority of the ore body, and to develop the process design criteria. These seven ore types are the thirteen ore types from the Stage 2 work, regrouped according to metallurgical response. Samples of these ores were extracted from five new drill holes that twinned existing holes, specifically drilled for this test program. Table 18-2 and Fig 18-1 show the selected holes for twin drilling and also the map of the drillcore locations, respectively.

Table 18-2: Agua Rica Metallurgical Sampling Program – 2005 Sample Selection



Figure 18-1: Agua Rica Plane, Plan 3000.00

General characteristics of the ore types are as follows:

• Ore Type SEP (Seca Enriched Porphyry), a “clean ore” with average mineral reserve grades of 0.80% copper, mostly covellite and chalcocite and 0.33 g/t gold, is characterized by high copper content. Relatively little arsenic or zinc.

• Ore Type SEM (Seca Enriched Metasediment) is a “clean” copper ore, mostly covellite and chalcocite with an average content of 0.61% copper, 0.31 g/t gold and 0.029% molybdenum.

• Ore Type TEP (Trampeadero Enriched Porphyry), with 0.55% copper, is a “dirty” copper ore with modybdenite (0.028%) as well as enargite (Cu3AsS4) over 120 ppm and minor levels of sphalerite and galena.

• Ore Type TEM (Trampeadero Enriched Metasediment) is a “dirty” copper ore with locally abundant molybdenite (0.057%) as well as enargite As over 110 ppm, sphalerite and galena. The average grade is 0.42% copper.

• Ore Type TPP (Trampeadero Primary Porphyry) is a “dirty” copper ore containing enargite (As ver 160 ppm), molybdenite, sphalerite and galena. The average grade is 0.45% copper and 0.022% molybdenum.



• Ore Type PHB (Primary Hydrothermal Breccia) is a “dirty” copper ore with locally abundant molybdenite as well as significant enargite sphalerite and galena. The average grade is 0.52% copper and 0.029% molybdenum. Arsenic averages over 260 ppm.

• Ore Type Misc. (Miscellaneous) is a compilation of the remaining “dirty” copper ore types. The average grade is 0.47% copper and 0.042% molybdenum. Arsenic can exceed 130 ppm on average.

The “clean” ore represents 28% of the mineral reserves and will be the first ore mined. The ore types are all compatible for simultaneous processing but have been identified separately in the block model to allow blending strategies to be developed for the control of concentrate grades for marketing.

The 2006 metallurgical testwork was an update of the work done to support the previous study and was based on samples from five new drill holes that twinned holes used previously. The campaign was designed to use samples that were more representative and that tested each of the seven metallurgical types that have been identified. The testwork data confirms that the Agua Rica ore is treatable using conventional grinding and flotation technology. The ore has a low average work index of 10.7 kWh/t. The ore mineralization is relatively coarse grained and therefore requires a primary grind of 80% passing 150 µm to achieve acceptable recoveries. However, fine regrinding of concentrates to 80% passing 45 µm is required to produce acceptable concentrate grades. Concentrate grades and metal recoveries will vary by ore type. Arsenic contamination is anticipated to be problematic for some ore types, especially the “dirty” types identified above. Zinc will be problematic on occasions, but in most years it is expected to be below penalty levels in the concentrate. Ongoing work (September 2006) is investigating methods to deal with these.

18.1 Process Plant The metallurgical process flowsheet designed for the Agua Rica Project is essentially a conventional flowsheet for processing copper/molybdenum/gold porphyry ores. Notable features of the flowsheet are the comparatively long overland conveying systems for ore, waste rock and filtered tailings and a large tailings filter plant. They are included to accommodate the site terrain and to minimize water consumption in the arid climate of this location.

The process starts at the mine with twin relocatable primary gyratory 60 x 113 crushers, one dedicated to ore and one dedicated to waste. The crushed ore is then transported to the 270,000 t coarse ore stockpile (90,000 t live) located near the process plant. The waste rock is conveyed to the Cazadero valley near the mill for disposal by stackers.

ROM ore and waste rock will be hauled to and dumped into the dump pockets of either of two 60 x 113 gyratory crushers. Ore will be crushed to 150 mm and fed to a 3,300 t storage bin, from which it will be fed onto the ore overland conveying system. The ore overland conveyor transfers the ore to the 90,000 t live, covered, coarse ore stockpile located at the plantsite, some 10 km to the northwest of the crushers.

Waste rock will be crushed to 300 mm and fed to the waste rock overland conveying system and the waste rock storage dump.



The primary grinding will be performed using a single circuit of one 40 ft diameter SAG mill and two 26 ft diameter ball mills in closed circuit with cyclones. The ore is reasonably soft (10.7 Work Index) and the grinding circuit will process 90,000 tpd to grind to 80% passing 150 µm. The pulp will pass through a rougher, regrind and cleaning flotation circuit, to produce a bulk copper/gold/ molybdenum concentrate.

Preliminary testwork carried out by Delkor (Santiago) on the tailings at SGS Lakefield confirmed that it would be technically possible to filter and stack the tailings. Further testwork is required to optimise this.

The bulk flotation concentrate is sent to the copper/gold/molybdenum separation circuit where the molybdenum will be separated by flotation to form a saleable molybdenum concentrate. The expected molybdenum concentrate will contain approximately 52% Mo and less than 1% Cu. The molybdenum concentrate will be thickened, filtered, dried and bagged for road transport, assumed to be to a facility in Chile. The “tailings” from the molybdenum separation circuit will be the final copper-gold concentrate. The copper concentrate will contain between 22% and 36% copper on an annual basis, depending on the ore being treated.

Copper concentrate slurry will be pumped overland approximately 213 km to a filter plant located near Tucuman. From there, it will be filtered and loaded as a cake into rail wagons and transported some 800 km to a port near Rosario for shipment to overseas smelters.

Filtrate water will be pumped to the water treatment plant, where dissolved metals and solids will be removed to give a water quality that meets the Argentinean irrigation waste standards. Treated water will be disposed of as irrigation water for a tree farm established on site by MAR.



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19. Mineral Resource and Mineral Reserve Estimates

19.1 Raw Data Analysis Before 2005 a total of 176 drillholes were drilled on the property, with three holes (AR-5, AR-175 and AR-176) drilled for metallurgical samples and not assayed. During 2005 five holes were twinned and assayed for metallurgical purposes.

The assays file contains changes made as a result of the check-assay program and re-analyses recommended by MRDI in mid-1998. A total of 33,320 samples were assayed for copper, gold, silver, molybdenum, lead, zinc and arsenic. Samples from holes AR-40 to AR-166 were also analyzed for Fe and holes Ar-40 to AR-168 were analyzed for Sb. Generally, the samples were analyzed over 2 m core lengths.

The statistical parameters for the raw assays are presented below in Table 19-1.

Table 19-1: Summary of Statistics from Drillhole Samples

Cu ppm

Au ppm

Ag ppm

Mo ppm

Pb ppm

Zn ppm

As ppm

Fe %

Sb ppm

Number 33,320 33,319 33,320 33,320 33,320 33,320 33,320 26,161 25,312

Mean 0.376 0.205 2.95 0.027 262 533 111 4.12 9.8

S.D. 0.494 0.389 9.09 0.034 1135 2653 246 2.46 61.1

Minimum 0.001 0.004 0.10 0.0002 1.0 0.2 1.0 0.1 2.0

Maximum 17.2 47.79 507.0 1.80 45,000 186,000 8,500 49.4 9612

C.V. 1.31 1.90 3.08 1.27 4.34 4.98 2.21 0.60 6.21

Hatch has reviewed the raw data statistics using lognormal cumulative probability plots for Cu, Au, Ag and Mo. While a single Au value of 47.79 g/t and a single Mo sample of 1.8 % could have been capped, the effects of these two samples within a total of 33,320 assays would be non-consequential. As a result for this study no values were capped.

19.2 Composites The 2006 resource update modified the formation of 15 m composites from the 2004 estimate. Recommendations in a review by AMEC suggested the system of bench composites originally used by BHP and also used in the 2004 estimate might be smoothing grades across the leached/partial leached/ supergene boundaries. As a result, for the 2006 resource estimate uniform 15 m composites were formed from the assay data and honoured the mineral code boundaries. Leached composites used only samples coded as leached, as did partial leached, pyrite, chalcocite, covellite and chalcopyrite.



Figure 19-1: Showing Isometric Projection of Drillhole Composites Colour Coded by Mineral Type.

Comparing the statistics for the seven variables as a function of leached cap, partial leached cap, pyrite and the remainder of the mineralized samples shows the following:

• Cu is clearly influenced by surface leaching and re-deposition below and also by a shift laterally and at depth from a copper rich zone to pyrite zone.

• Au is not leached out of surface zones, with similar grades shown in the leached and partial leached zones, as in the mineralized zones. There is a drop in gold within the pyrite zone.

• Ag like Au is not leached out of surface zones, with similar grades shown in leached and partial leached, as in the mineralized zones. There is a drop in silver within the pyrite zone.

• Mo is not leached out of surface zones, with similar grades shown in leached and partial leached, as in the mineralized zones. There is a drop in Mo within the pyrite zone.

• As shows similar grades in all zones.

• Pb shows similar grades in all zones.

• Zn is leached out of the leached and partially leached zones. Zn is very similar in the mineralized zone and pyrite zone.

The statistics of the 15m composites are summarised in Table 19-2.



Table 19-2: Summary of Statistics from 15 m Composites as a Function of Mineral Types

Variable Domain Number Mean Stan. Dev. Minimum Maximum Coef. of Var.

Leached Cap 727 0.024 0.051 0.001 0.572 2.17

Partially Leached 320 0.099 0.173 0.001 1.241 1.74

Pyrite Zone 661 0.101 0.082 0.003 0.621 0.81

Cu (%)

Mineralized Zone 4766 0.365 0.405 0.001 6.368 1.11

Leached Cap 727 0.256 0.241 0.004 3.516 0.94


Pyrite Zone 661 0.076 0.074 0.004 0.848 0.97

Au (g/t)


Leached Cap 727 2.26 3.45 0.10 57.05 1.53


Pyrite Zone 661 1.79 1.97 0.10 23.49 1.10

Ag (g/t)


Leached Cap 727 0.023 0.024 0.0002 0.174 1.06


Pyrite Zone 661 0.012 0.017 0.0002 0.116 1.42

Mo (%)


Leached Cap 727 99.0 180.8 3.3 1703.5 1.83


Pyrite Zone 661 59.5 96.4 4.0 1146.5 1.62

As (ppm)


Leached Cap 727 184.3 452.3 7.9 7158.4 2.45


Pyrite Zone 661 159.7 446.9 8.0 4638.0 2.80

Pb (ppm)


Leached Cap 727 19.3 33.4 0.2 672.1 1.73


Pyrite Zone 661 504.8 1722.1 1.1 19498.6 3.41

Zn (ppm)


19.3 Geologic Model The 1999 BHP geologic model that divided the deposit into east and west sections was based on geology and on the character of copper mineralization. Data analysis showed the distribution of copper mineralization in the vicinity of the Trampeadero Porphyry (in the east) differed from the copper mineralization in the vicinity of the Seca Porphyry (to the west). The 2004 resource estimation was completed using this east/west break for semivariogram analysis and block grade estimation. Based on a site visit in 2005 by L. Gustafson and a review of the Agua Rica geology (Gustafson, 2005) the Clean – Dirty boundary was used to separate the Seca Porphyry from the Trampeadero Porphyry for this updated resource estimation. Figure 19-2 shows the copper and gold distributions for the clean and dirty domains.



Cumulative Frequency Plot for Copper and Gold in Clean vs Dirty Domains

10 -3

10 -2

10 -1

1

10 1

Percent

10 -3

10 -2

10 -1

1

101

0.1

0.5

1.0510203040506070809095

99.0

99.5

99.9

0.1

0.5

1.0

51020304050607080909599.0

99.5

99.9

10 -3

10 -2

10 -1

1

10 1

Cu

% a

nd A

u (g

/t)

Percent

10 -3

10 -2

10 -1

1

101

0.1

0.5

1.0510203040506070809095

99.0

99.5

99.9

0.1

0.5

1.0

51020304050607080909599.0

99.5

99.9

10 -3

10 -2

10 -1

1

10 1

Percent

10 -3

10 -2

10 -1

1

101

0.1

0.5

1.0510203040506070809095

99.0

99.5

99.9

0.1

0.5

1.0

51020304050607080909599.0

99.5

99.9

10 -3

10 -2

10 -1

1

10 1

Percent

10 -3

10 -2

10 -1

1

101

0.1

0.5

1.0510203040506070809095

99.0

99.5

99.9

0.1

0.5

1.0

51020304050607080909599.0

99.5

99.9

Cu in Clean Domain

Cu in Dirty Domain

Au in Dirty Domain

Au in Clean Domain

Figure 19-2: Cumulative Frequency Plot Showing Copper and Gold Distributions in Clean and Dirty Domains

19.3.1 Variography Pairwise relative semivariograms were produced for each variable within each Domain. The procedure was to first examine the horizontal plane. When a direction of maximum continuity was established the perpendicular vertical planes were modelled. In all but one case (Silver in the Dirty Domain), geometric anisotropy was demonstrated and nested spherical models were fit to the three orthogonal axis. The semivariogram parameters are summarized in Table 19-3 for the Clean Domain and Table 19-4 for the Dirty Domain.



Table 19-3: Parameters for Semivariogram Models at Agua Rica Clean Domain

Variable Direction C0 C1 C2 Range a1 (m)

Range a2 (m)

Az. 0o Dip 0 0.05 0.20 0.20 20 280

Az. 270 o Dip -60 o 0.05 0.20 0.20 20 350 Cu

Az. 90 o Dip -30 o 0.05 0.20 0.20 30 150 Az. 0o Dip 0 0.05 0.10 0.22 120 300

Az. 270 o Dip -60 o 0.05 0.10 0.22 150 400 Au Az. 90 o Dip -30 o 0.05 0.10 0.22 50 160 Az. 0o Dip 0 0.06 0.10 0.22 60 200

Az. 270 o Dip -60 o 0.06 0.10 0.22 80 300 Mo

Az. 90 o Dip -30 o 0.06 0.10 0.22 40 120 Az. 0o Dip 0 0.05 0.20 0.05 40 200

Az. 270 o Dip -60 o 0.05 0.20 0.05 180 600 Ag

Az. 90 o Dip -30 o 0.05 0.20 0.05 80 150

Az. 0o Dip 0 0.05 0.10 0.18 30 180

Az. 270 o Dip -60 o 0.05 0.10 0.18 40 100 Pb Az. 90 o Dip -30 o 0.05 0.10 0.18 30 50 Az. 135 o Dip 0 0.10 0.10 0.15 50 200

Az. 45 o Dip -45 o 0.10 0.10 0.15 50 120 Zn Az. 225 o Dip -45 o 0.10 0.10 0.15 80 200 Az. 0o Dip 0 0.10 0.18 0.22 30 200

Az. 270 o Dip -60 o 0.10 0.18 0.22 60 120 As

Az. 90 o Dip -30 o 0.10 0.18 0.22 20 40

Table 19-4: Parameters for Semivariogram Models at Agua Rica Dirty Domain

Variable Direction C0 C1 C2 Range a1 (m)

Range a2 (m)

Az. 190o Dip -23 o 0.20 0.10 0.34 60 250

Az. 100 o Dip -45o 0.20 0.10 0.34 50 160 Cu Az. 280 o Dip -45 o 0.20 0.10 0.34 40 180 Az. 65o Dip 0 0.05 0.07 0.26 50 280 Az. 335 o Dip -45 o 0.05 0.07 0.26 20 450 Au Az. 155 o Dip -45 o 0.05 0.07 0.26 40 240 Az. 0o Dip 0 0.15 0.10 0.48 120 400

Az.90 o Dip 0 0.15 0.10 0.48 100 300 Mo

Az. 0 o Dip -90 o 0.15 0.10 0.48 200 400 Ag Omni Directional 0.05 0.40 110

Az. 0o Dip 0 0.10 0.30 0.30 50 200 Az. 90 o Dip -30 o 0.10 0.30 0.30 40 160 Pb Az. 270 o Dip -60 o 0.10 0.30 0.30 50 200 Az. 0 o Dip 0 0.20 0.28 0.32 40 250 Az. 90 o Dip -45 o 0.20 0.28 0.32 60 120 Zn Az. 270 o Dip -45 o 0.20 0.28 0.32 100 150 Az. 40o Dip 0 0.14 0.35 0.15 40 280 Az. 310 o Dip -45 o 0.14 0.35 0.15 60 250 As Az. 130 o Dip -45 o 0.14 0.35 0.15 60 280



19.4 Block Model The limits of the block model are shown below:

Easting From 67000 to 71000 E 25 m blocks 160 columns

Northing From 68000 to 71000 N 25 m blocks 120 rows

Elevation From 2385 to 4335 15 m blocks 130 levels

The UTM coordinates in which the project is surveyed have redundant numerals removed in the block model (eastings have 700,000 subtracted while northings have 6,900,000 subtracted). The true position of the block models lower south-west corner is therefore:

UTM 767000 E 6968000 N and 2,385 m elevation ASL

Blocks 25 m x 25 m x 15 m in dimension were coded with the percentage of blocks below topography recorded in each block. Blocks were also coded as being in Domain Clean or Dirty based on their block centroid.

The block model also had the following fields identified.

MIN06 - Cu-Fe Sulphide mineral type LITH06 - Lithology unit ALT06 - Alteration type SG - Specific gravity for Block

19.5 Block Grade Interpolation Copper grades showed a distinct drop in grades from supergene/hypogene, to partial leached cap to leached cap mineralization, with the average grade dropping from 0.365% to 0.099% to 0.024% respectively. Contact plots which compare the grades on both side of a contact, as a function of distance from the contact, show sharp breaks in grade at these boundaries. This would be expected with copper leached out of surface rocks and re-deposited in a supergene blanket below the contact. The supergene/hypogene – pyrite boundary shows a drop in copper grade from 0.365 % to 0.101% and a sharp break on the contact plot. This break is a bit more problematic, as the mineral code logging would have a difficult time identifying this boundary based purely on the mineral assemblage. Pyrite is described a being ubiquitous throughout the deposit and this boundary is probably more a result of the geologist noting a drop in copper grades. For this resource estimate, the leached cap – partial leached, partial leached – supergene/hypogene and supergene/hypogene – pyrite boundaries were considered hard boundaries. Composite grades were not allowed to influence blocks on the other side of these contacts. The Clean / Dirty boundary was used to determine which semivariogram model to employ, but this boundary was soft (composites from either side could be used to estimate a block).

Molybdenum, gold, silver, arsenic and lead showed no differences at the leached – partial leached or partial leached – supergene/hypogene boundaries in either average grades or contact plots. All of these variables showed a drop in grade at the supergene/hypogene – pyrite boundary but contact plots for each element showed either no change at the contact or a gradational change. As a result, all boundaries were considered soft, with the Clean / Dirty boundary used to determine which semivariogram to use.



Zinc appears to have been leached along with copper, with average grades in supergene/hypogene and pyrite of 512 ppm and 504 ppm dropping to 19.3 ppm in leached cap and 24.5 ppm in partial leached material. A contact plot shows this to be a gradational change across this boundary. As a result, all boundaries were considered soft with the Clean / Dirty boundary used to determine which semivariogram to use.

Grades for the variables Cu, Au, Ag, Mo, As, Pb and Zn were interpolated by ordinary kriging, using different semivariograms for Clean and Dirty Domain blocks and a soft boundary for composites between the two zones. Each variable was kriged in a series of passes, using an expanding search ellipse, based on the semivariogram ranges. The first pass used ellipse dimensions equal to ¼ the semivariogram ranges in the three principal directions. If the minimum four composites were not found within this ellipse the block was not estimated. The second pass used ½ the semivariogram range. Four composites (minimum) were again required to estimate the block. A third pass used the full range of the semivariograms and in a few cases a fourth pass was necessary (using twice the semivariogram range) to estimate all the variables in the same number of blocks. For all passes, if more than sixteen composites were found, the sixteen closest to the block centroid were used. The search parameters for each pass are shown in Table 19-5 and Table 19-6.


Mineral Resource and Mineral Reserve Estimates PR318265.018 Rev. 0, Page 52


Table 19-5: Search Parameters Used for Ordinary Kriging Clean Zone

Variable Pass Major Axis Semi. Maj. Axis

Minor Axis

Major Axis Dist. (m)

Semi. Major Axis Dist. (m)

Minor Axis Dist. (m)

1 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 70 87.5 37.5 2 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 140 175 75 Cu

3 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 280 350 150 1 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 75 100 40 2 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 150 200 80 Au

3 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 300 400 160 1 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 50 150 37.5 2 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 100 300 75 Ag

3 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 200 600 150 1 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 50 75 30 2 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 100 150 60 Mo

3 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 200 300 120 1 Az.45 Dip 0 Az. 135 Dip -45 Az 315 Dip -45 45 25 12.5 2 Az.45 Dip 0 Az. 135 Dip -45 Az 315 Dip -45 90 50 25 3 Az.45 Dip 0 Az. 135 Dip -45 Az 315 Dip -45 180 100 50

Pb

4 Az.45 Dip 0 Az. 135 Dip -45 Az 315 Dip -45 360 200 100 1 Az. 135 Dip 0 Az. 225 Dip -45 Az 45 Dip -45 50 30 50 2 Az. 135 Dip 0 Az. 225 Dip -45 Az 45 Dip -45 100 60 100 3 Az. 135 Dip 0 Az. 225 Dip -45 Az 45 Dip -45 200 120 200

Zn

4 Az. 135 Dip 0 Az. 225 Dip -45 Az 45 Dip -45 400 240 400 1 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 50 30 10 2 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 100 60 20 3 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 200 120 40

As

4 Az. 0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 400 240 80


Mineral Resource and Mineral Reserve Estimates PR318265.018 Rev. 0, Page 53


Table 19-6: Search Parameters Used for Ordinary Kriging Dirty Zone

Variable Pass Major Axis Semi. Maj. Axis

Minor Axis

Major Axis Dist. (m)

Semi. Major Axis Dist. (m)

Minor Axis Dist. (m)

1 Az.190 Dip -23 Az. 280 Dip -45 Az 100 Dip -45 62.5 40 45 2 Az.190 Dip -23 Az. 280 Dip -45 Az 100 Dip -45 125 80 90 Cu

3 Az.190 Dip -23 Az. 280 Dip -45 Az 100 Dip -45 250 160 180 1 Az. 65 Dip 0 Az. 335 Dip -45 Az 155 Dip -45 70 112.5 60 2 Az. 65 Dip 0 Az. 335 Dip -45 Az 155 Dip -45 140 225 120 Au

3 Az. 65 Dip 0 Az. 335 Dip -45 Az 155 Dip -45 280 450 240 1 Omni Directional 27.5 27.5 27.5 2 Omni Directional 55 55 55 3 Omni Directional 110 110 110

Ag

4 Omni Directional 220 220 220 1 Az. 0 Dip 0 Az. 90 Dip 0 Az 0 Dip -90 100 75 100 2 Az. 0 Dip 0 Az. 90 Dip 0 Az 0 Dip -90 200 150 200 Mo

3 Az. 0 Dip 0 Az. 90 Dip 0 Az 0 Dip -90 400 300 400 1 Az.0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 50 50 40 2 Az.0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 100 100 80 3 Az.0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 200 200 160

Pb

4 Az.0 Dip 0 Az. 270 Dip -60 Az 90 Dip -30 400 400 320 1 Az.0 Dip 0 Az. 270 Dip -45 Az 90 Dip -45 62.5 37.5 30 2 Az.0 Dip 0 Az. 270 Dip -45 Az 90 Dip -45 125 75 60 3 Az.0 Dip 0 Az. 270 Dip -45 Az 90 Dip -45 250 150 120

Zn

4 Az.0 Dip 0 Az. 270 Dip -45 Az 90 Dip -45 500 300 240 1 Az. 40 Dip 0 Az. 310 Dip -45 Az 130 Dip -45 70 62.5 70 2 Az. 40 Dip 0 Az. 310 Dip -45 Az 130 Dip -45 140 125 140 3 Az. 40 Dip 0 Az. 310 Dip -45 Az 130 Dip -45 280 250 280

As

4 Az. 40 Dip 0 Az. 310 Dip -45 Az 130 Dip -45 560 500 560




19.6 Bulk Density Over the exploration life of this property 3,525 density measurements have been taken from Agua Rica drill core up to hole AR-168. Most measurements were taken using a simple geometric method for calculating specific gravity on site. The methods and results are outlined below (from BHP, 1999).

19.6.1 Onsite Method 1 This geometric calliper method (with single core length and diameter measurements) was used on samples 20000 to 23123. A 10 cm sample of whole drill core was taken every 10 m (hole conditions permitting). This was marked and identified (for hole and depth) by the technical staff on site. Samples up to drill hole AR-168 were sawn into regular cylinders in Andalgalá by sample preparation contractor SGS.

After sawing, the core sample was taken back to site and allocated a number from 20000 to 23500. A record of numbers and corresponding drillhole I.D. and depth is kept by the technical staff and can be found in a paper file marked “original density data” kept in the project offices.

Samples were dried in an oven at 100oC for two hours. It was noted that some samples became covered in native sulphur, which boils at 85oC. The density of samples from the native sulphur field should therefore be treated with caution.

The samples were then weighed on an electronic balance (with readout to one hundredth of a gram) and recorded on the original data sheets. The balance was calibrated before and after use with a 2,000 g standard weight.

The data samples were entered into an Excel spreadsheet where specific gravity was calculated using the formula:

Density = W / (PI) R2 * L

Where: W = Sample Weight R = Sample Radius L = Sample Length PI = 3.14159

The results were checked and suspect values (such as below 1.5 g/cm3 and above 4 g/cm3) were re-examined.




19.6.2 Density Measurements at CIMM A total of 250 samples were collected for two batches of UCS (unconfined compressive strength) testing at CIMM laboratory in Santiago de Chile. Before the samples were subjected to UCS tests, their specific gravity was measured by two different methods (geometric and displacement of water) following wax coating. The displacement method weighed the sample dry, then coated the sample with wax and re-weighed the sample. The waxed sample was then placed in water and weighed again. The correlation between the two methods (geometric and displacement) was excellent (Figure 19-4). There was an overall 2% difference in the means between the displacement method carried out at CIMM and the onsite geometry method, with the displacement method being 2% higher than the onsite method (Figure 19-5).

p

1.5

2

2.5

3

3.5

4

4.5

1.5 2 2.5 3 3.5 4 4.5

Geometry method at CIMMg/cc

Wax

dis

plac

emen

t met

hod

(CIM

M)

g/cc

Figure 19-3: Comparison Between Density Measured by Geometric Method at CIMM and Wax Displacement Method at CIMM




1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

3.5

1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5

Wax Displacement - CIMM

Ons

ite G

eom

etry

- (o

ne m

easu

rem

ent)

Figure 19-4: Compare Density by Displacement (Wax Coating and Displacement - CIMM) and Onsite Geometry (One Measurement Method)

1.5

2

2.5

3

3.5

4

4.5

1.5 2 2.5 3 3.5 4 4.5

CIMM Geometry g/cc

Ons

ite G

eom

etry

- (o

ne m

easu

rem

ent m

etho

d)g/

cc

Figure 19-5: Comparison Between Density Measured by Geometry at CIMM and Onsite Measurements (One Measurement Method)




19.6.2.1 Onsite Method 2 A new method for collecting density data (recommended by Scott Long, MRDI) was implemented in January 1998 (Figure 19-6). This method involves taking six measurements of the diameter (taken at three points along the core length and averaged for diameter) and six measurements of the core length (taken every 60 degrees and averaged for length measurement). The average and standard deviation is calculated for both length and diameter. If either standard deviation is above one (i.e., the sample has significant differences along its length or its diameter – due to poor drilling or bad cutting) then the sample is re-examined or re-cut if necessary.

Figure 19-6: Density Data Collection Methodology

A total of 254 samples previously determined by only one measurement were re-examined using this method (see Figure 19-7). There is less than 1% difference in the means between the two methods used on site but the results using the average measurements have an average of 0.83% greater than by only measuring the length and width once. For this reason the average method is preferred.

1.50

1.70

1.90

2.10

2.30

2.50

2.70

2.90

3.10

3.30

3.50

1.50 1.70 1.90 2.10 2.30 2.50 2.70 2.90 3.10 3.30 3.50

Density g/cc - six measurements of length and width (Average)

Den

sity

g/c

c -

One

Mea

sure

Met

hod

N=254

Figure 19-7: Compare Density by Average Method and One Measurement Method

Six measurements taken along length every 60°. Averaged for length measurement

Six measurements taken at three points along core length. Averaged for diameter.




19.6.3 Conclusions The results of all the methods uses to calculate the density are within 2% of each other. The wax coating and displacement of water method (considered the most sophisticated) gives the highest results: average 2.62 g/cc compared to the average of 2.57 g/cc for the same samples measured onsite using the one measurement method, or 2% higher.

This difference, although it appears systematic, is considered acceptable. There are only about 250 density points measured by the displacement method and about 3,500 density measurements taken onsite. For practical and statistical reasons therefore, the data that will be used for the resource calculation will be all the measurements collected onsite by both the one and average measurement methods.

Table 19-7 summarizes the average densities for all the Cu-Fe mineral zones and lithologies modelled. Individual blocks were assigned an average SG based on these codes.




19.7 Classification of Resource

19.7.1 Introduction Based on this study, delineated mineralization of the Agua Rica Project is classified as a resource according to the following definition from National Instrument 43-101:

“In this Instrument, the terms "mineral resource", "inferred mineral resource", "indicated mineral resource" and "measured mineral resource" have the meanings ascribed to those terms by the Canadian Institute of Mining, Metallurgy and Petroleum, as the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines adopted by CIM Council on August 20, 2000, as those definitions may be amended from time to time by the Canadian Institute of Mining, Metallurgy, and Petroleum.”

“A Mineral Resource is a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth's crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.”

The terms Measured, Indicated and Inferred are defined in NI 43-101 as follows:

“A 'Measured Mineral Resource' is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes that are spaced closely enough to confirm both geological and grade continuity.”

“An 'Indicated Mineral Resource' is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes that are spaced closely enough for geological and grade continuity to be reasonably assumed.”

“An 'Inferred Mineral Resource' is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes.”




19.7.2 Results Geologic continuity at Agua Rica is well established through geologic mapping and drillhole interpretation. Grade continuity has been quantified for each Domain and each variable by semivariogram analysis. The classification procedure used for this deposit employs the grade continuity for copper and molybdenum, considered at this time to be the two most important economic variables. The classification scheme was as follows:

Measured - Blocks estimated in pass 1 for both copper and molybdenum using search ellipse dimensions equal to ¼ the semivariogram ranges

Indicated - Blocks not classified but estimated in at least pass two for both copper and molybdenum using search ellipse dimensions equal to ½ the semivariogram ranges

Inferred - All remaining blocks estimated

The results are presented in a series of grade-tonnage tables at a series of copper cut-offs.

Table 19-7: Agua Rica Blocks Classed Measured - Feb. 2006 Estimate

Cut-off Tonnes > Cut-off Grade > Cut-off

Cu (%) (tonnes) Cu (%)

Mo (%)

Au (g/t)

Ag (g/t)

As (ppm)

Pb (ppm)

Zn (ppm)

0.20 412,000,000 0.56 0.034 0.24 3.6 139 354 782

0.25 374,000,000 0.59 0.035 0.25 3.7 143 366 795

0.30 339,000,000 0.62 0.036 0.26 3.8 145 366 785

0.35 305,000,000 0.66 0.036 0.27 3.8 146 352 737

0.40 269,000,000 0.69 0.037 0.28 3.7 145 330 676

0.45 232,000,000 0.74 0.039 0.28 3.6 146 304 605

0.50 197,000,000 0.78 0.040 0.29 3.5 143 295 553

0.55 162,000,000 0.84 0.040 0.30 3.5 138 290 511

0.60 132,000,000 0.90 0.040 0.32 3.5 134 279 460

0.65 108,000,000 0.96 0.039 0.33 3.6 131 281 441

0.70 93,000,000 1.00 0.039 0.34 3.6 126 277 409

0.75 78,000,000 1.05 0.039 0.35 3.6 126 282 407

0.80 65,000,000 1.11 0.038 0.36 3.6 123 289 397

0.85 55,000,000 1.17 0.038 0.37 3.7 119 293 396

0.90 46,000,000 1.22 0.038 0.37 3.8 116 311 396

0.95 39,000,000 1.27 0.039 0.38 3.9 112 318 380

1.00 34,000,000 1.32 0.038 0.38 3.9 106 327 373

1.05 29,000,000 1.38 0.039 0.38 4.0 102 338 359

1.10 25,000,000 1.42 0.039 0.38 4.0 101 335 352

1.15 21,000,000 1.48 0.040 0.38 4.0 102 342 341




Cut-off Tonnes > Cut-off Grade > Cut-off

Cu (%) (tonnes) Cu (%)

Mo (%)

Au (g/t)

Ag (g/t)

As (ppm)

Pb (ppm)

Zn (ppm)

1.20 18,000,000 1.53 0.040 0.39 4.1 103 357 358

1.25 15,000,000 1.59 0.040 0.40 4.1 101 374 368

1.30 13,000,000 1.64 0.040 0.40 4.1 98 386 381

1.35 11,000,000 1.70 0.040 0.41 4.1 95 395 389

1.40 10,000,000 1.74 0.039 0.41 4.2 96 410 407

Table 19-8: Agua Rica Blocks Classed Indicated - Feb. 2006 Estimate

Cut-off

Tonnes > Cut-off Grade > Cut-off

Cu (%) (tonnes) Cu

(%) Mo (%)

Au (g/t)

Ag (g/t)

As (ppm)

Pb (ppm)

Zn (ppm)

0.20 698,000,000 0.42 0.032 0.19 3.2 121 267 644

0.25 596,000,000 0.45 0.033 0.20 3.3 127 281 662

0.30 499,000,000 0.49 0.034 0.22 3.3 133 293 675

0.35 401,000,000 0.53 0.035 0.23 3.3 139 292 672

0.40 317,000,000 0.57 0.036 0.24 3.3 142 287 662

0.45 241,000,000 0.61 0.039 0.26 3.3 142 275 640

0.50 180,000,000 0.66 0.039 0.27 3.3 141 268 604

0.55 128,000,000 0.72 0.039 0.29 3.3 141 263 575

0.60 93,000,000 0.77 0.037 0.31 3.1 129 241 492

0.65 67,000,000 0.83 0.035 0.33 3.1 126 238 441

0.70 49,000,000 0.89 0.033 0.36 3.2 121 240 388

0.75 36,000,000 0.95 0.032 0.38 3.2 113 236 346

0.80 26,000,000 1.01 0.031 0.38 3.3 101 244 301

0.85 20,000,000 1.07 0.031 0.39 3.4 97 257 291

0.90 15,000,000 1.13 0.031 0.40 3.6 90 267 285

0.95 12,000,000 1.19 0.031 0.40 3.9 86 293 303

1.00 9,000,000 1.25 0.031 0.41 4.1 83 304 312

1.05 7,000,000 1.31 0.032 0.41 4.3 82 327 332

1.10 6,000,000 1.36 0.031 0.42 4.4 79 321 315

1.15 5,000,000 1.41 0.031 0.43 4.4 79 316 314

1.20 4,000,000 1.47 0.030 0.43 4.4 69 304 302

1.25 3,000,000 1.53 0.030 0.43 4.3 70 301 303

1.30 3,000,000 1.57 0.030 0.43 4.0 68 305 306

1.35 2,000,000 1.62 0.029 0.43 3.7 72 282 283

1.40 2,000,000 1.67 0.028 0.43 3.8 76 294 299




Table 19-9: Agua Rica Blocks Classed Inferred - Feb. 2006 Estimate

Cut-off

Tonnes > Cut-off Grade > Cut-off

Cu (%) (tonnes)

Cu (%)

Mo (%)

Au (g/t)

Ag (g/t)

As (ppm)

Pb (ppm)

Zn (ppm)

0.20 651,000,000 0.34 0.034 0.12 2.3 75 100 373

0.25 474,000,000 0.39 0.038 0.13 2.2 75 90 295

0.30 341,000,000 0.43 0.041 0.13 2.1 72 77 235

0.35 250,000,000 0.47 0.045 0.14 2.1 68 70 222

0.40 187,000,000 0.50 0.049 0.14 2.0 60 61 204

0.45 131,000,000 0.54 0.053 0.15 2.0 57 59 197

0.50 84,000,000 0.57 0.054 0.15 2.0 60 66 209

0.55 42,000,000 0.62 0.050 0.15 2.1 74 82 232

0.60 20,000,000 0.67 0.045 0.17 2.2 89 94 248

0.65 9,000,000 0.72 0.040 0.19 2.4 110 104 269

0.70 4,000,000 0.77 0.037 0.19 2.6 135 126 328

0.75 2,000,000 0.82 0.034 0.21 2.7 155 135 387

0.80 1,143,000 0.86 0.033 0.23 2.4 183 128 409

0.85 720,000 0.88 0.033 0.24 2.4 175 137 441

0.90 98,000 0.91 0.035 0.22 2.1 126 122 353

19.8 Mineral Reserves A single cut-off criteria was used to discriminate ore from waste based on the NSR dollar per tonne block value. This cut-off is applied prior to determining the contact or external dilution, as the case would be for actually mining to a grade control limit. After dilution is determined, the NSR is again calculated, but the same volume of material is assumed to be mined. For the Agua Rica pits, the cut-off applied is $3.74 per tonne. The selection of this cut-off level was based on recovery of processing, general and administration and other costs which were not included in the initial NSR block calculation.

Elevated cut-off grades would normally be beneficial to an operation. There is minimal space to stockpile material below this elevated cut-off, and the waste crushing and conveying system is operating at maximum capacity for much of the initial mine life. For this reason, optimized or elevated cut-offs have not been utilized for this study. However, since the ore crusher and conveyor has spare capacity, stockpiling of lower grade material at Campo El Arenal does warrant further study if material handling systems can be modified to allow for this.

Table 19-10 contains the proven and probable mineral reserves.




Table 19-10: Proven and Probable Mineral Reserves as of October 2006

Tonnes NSR Cu Mo Au Ag As Zn Pb

(x1000) $/t % % g/t g/t ppm ppm ppm Proven 331,120 11.23 0.57 0.034 0.26 3.86 138 836 386Probable 399,568 9.25 0.47 0.031 0.22 3.39 125 708 335Total Proven and Probable 730,688 9.85 0.50 0.033 0.23 3.64 131 799 361

Notes: 1. US$1.10/lb Cu, US$425/oz Au, US$6.00/lb Mo and US$5.50/oz Ag prices used. 2. Other metallurgical recoveries, smelter terms, and penalties as listed elsewhere in this

report. 3. Reserves prepared under the supervision of Gerrit Vos, P.Eng. who is considered a

Qualified Person under NI 43-101

The proven reserves listed in Table 19-10 are the part of the measured resource area that falls within the economic pit design; the probable reserves are the part of the indicated resource area that falls within the economic pit design. The economic pit design was based only on measured and indicated resources, and inferred resources were treated as waste.

This reserve has a life-of-mine average waste:ore strip ratio of 2.13:1, including waste from access and facility development. The operating strip ratio is 1.89:1 when excluding this pre-production development work.




20. Other Relevant Data and Information This report is based upon the Hatch 2006 Feasibility Study Update and all of the associated References, listed in Section 23.




21. Interpretation and Conclusions

21.1 Conclusions The 2005-2006 Agua Rica Feasibility Study Update, (FSU), has been completed and illustrates the technical viability and financial strength of the project as of the date of the FSU. The project has been estimated to have a Capital Cost of US$ 2,123 million and average life of mine total operating costs of 6.84 $/tonne of ore milled. Under the Base Case conditions, (with metal recoveries based on the formulae developed that relate recovery to head grade for each ore type), and with the metal prices as developed by independent consultants, the project generates an Internal Rate of Return (IRR), pre taxes, of 15%, and 12% after taxes. The Net Present Values (NPV), pre-tax and after tax, at an 8% discount rate, are US$868 million and US$372 million respectively. These NPV values increase significantly at lower discount rates, as illustrated in the summary table below.

Table 21-1: Net Present Value of Discounted Cash Flow

Discount Rate, % 0 8 10 15

NPV Pre-Tax, Pre-Royalty, US$MM 3853 868 536 (1)

NPV After-Tax, After-Royalty, US$MM 2421 372 138 (245)

The copper price for the first two years of operation used in the cash flow was US$2.40/lb and US$/lb2.16, and a life of mine average of US$1.40/lb. The IRR and NPV is most sensitive to the copper prices.

The geology of the deposit was evaluated by two independent geologists, Grant and Giroux, both of whom are regarded as experts in this field.

The Agua Rica deposit is a large, medium grade copper-molybdenum -gold porphyry ore body. Overall the mineralogy is relatively complex and highly variable, and as a result considerable effort has gone into the characterization of the orebody. This in turn had influence on the development plan for the mine and the metallurgy.

The measured and indicated resource, at copper cut-off grades of 0.2% and 0.4% are 1,110,000,000 @ 0.47% Cu and 586,000,000 tonnes @ 0.63% Cu respectively. The mine plan calls for ore production of 90,000 tonnes per day for a 23-year mine life. The average, life of mine, feed grade to the mill are 0.50% Cu, 0.231 g/t Au and 0.033% Mo. However, the average grades for the first five years are 0.8% Cu, 0.33 g/t Au and 0.03% Mo, and these higher grades have a positive impact on the project economics.

In common with many other current Andean projects, the topography is challenging and as a result mine development will need to commence three years prior to the first ore to the mill, notably the construction of the access and haul roads and the tunnel.




The metallurgy is relatively complex when compared to other similar sized porphyry copper projects, and as a result seven main ore types have been identified based upon their metallurgical characteristics. Of the seven, two are defined as clean, containing low levels of arsenic and zinc and the levels will not result in penalty for the concentrates. Testwork was carried out on all seven composites, and recovery models were developed, that show recovery varies with head grade for each ore type. These recoveries were then applied in the cash flow model. The clean ore represents approximately 28% of the mineral reserves and will provide most of the ore to the mill feed in the early years of the operation.

In the case of arsenic, penalties are applied for levels in excess of 0.20% As in the concentrate. In the first four years arsenic levels are predicted to be between 0.11% As and 0.42% As, thus the average arsenic penalty in dollar terms for those four years will be approximately US$2.1 million per annum. In subsequent years the arsenic in concentrate generally varies between 0.50% and 1.00%, except for years 2029 and 2030 when it is 1.25% and 1.15% respectively. Arsenic penalties for the period 2014 to 2032 are therefore expected to average US$ 6.5 million per annum. This, although significant, should be viewed in relation to the total average annual net smelter return of over US$400 million.

Zinc penalties are incurred at values in excess of 3.0% Zn in concentrates. The prediction based on the models is that this value will not be exceeded in the first four years, hence, no penalties will be incurred. In the subsequent years the zinc in concentrate is predicted to average between 4 and 5% zinc, resulting in average annual penalties of US$ 3.1 million dollars.

A further incentive to reducing the arsenic and zinc values is the increased attraction, and hence ease of sales, of the concentrates to smelters.

The ore is relatively soft, with an average work index of 10.7 kWh/t, and because of the coarse grained nature of the copper minerals, essentially chalocite and covellite, a primary grind p80 of 150 microns appears to be optimal.

The process flowsheet developed for Agua Rica is conventional, and makes the maximum use of largest, but proven unit operations.

The process plant will be conventional, with a "SABC" type grinding circuit, one SAG mill, two Ball mills and pebble crushing, that will grind 90,000 tonnes per day of ore to the desired 80% passing 150 microns product size. This will be followed by a conventional flotation circuit, incorporating regrinding in vertical "tower" mills to 80% passing 45 microns.

It is proposed to obtain water for the project from the aquifer/well field in the Campo El Arenal. This aquifer is currently being exploited by the Alumbrera operation. As water is seen as a critical issue, particularly in semi arid areas such as this, a considerable effort has gone into the evaluation of the water resources, as well as a study of the implications on water quantity and quality in the areas below and surrounding the operation. The impacts of the Agua Rica project are concluded to be minimal and as is shown in this FSU, can be mitigated by taking the appropriate steps.




The predicted copper recovery, based on the 2005 metallurgical test work programme is 84.8% for Life of Mine with an average copper concentrate grade of 25.9% Cu and 7.38g/t Au. The testwork also indicated that a high recovery of molybdenum was possible with concentrate grades over 55% Mo. A grade of 52% Mo was used for the concentrate grade in the financial modelling.

The key process issue will be to consistently produce concentrate grades within acceptable contaminant levels, specifically arsenic and zinc. There are significant, but variable levels of arsenic (mainly as tennantite and enargite) and zinc (as sphalerite). The testwork completed, together with an appropriate mine plan, shows that this is achievable, although as a result, the copper concentrate grades will be somewhat lower than might otherwise be expected, as illustrated below.

Table 21-2: Copper Concentrate Grades and Recoveries for the Life of Mine.

Year % Cu Concentrate % Cu Recovered

1-4 32.2 84.3

5-9 25.2 84.6

10-14 23.5 85.5

15-19 24.1 85.0

20-23 23.8 85.1

Molybdenum concentrate grades and recoveries are illustrated in the following Table.

Table 21-3: Molybdenum Concentrate Grades and Recoveries for the Life of Mine

Year % Mo Concentrate % Mo Recovered

1-4 52.0 67.8

5-9 52.0 66.8

10-14 52.0 67.5

15-19 52.0 67.1

20-23 52.0 71.3



Recommendations PR318265.018 Rev. 0, Page 68


22. Recommendations In Section 1.0 of the FSU, each component part of the Study, and each contributor to the FSU, have provided their own evaluation of the risks and opportunities, together with their recommendations. Thus, the overall recommendations are to be found in those Sections. In summary, some of the issues that are identified as the most important to the Study are summarised here.

Costs associated with the mitigation of the identified risks and the implementation of the recommendations have not been included in the capital cost estimate.

Risks identified include:

• AMEC believes that there is risk associated with the current amount of projected ore feed that is in the indicated mineable resource category, or probable reserve. This material comprises approximately 55% of life-of-mine mill feed, with the remaining 45% in the measured mineable resource category, or proven reserves. The first five years of planned mill feed contains 62% proven reserves, and efforts should be made to increase this amount prior to mine start-up.

• Due to the steep terrain and limited minesite storage there is very little room for stockpiling of low-grade ores.

• The schedule assumes that the waste crusher, conveyor, and waste stacking system will be operational for the last six months of the pre-production period. The importance of this equipment on the overall schedule is very critical. Other waste dumps on the minesite may be required if the waste crusher and conveyor cannot handle the projected waste tonnages.

• A limited amount of geotechnical site investigations was completed to provide adequate geotechnical data to confirm feasibility of the proposed conveyor tunnel. There is a risk that further geotechnical work will show more “poor ground” requiring additional tunnel support.

• Limited information is available regarding the structure of the rock mass that forms the west wall of the pit and the slope below the primary crusher embankment.

• If extensive zones of poor rock mass quality or adverse structure are encountered on the benches supporting the in-pit diversion canals, extensive remedial measures or redesign of the slope could be required.

• The current concentrate pipeline route is challenging and obtaining Right of Way will involve dealing with many (and various) groups.

Quite clearly, a significant part of the mineral resource remains in the "indicated” category, and any infill drilling to move part of this into the measured category would be of considerable value.

This, together with the additional geotechnical work recommended, to improve the understanding of the pit slope design are probably the two most important needs for the geology and mining disciplines.





Hatch considers that the concentrate grades and recoveries used in the financial evaluation in this FSU may be conservative. At the time of writing this report, third and fourth quarters of 2006, some additional metallurgical testwork was in progress, under the direction of Northern Orion and their independent metallurgical consultants. This work was focussed on the arsenic and zinc in the ore, and the minerals that contain those elements, such as enargite and sphalerite. Whilst it may be difficult to achieve significant removal of these minerals from the copper concentrates, without impacting the copper recovery, any improvement would be of considerable value, and thus this work is to be encouraged. Should the results provide positive outcomes then an addendum to this FSU should be completed to show the results and their impact upon the project economics, and possibly the process plant design.

In various discussions, there is some data that suggests that a smaller SAG mill may be adequate. The current mill selected is a 40 ft diameter unit, which is close to the limit of current technology. A reduction of perhaps two feet in the diameter to a 38 ft unit, would not only reduce the capital cost but would result in a mill size that has far more operating experience in the industry.

In many other current projects under evaluation, the disposal of tailings is justifiably seen as a critical issue, along with other environmentally sensitive issues such as the possible impact on water resources and local communities. As a result of volumetric and area limitations, together with the desire to reduce water consumption, this project has given considerable attention to the concept of filtration and stacking of the tailings. The concept selected is to thicken the tailings to 60-65% solids, ahead of filtration using horizontal belt type units. This practice is not unknown in the minerals industry, two well known operations are at Mantos Blancos and La Coipa. However, as a unit operation for tailings filtration it is still somewhat in its infancy. Although Hatch conclude that it is applicable at Agua Rica and have incorporated it into the plant design, it is considered that some further optimisation may well be possible. One suggested method may be to cyclone the thickened tailings ahead of the belt filters and to then feed the cyclone underflow to the first part of the belt, so creating a filter bed on to which the "slimes" portion can be later added. However, there is little documented data on the potential benefits that might be achieved by such an approach. One challenge is the large quantity of sample that would need to be generated to do meaningful testwork. Nonetheless, Hatch believe that this is one area that is worthy of further evaluation, as any reduction in the area required for filtration, and thus the number of filters, would have a significant impact upon both capital and operating costs.

In the development of the project, as stated previously, the access to the site and the mine would be a critical part of project development. In this respect further evaluation of the tunnel design, with the objective of making an early start on tunnel construction would be an essential part of the early project development

• Material handling is one of the key issues for Agua Rica, specifically the overland conveyors, the tunnels for the conveyors, and the crushing and disposal of waste rock and filtered tailings disposal. These are all subjects warranting further evaluation during the Basic Engineering phase.





• The time of preparing the FSU, and the Capital and Operating Costs, represented a period of considerable and exceptional price volatility for almost all commodities such as gasoline, steel, capital equipment and spares. An updated estimate is recommended at a fairly early stage in the Basic Engineering stage (the development of a control budget will be an integral part of this Basic Engineering work).





23. References The Feasibility Study Update – Volume IIa – and IIb

AMEC, Underground Mine Study, May, 2006

AMEC, Agua Rica PC-BC Modeling, Revision 1.1, November 26, 2005

Amelunxen Mineral Processing Ltd., Final Report: Lakefield Testwork on Northern Orion- Agua Rica Ores, July 19, 2006

BGC Engineering Inc., Site Investigation Report, March 31, 2006

BGC Engineering Inc., Plant Site, Waste Dump, and Tailings Facility Geotechnical Design Report, July 11, 2006

BGC Engineering Inc., Agua Rica Project memorandum, May 5, 2005

BGC Engineering Inc., Geohazard and Risk Assessment, May 26, 2006

BGC Engineering Inc., Seismic Hazard at Agua Rica, November 22, 2005

BGC Engineering Inc., Refugio Melcho and Waste Rock Dump 4 Geotechnical Investigation and Design Report, July 17, 2006

BRASS Engineering International LLC, Concentrate Pipeline: Andagala Route, June 2006

BRASS Engineering International LLC, Concentrate Pipeline: Summary Report, June 5, 2006

BRASS Engineering International LLC, Concentrate Pipeline: Reconnaissance Trip Report, November 30, 2005

BRASS Engineering International LLC, Concentrate Pipeline: Route Selection Report, November 30, 2005

BRASS Engineering International LLC, Concentrate Pipeline: Design Criteria Report, May 29, 2006

BRASS Engineering International LLC, Concentrate Pipeline: Steady State Design Report, June 1, 2006

BRASS Engineering International LLC, Concentrate Pipeline: Pipeline Transient Analysis Report, June 3, 2006

BRASS Engineering International LLC, Concentrate Pipeline: Pipeline Operating and Control Philosophy, June 2, 2006





BRASS Engineering International LLC, Concentrate Pipeline: Pipeline System Description, June 2, 2006

BRASS Engineering International LLC, Concentrate Pipeline: Cost Estimate, June 3, 2006

BRASS Engineering International LLC, Concentrate Pipeline: Study Adjustments, May 15, 2006

BRASS Engineering International LLC, Slurry Laboratory Report, April 28, 2006

Hatch Mott MacDonald, Conveyor Tunnel: Engineering Report, June 27, 2006

Hatch, Dual Pinion Drive Gear Motors, March 22, 2006

Hatch, Gyratory Crushers vs MMD Sizers: Trade-Off Study, March 22, 2006

Hatch, Tailings & Waste Rock Handling Options: Trade-Off Study, January 28, 2006

Hatch, Mill Water Supply, August 24, 2005

Hatch, Ore/Waste Conveying System Evaluation, January 20, 2005

Ian Hayward International Ltd., Power Supply Feasibility Study, June 2006

Krupp Canada, Dry Materials Handling Major Systems, March 2006

Neil S. Seldon & Associates Ltd., Key Revenue Assumptions for Copper Concentrates Marketing, July 2006

Piteau Associates, Geotechnical Investigations and Slope Design Recommendations for the Proposed Open Pit, June, 2006

Rahco International, Dry Tailings Stacking Plan, March 24, 2006

Rahco International, Conveying and Stacking: Trade-Off Study Report, January 20, 2006

RyAC, Estudio Preliminar de Acceso al Proyecto Agua Rica, February 15, 2006

Sandwell, Trade-Off Studies: Shiploader, November 1, 2005

Sandwell, Feasibility Study for Port Facility, April, 2006 rev. 2

SGS Minerals Services, Flotation Testing of Agua Rica Samples, July, 2006

Water Management Consultants Ltd., Geo-Environmental Characterization and Mine Facility Impact Analysis, June 2006





Water Management Consultants Ltd., Water Management, July 2006

Water Management Consultants Ltd., Evaluation of Mine Hydrogeology and Pit Dewatering Design, June 2006





24. Letters of Qualification, Dates and Signatures

24.1 Hatch Ltd - (John Wells)





24.2 Giroux Consultants Ltd. - (Gary H. Giroux)





24.3 Hatch Ltd. – (Callum Grant)





24.4 AMEC – (Gerritt Vos)





24.5 Previously Hatch Ltd. – (Paul Hosford)





24.6 Hatch Mott MacDonald – (Dean Brox)





24.7 BGC – (Iain Bruce)





24.8 Ian Hayward International – (Allan Guy)





24.9 WMC – (John McCartney)





24.10 WMC – (David Sellars)





24.11 Brass Engineering – (Brad Ricks)



Operating Cost Estimate PR318265.018 Rev. 0, Page 85


25. Additional Requirements (For Technical Reports On Development Properties and Production Properties)

25.1 Introduction A geological model was provided outlining the mineral bearing zones. This model was examined to determine the potential for open pit mining. Pit designs were created and measured and indicated mineralization above the economic cut-off was examined. Dilution was added to the mineralization based on the linear contact between ore and waste, and these diluted grades form the basis of the mine plan.

Conventional open pit shovel-truck methods will be used for mining. The milling rate will be 90,000 t/d (32.8Mt/a) ore, 365 days per year, for approximately 23 years. The mining function will be done by the mine operator with purchased and leased equipment, with pre-stripping and development assistance from contractors, who will operate and maintain loading and hauling equipment. Waste stripping will vary by year, from a maximum of 360,000 t/d in Year 2 decreasing to 9,000 t/d in Year 23. The average waste stripping rate is 180,000 t/d which is a life-of-mine 2.13:1 strip ratio, including waste from access roads and facility development or an operating strip ratio of 1.89:1 if pre-production development work is excluded.

Mining occurs in seven pit phases. These phases are used to balance waste stripping, ore feed, feed grades of both pay metals and deleterious elements and equipment requirements.

Mining will occur 347 days per year, with projected downtime of 18 days due rain, snow and heavy fog. It is assumed that there will be two shifts per day, each consisting of 12 hours. Four crews will rotate on a seven days-in, seven days-out schedule.

The Agua Rica deposit lies in the steep terrain of Quebrada Minas. The 30-month timeline for the pre-production phase is due to limited flat ground for facilities as well as extensive access road requirements. The access roads and facility development benching requires the movement of 72 million tonnes, with additional pit pre-stripping of 105 million tonnes. A peak fleet of 29 145 tonne haul trucks with three 22 m3 diesel-hydraulic front shovels along with two 20 m3 wheel-loaders begins the access road development and initial pre-stripping. After 12 months, a larger fleet is added by ramping up to a peak 23 290 tonne haul trucks with 2 40 m3 diesel-hydraulic front shovels and a single 40 m3 wheel-loader. A peak fleet of four 311 mm (12-1/4”) diesel powered track-mounted drills capable of drilling a 15 m bench with 2 m of subgrade in a single pass are also required for pre-production. Initial pioneer drilling will be aided with a smaller diesel powered track-mounted drill which will drill 152 mm (6”) holes of variable length. In addition, support equipment such as track dozers, graders, water trucks, a smaller excavator, rubber tire dozer and excavator-mounted rock breaker will be necessary. General mine support equipment to maintain and sustain the equipment and pit operations is also required.





Once production mining begins, the contracted function for partial haulage and loading of the 145 tonne fleet will end. This will require the addition of capacity to the 145 tonne fleet to 36 trucks, and two additional trucks added to the 290 tonne fleet. Incremental additions to other equipment are required in the production stage to support this larger fleet, as well as periodic sustaining purchases.

The first ore production year consists of a ramp up period of 6 months for ore feed to the mill. The first three months include 3,123,000 tonnes (38% of design capacity) and the second three months at 6,246,000 tonnes (76% of design capacity). Subsequent production is scheduled at 32,850,000 tonnes per year or 8,212,500 tonnes per quarter.

It is assumed that mine equipment maintenance will be performed by mine maintenance crews. Blasting services will be a down-the-hole contract with a per-truck service tariff and explosives and accessories at a unit cost. Tire shop services will also be contracted.

The Agua Rica pit contains a mineable reserve of 730.7 million ore tonnes grading 0.50%Cu, 0.033%Mo, 0.23 g/t Au and 3.64 g/t of Ag, at a NSR (Net Smelter Return) cutoff of 3.74 $/tonne. This ore also contains 131 ppm of As, 798 ppm Zn and 361 ppm of Pb. The average NSR grade of the ore, based on these feed grades, is 9.85 $/tonne.

A total of 1,555.8 million tonnes of waste will be removed. Of this, approximately 233 million tonnes can be stored near the pit in the Site 4 Dump in Quebrada Melcho. A further 7.8 million tonnes is used to fill the Upper Quebrada Minas to act as support for the conveyors leading to the mill tunnel. The material for this fill will be the most inert in order to minimize water contamination. The remaining 1,317 million tonnes of waste will be hauled to the waste crusher and conveyed to the mill site for stacking. The waste crusher and conveyor are projected to be available six months prior to the ore production start. A site drawing schematic is shown in Figure 19-1.





Figure 25-1: Site Drawing (Aerial View)

25.2 Block Model The block model was provided to AMEC from Giroux Consultants Limited as an ASCII text file. Further resource modeling was completed and new interpolated grade models were provided as well as revised topography, resource classification model, and updated geological and metallurgy codes. This model was imported to GEMCOM®. In addition to these, mining required several new fields for block values, and for pit slopes.

The block model contains several geologic and metallurgical models, with the metallurgical model of particular interest to block valuation and ore selection. The MET model contains codes of particular use in recovery and block value calculations, as shown in Table 25-1.





Table 25-1: Metallurgical Code Grouping

Short MET Code

Long MET Code

MET Name Code

Metallurgical Description Group

1 401 TEP Trampeadero Enriched Porphyry TEP

2 402 SEP Seca Enriched Porphyry SEP

3 403 TEM Trampeadero Enriched Metasediments TEM

4 404 SEM Seca Enriched Metasediments SEM

5 405 TPP Trampeadero Primary Porphyry TPP

6 406 PHB Primary Hydrothermal Breccia PHB

7 407 EHB Enriched Hydrothermal Breccia MISC

8 408 HBC Hydrothermal Breccia Clay MISC

9 409 MCC Minas Coarse Covellite MISC

10 410 TPL Trampeadero Partial Leached MISC

11 411 SPM Seca Primary Medasediments MISC

12 412 TPM Trampeadero Primary Metisediments MISC

13 413 SPP Seca Primary Porphyry MISC

15 415 Undefined Undefined (Waste)

16 416 Leached Leached (Waste)

17 417 Granite Granite (Waste)

Several of the minor metallurgical types (EHB, HBC, MCC, TPL, SPM, TPM and SPP) have been grouped into a miscellaneous (MISC) category, resulting in a mine plan with 7 metallurgical ore types.

25.3 Open Pit Optimization To run the pit optimization, the block model was processed with a Visual Basic script in GEMCOM® to calculate a net smelter return value for each block. Since mill metal recovery and final concentrate grades were being simulated using a proprietary simulation package by AMinpro, an attempt to approximate this simulation package output was made with assistance from AMinpro and Hatch. It should be emphasized that this is an attempt to imitate the result of an iterative simulation program with a single-pass script. The results of a selection of the outputs between the NSR script and the AMinpro simulation are shown in Table 25-2 and indicate that the NSR script used in block calculations had good agreement with the AMinpro simulation, particularly with respect to copper recovery and arsenic grade in the copper concentrate. Overall, the NSR script has produced acceptable results considering the complexity of the model.





Table 25-2: AMinpro to Mine NSR Script Comparison

NSR Script AMinpro Simulation

% Difference

Copper Recovery (%) 84.791 84.947 0.18

Final Copper Concentrate (%) 27.233 24.990 8.98

Arsenic Grade in Copper Concentrate (%) 0.588 0.582 1.10

No minimum metal grade was used as criteria to be selected as potential mill feed. For example, a block with very high molybdenum content would be selected for processing even though the copper grade may be less than 0.2%Cu in that particular block. As the molybdenum and copper/gold/silver circuits are separate, this could result in little or no copper concentrate being produced and so the value of the copper, gold and silver would be lost. If this situation is problematic for the mill, higher copper grade material could be blended with the high molybdenum material so that both circuits could operate efficiently. Only model blocks carrying ore grades within the measured and indicated category are classified as potential ore blocks, but a NSR value is calculated for all blocks including inferred material. Blocks carrying grades in the inferred category were treated as waste, and referenced as waste in this report.

The remaining net smelter return calculations use the block volume (9,375 m3), specific gravity, and the individual interpolated grades for pay metals and deleterious elements in order to calculate the resulting block value as a dollar per tonne item.

Table 25-3: Net Smelter Return Calculation Parameters

Parameter Unit Value Metal Price Copper Molybdenum Gold Silver $/lb $/lb $/oz $/oz 1.10 6.00 425.00 5.50

Copper Payable Cu Conc Grade <30% % 96.5%, min, unit deduction 1.0 Cu Conc Grade >=30% and <=33%

% 96.5%, min. unit deduction 1.1

Cu Conc Grade % 96.75% Gold Payable Au Grade in Conc <1 g/dmt 0.0% Au Grade in Conc >=1 g/dmt 90.0% Au Grade in Conc >=3 g/dmt 93.0% Au Grade in Conc >=5 g/dmt 95.5% Au Grade in Conc >=10 g/dmt 96.5% Au Grade in Conc >=20 g/dmt 97.5% Silver Payable Ag Grade in Conc >30 g/dmt 90.0%, after 30 g/dmt deduction Treatment Charge $82.50 per dmt Copper Refining Charge $0.0825 per pound Gold Refining Charge $5.00 per oz Silver Refining Charge $0.20 per oz





Parameter Unit Value Penalties Arsenic $/0.1% $3.00 per 0.1% over 0.2% Lead $/1% $3.00 per 1.0% over 1.0% Zinc $/1% $3.00 per 1.0% over 3.0% Molybdenum Payable % 98.0% Molybdenum Treatment $/lb $1.25/lb Mo Freight & Other Offsite Concentrate Pipeline $/wmt $12.00/wmt Rail $/wmt $24.00/wmt Storage and Loading $/wmt $8.00/wmt Ocean $/wmt $42.50/wmt Losses, Supervision, Marketing $/dmt $7.00/dmt Copper Concentrate Moisture % 8.0% Molybdenum Concentrate Moisture

% 7.0%

Molybdenum Concentrate Grade % 58.0% Molybdenum Concentrate Freight $/wmt $35.00/wmt Government Royalty % 3.0% of metal revenues on payable

metal

The metal prices were selected by mutual agreement between AMEC, the client, and the clients’ independent revenue assumption consultant, Neil S. Seldon and Associates Ltd., who provided recommendations in a preliminary report (The Agua Rica Project Key Revenue Assumptions for Copper Concentrate Marketing, October 2005). They were selected to create a conservative baseline for the mine reserves.

Upon completion of the block NSR $/tonne item, the block model was exported from GEMCOM® to Whittle 4X®, version 3.40. The items exported to Whittle were copper, molybdenum, gold, silver, arsenic, lead, zinc, net smelter return, resource classification code, copper price-equivalent item, and the metallurgical rock type code. A geotechnical domain code was coded into the model to allow for slope structure arcs to be generated which followed the geotechnical design criteria. The export file also contains the surface elevation grid (SEG) which was generated from the 5-metre mine topography file. The file also contains rock types which are the metallurgical codes.

The parameters used to create the optimization models are summarized in Table 25-4. This is in addition to the economic inputs already listed in Table 25-3 above.





Table 25-4: Pit Optimization Parameters

Parameter Unit Agua Rica

Block Size

X m 25

Y m 25

Z m 15

Bulk Density (Averages)

All (Ore and Waste) t/m3 2.568

Waste t/m3 2.546

Ore (All) t/m3 2.616

Ore-TEP t/m3 2.597

Ore-SEP t/m3 2.577

Ore-TEM t/m3 2.598

Ore-SEM t/m3 2.599

Ore-TPP t/m3 2.631

Ore-PHB t/m3 2.645

Ore-MISC t/m3 2.623

Costs

Process and Infrastructure $/t milled 3.16

General and Administration $/t milled 0.48

Concentrate Filter Plant $/t milled 0.10

Total Process and G&A $/t milled 3.74

Ore mining @ 90,000 tpd $/t mined 0.906 – 0.924

(Preliminary – Final Check)

Incremental Haulage $/t mined 0.00

Waste mining $/t mined 0.906 – 0.924

(Preliminary – Final Check)

Pit Slope Angles*

Geotechnical Domains # 26

Maximum Degrees 41.7°

Minimum Degrees 32.5°

Average (non-weighted) Degrees 38.2°

2-D Surface Weighted Avg Degrees 38.0°

Discount Rate % 10

Maximum Ore Tonnes tpy 32,850,000

Maximum Waste Tonnes tpy 84,753,000

* Pit slope angles above are shown to indicate approximate ranges and averages of the pit slope domains.





After the shells were completed, pit-by-pit ranges of life of mine schedules were generated using Whittle software. For each shell, a best case and worst case total pit value were calculated. Best case is cash flow generated from the schedule by mining shell by shell, using the shells inside of the shell of interest. Worst case is cash flow generated from the schedule by bench-by-bench mining for the shell of interest only. The outputs from these schedules were used first to select the preliminary ultimate pit shell. Internal stage shells were also selected that achieve reasonable ore and waste tonnages for a pushback. These internal shells and the ultimate shells were then entered into Whittle’s proprietary Milawa scheduler which is a user specified case. A specified case using these pushbacks was generated to produce a more realistic schedule. The ultimate pit was varied to find the most ideal final pit shell, by maximizing the specified case net present value. The output from Whittle’s pit-by-pit schedule is shown in Figure 25-2.

Figure 25-2: Whittle Pit-By-Pit (Nested Shells) Output

Shell 26 was selected as the ultimate pit basis and had a 0.88 revenue factor.

The shells were loaded back into the mine planning package and evaluated for accessibility and overall pit footprint. Drawing illustrating the selected shells can be shown in Figure 25-3 through Figure 25-5.





Figure 25-3: Pit Shells, Section 6969250N

Figure 25-4: Pit Shells, Plan 3240





Figure 25-5: Pit Shells, Section 763900E

25.4 Open Pit Design

25.4.1 Geotechnical Evaluation The pit geotechnical study and design parameters were provided by Piteau Associates Engineering Ltd. The following summarizes the key points for the pit area that were used in the determination of the pit slopes and the costing for the study.

25.4.2 Design Parameters and Summary The general project parameters used in the detailed pit design, including the geotechnical data provided, are as follows:

• Bench height, double bench/single bench mining 30/15 m

• Berm width 10 m

Haul roads and pit ramps, suitable for 290-tonne haul fleet:

• Total width allowance 38.0 m

• Running surface 27.7 m

• Berms and ditches 10.3 m

• Maximum grade 10.0%





Haul roads and pit ramps (Seca Starter, Trampeadero Starter), suitable for 145 tonne haul fleet:

• Total width allowance 25.0 m

• Running surface 19.0 m

• Berms and ditches 6.0 m

• Maximum grade 10.0%

The Agua Rica Open Pit encompasses about 587 hectares of three dimensional area or 434 hectares in two dimensional area. The top elevation of the pit wall is 4,080-m and the pit floor elevation is at 2,700 m. The pit highwall is therefore 1,380-m in height, on the Trampeadero (East) wall. The distance from pit crest to pit crest is 2,160 metres running north-south and 2,900 metres along the west-east direction.

The waste crushing and conveying system will be available 6 months into the final year of preproduction mining. At this stage, a portion of the waste will be crushed and conveyed to the Campo El Arenal for stacking. As the waste crusher capacity is 84,753,000 tonnes per year, material in excess of this amount will continue to be stored at the Site 4 Waste Dump.

25.5 Pit Design Tonnages The resources have been modelled utilizing 15-m composites which included internal waste, which means that the estimated blocks include internal dilution. To convert the in-situ measured and indicated resources to anticipated mined tonnages, external or contact dilution needs to be estimated. A simulation program was used to run several thousand simulated approaches from waste to ore in both favourable and unfavourable conditions. This simulation runs over a range of deposit strikes and dips, in order to get an average percent dilution.

The simulated dilution width is 1.76 metres, or 660 m3 per contact block (the same as the mining blocks), where each block has a total volume of 9,375 m3. This equals a 7.0% dilution per contact block.

This dilution factor then has to be applied to the block model. A Visual Basic script was run in Gemcom in order to find the contact blocks between the ore and waste. Each ore block which contacted waste was assigned a number of contact blocks, between one and eight, with eight being an ore block completely surrounded by waste. Dilution is then added to blocks which have at least one waste contact, and this diluted material is the basis of the mineral reserves. The diluting material can be measured, indicated or inferred interpolated block grades.

In summary, this method of block contact dilution gives a weighted dilution based on where and how much contact between ore and waste occurs on each bench. This process is not extended to blocks above and below the block of interest.

Table 25-5 shows the combined proven and probable mineral reserves by phase with the dilution percentage on copper when compared to the undiluted grade.





Table 25-5: Combined Proven and Probable Reserves With Dilution

Cutoff Proven and Probable Tonnes Grade Dilution on

%Cu

($/t) (x1000) ($/t) (%Cu) (%)

Agua Rica

Phase One 3.74 13,131.5 17.61 0.97 2.45 Phase Two 3.74 41,669.5 14.31 0.79 1.89 Phase Three 3.74 71,285.3 13.87 0.72 2.38 Phase Four 3.74 30,882.6 8.57 0.50 3.40 Phase Five 3.74 145,010.2 9.79 0.49 1.42 Phase Six 3.74 209,228.9 8.48 0.42 1.19 Phase Seven 3.74 219,456.5 8.78 0.42 0.96 Ex-Pit/Pre-strip 3.74 23.3 7.65 0.32 0.00

Total 730,688 9.85 0.50 1.61

25.6 Waste Material Handling

Waste is initially hauled to the Site 4 waste dump directly south of the pit, which has a capacity of 233 million tonnes

After the waste crusher and conveying system is commissioned in Q3 of year -1, waste is conveyed to Campo el Arenal for stacking. The waste crusher and conveying system is capable of handling 85 million tonnes per year.

25.7 Mine Plan

25.7.1 Summary Mining at Agua Rica will be by conventional open pit truck and shovel methods with 15 m high benches. The initial mining fleet will consist of a maximum of three 22 m3 hydraulic front shovels (one mine-operated/maintained and two contractor-operated), two 20 m3 wheel-loaders and 29 145 tonne trucks (8 mine-operated/maintained and 21 contractor-operated), and five 311mm blasthole drills. A larger fleet is added in one year after the start of pre-production development and includes a maximum of 25 290 t trucks loaded with two 40 m3 hydraulic front shovels, and a 40 m3 wheel-loader. Support equipment will include pioneering drills, track-dozers, graders, and excavators to maintain the surfaces of the roads, dump and operating benches and the water diversion and collecting system at the pit rim and in-pit. A contractor will supply the explosives in the drillholes.

Mill feed will be hauled to a crusher at the north side of the pit.

The annual mine production and mill feed forecast for the project is summarized in Table 25-6. Figure 25-6 provides a graphical representation of the forecast tonnages.





Table 25-6: Mine Production Forecast (Diluted)

Year

Total Mill Feed

(t x 000) NSR

$/t Cu %

Mo %

Au g/t

Ag g/t

As ppm

Zn ppm

Pb ppm

Waste (t x 000) S.R.

-3 0 0.00 0.00 0.00 0.00 0.00 0 0 0 27,055 0.00 -2 0 0.00 0.00 0.00 0.00 0.00 0 0 0 51,683 0.00 -1* 104 8.67 0.40 0.02 0.46 2.15 28 21 37 98,596 947.13 1** 25,690 16.30 0.90 0.02 0.42 2.12 51 31 54 99,493 3.87 2 32,850 13.05 0.72 0.02 0.32 2.40 108 61 66 124,815 3.80 3 32,850 13.85 0.61 0.06 0.15 3.11 111 217 260 94,127 2.87 4 32,850 14.11 0.81 0.04 0.24 3.55 92 291 285 100,381 3.06 5 32,850 9.59 0.57 0.02 0.30 4.68 208 1,424 668 102,413 3.12 6 32,850 9.04 0.42 0.03 0.19 2.25 153 428 287 91,346 2.78 7 32,850 11.61 0.55 0.05 0.20 2.37 74 211 186 78,160 2.38 8 32,850 10.56 0.52 0.04 0.25 3.39 103 503 313 84,753 2.58 9 32,850 8.57 0.48 0.02 0.26 5.17 158 1,412 679 55,733 1.70 10 32,850 9.25 0.50 0.02 0.26 2.77 115 878 306 69,218 2.11 11 32,850 10.03 0.45 0.04 0.25 2.85 113 503 234 44,267 1.35 12 32,850 10.08 0.50 0.04 0.25 4.33 169 1,270 514 31,945 0.97 13 32,850 8.56 0.45 0.03 0.22 4.67 158 1,320 541 30,370 0.92 14 32,850 7.34 0.38 0.03 0.19 4.26 135 1,384 521 47,491 1.45 15 32,850 7.12 0.36 0.03 0.19 3.76 114 1,301 443 54,410 1.66 16 32,850 6.45 0.33 0.02 0.17 3.43 124 865 322 76,421 2.33 17 32,850 9.83 0.43 0.05 0.17 2.79 106 216 175 88,753 2.70 18 32,850 8.61 0.38 0.04 0.17 2.60 84 299 209 52,830 1.61 19 32,850 7.78 0.40 0.03 0.20 4.19 152 1,091 506 26,123 0.80 20 32,850 7.64 0.39 0.03 0.28 6.41 227 1,527 613 12,193 0.37 21 32,850 8.25 0.41 0.03 0.24 3.74 211 1,120 359 6,375 0.19 22 32,850 9.79 0.46 0.04 0.22 4.13 125 1,021 338 5,342 0.16 23 15,044 11.58 0.56 0.04 0.19 5.15 88 827 353 1,503 0.10

Total 730,688 9.85 0.50 0.03 0.23 3.64 131 798 361 1,555,795 2.13

* Stockpiled ore for plant feed in Year 1 ** Mill feed does not include stockpile feed from Year -1

25.7.2 Pit Sequencing The Agua Rica deposit will be mined in seven phases. The initial starter pit is centred on a higher-grade section in the Seca (West) zone of the deposit, and the second phase continues this pit to depth. This was broken apart to allow for the creation of a starter pit which could utilize the smaller fleet of haulage and loading equipment. The third phase is centred on the Trampeadero (East) zone of the deposit and the fourth phase bridges the Seca and Trampeadero zones together. Phases 5, 6 and 7 then continue with push-backs in all directions.





The purpose of the phasing of the Seca and Trampeadero starter pits is to allow the higher grade and lower grade deleterious element material to be exploited first, as well as delaying any interruption to the water flows through Quebrada Minas. Overall the grade profile and strip ratio are presented in Figures 25-6 through 25-8.

Figure 25-6: Ore Tonnage By Pit Phase

Figure 25-7: Head Grades by Pit Phase (NSR $/tonne)





Figure 25-8: Head Grades by Pit Phase (%Cu)

25.7.3 Pre-production Mine Development and Production Pre-production mine development will be completed over a two and a half year period, prior to mill start-up. In total 177 Mt of waste will be mined, of which 127 MT will be stored in the Site 4 dump close to the pit and 50 Mt will be conveyed to the main waste dump. Small quantities of ore will be stockpiled for later processing. 8 Mt will be mined to create a mine facility platform, 5 Mt for the crusher platform and 60 Mt for road accesses and 105 Mt pre-stripping.

The mine production forecast was prepared on a quarterly basis for Years -3 through 5, and an annual basis for Years 6 though 23. The annual production target is based on maintaining the plant throughput at design capacity. Basic mine production parameters are as follows:

• 365 operating days per year (with 18 unscheduled down days per year for snow and fog).

• 90,000 t/d of feed to the crusher (average 94,669 t/d ore mining rate with down days).

• Maintain production until the pit is exhausted.

• Smoothing of equipment requirements.





25.8 Mining Equipment and Manpower The mine production forecast and general logistical considerations were the driving forces behind fleet selection. Due to the steep terrain, this diesel hydraulic shovel and truck operation will used smaller equipment at the narrower upper benches and big equipment at the lower open pit stage. All equipment will be maintained by the mine. Manpower levels is directly related to the number of equipment. Despite the low projected cost of electricity, a preference is given to diesel-hydraulic equipment due to delayed electrical delivery to the mine as well as the flexibility provided by lack of trailing cables, overhead power lines and substations in the steep terrain of Agua Rica. Diesel-hydraulic shovels also have lower capital costs. Productivities are based on industry standards and the number of required equipment is based on the mining plan. Pre-production development mining is required to open the minesite for pit stripping and development of infrastructure such as the bench for the mine maintenance facilities, the crusher bench and conveyor support fill in Quebrada Minas and will be done by both an owner-operated and contractor-operated fleet.

25.9 Mine Water Management Water inflows to the open pit will be in the form of flows from the Quebrada Minas, precipitation and groundwater. The mine design placed heavy consideration on minimizing disturbance to the Quebrada Minas and the pit will only intersects the Quebrada Minas in Year 5. At this point, the Quebrada Minas flows can be stored in an in-pit sump and pumped to a water treatment facility which is planned to be near the base of the Site 4 dump, as it will also treat water flows from the Site 4 dump.

Water diversion channels at both the Trampeadero and Seca side of the pit will be excavated in competent rock and used in case of a very large event flow of Quebrada Minas.

Water from pit perimeter wells to lower the groundwater table and horizontal depressurization holes will be directed along berms to the water treatment plant.

25.10 Mine Capital Cost Estimate The initial capital for the mine is $370.2 million and incorporates equipment purchase and pre-production stripping costs of $ 205.3 million. Sustaining capital is estimated at $287.4 million, see Table 25-7.

Table 25-7: Production Equipment Purchase and Replacement Schedule (Annual)

Year 1 2 3 4 5 6 7 8 9 10 11 12 Sustaining Capital 67,808 12,206 0 468 14,284 800 1,373 2,731 1,968 51,921 1,953 13,482 Continued 13 14 15 16 17 18 19 20 21 22 23 Total 9,785 23,252 12,212 6,360 15,050 908 6,431 25,473 6,645 12,238 35 287,383





The capital cost estimate was based on the following:

• Mine production schedule

• Pre-production part of the operating cost estimate, as completed by owner-operator and contractor fleets

• Quotations for all mining equipment, as well as engineering and technical support

• Estimate for mine ancillary and in pit water management.

This estimate, prepared using a combination of quoted, estimated and factored costs, is considered to have a level of accuracy of ±15%. All quotations were completed in first and second quarter (Q1/Q2) 2006 US dollars and are without taxes and import duties.

Table 25-8 shows the mine operating costs as $/tonne mined, without import duties or taxes.

Table 25-8: Mine Operating Costs

Years 1 to 5 6-10 11-15 16-20 21-23 Total General Mine Expense 0.050 0.062 0.090 0.078 0.152 0.070 Drilling 0.051 0.053 0.050 0.048 0.047 0.051 Blasting 0.144 0.148 0.150 0.146 0.156 0.147 Loading 0.161 0.159 0.153 0.156 0.171 0.159 Hauling 0.428 0.285 0.451 0.386 0.677 0.398 Support 0.061 0.088 0.128 0.114 0.263 0.099 Total Mine 0.895 0.795 1.022 0.928 1.466 0.924

25.11 Metallurgy

25.11.1 Metallurgical Testwork The deposit was divided into three main ore zones (Seca Norte, Quebrada Minas and Trampeadero) and seven main ore types have been identified based on their metallurgical characteristics. Of these ore types, two are “clean” (contain low levels of arsenic and/or zinc) and the other five are “dirty”. The metallurgical testwork was carried out on composites and samples of the ore types. Almost all copper ore is covellite or chalcocite. The recoveries vary with head grade for each ore type.

General characteristics of the ore types are as follows:

• Ore Type SEP (Seca Enriched Porphyry), a “clean ore” with average mineral reserve grades of 0.80% copper, mostly covellite and chalcocite and 0.33 g/t gold, is characterized by high copper content. Relatively little arsenic or zinc.

• Ore Type SEM (Seca Enriched Metasediment) is a “clean” copper ore, mostly covellite and chalcocite with an average content of 0.61% copper, 0.31 g/t gold and 0.029% molybdenum.





• Ore Type TEP (Trampeadero Enriched Porphyry), with 0.55% copper, is a “dirty” copper ore with modybdenite (0.028%) as well as enargite (Cu3AsS4) over 120 ppm and minor levels of sphalerite and galena.

• Ore Type TEM (Trampeadero Enriched Metasediment) is a “dirty” copper ore with locally abundant molybdenite (0.057%) as well as enargite (As over 110 ppm), sphalerite and galena. The average grade is 0.42% copper.

• Ore Type TPP (Trampeadero Primary Porphyry) is a “dirty” copper ore containing enargite (As over 160 ppm), molybdenite, sphalerite and galena. The average grade is 0.45% copper and 0.022% molybdenum.

• Ore Type PHB (Primary Hydrothermal Breccia) is a “dirty” copper ore with locally abundant molybdenite as well as significant enargite, sphalerite and galena. The average grade is 0.52% copper and 0.029% molybdenum. Arsenic averages over 260 ppm.

• Ore Type Misc. (Miscellaneous) is a compilation of the remaining “dirty” copper ore types. The average grade is 0.47% copper and 0.042% molybdenum. Arsenic can exceed 130 ppm on average.

The “clean” ore represents 28% of the mineral reserves and will be the first ore mined. The ore types are all compatible for simultaneous processing but have been identified separately in the block model to allow blending strategies to be developed for the control of concentrate grades for marketing.

Overall the mineralogy is complex and highly variable. Considerable effort has gone into the characterization of the orebody variability by mapping lithology, alteration and mineralogy and testing the response to flotation of each ore type in the laboratory. This characterization has resulted in seven ore types and has been modeled in the orebody block model and used to predict metallurgical response on each block. Control of contaminants in the concentrate will be important, especially arsenic and zinc. Certain ore types, especially the brecciated material from the Quebrada Minas fault area will be of particular concern. The mine plan has attempted to provide a blended feed to the mill. However, once in operation, it may prove necessary to campaign ore to produce separate concentrates that can be blended to meet the penalty requirements of smelter contracts.

Current metallurgical testwork was an update of the work done to support the previous study and was based on samples from five new drill holes that twinned holes used previously. However, the previous work used samples of a significantly higher grade than the average for the deposit and the current campaign was designed to use samples that were more representative and that tested each of the seven metallurgical types that have been identified. The testwork data confirms that the Agua Rica ore is treatable using conventional grinding and flotation technology. The ore has a low average work index of 10.7 kWh/t. The ore mineralization is relatively coarse grained and therefore requires a primary grind of 80% passing 150 µm to achieve acceptable recoveries. However, fine regrinding of concentrates to 80% passing 45 µm is required to produce acceptable concentrate grades. Concentrate grades and metal recoveries will vary by ore type. Arsenic contamination is anticipated to be problematic for some ore types, especially the “dirty” types identified above. Zinc will be problematic on occasions, but in most years will be below penalty levels in the concentrate. Ongoing work (September 2006) is investigating methods to deal with these.





25.11.2 Process Plant and Associated Facilities Conventional mineral processing facilities and associated infrastructure support have been developed in this study. The study investigated several different plant locations. The most suitable site is “Los Corrales”, north of Capillitas in the Campo El Arenal. This site is approximately 12 km north of the mine site and requires a 5.5 km conveyor tunnel for ore and waste transport. Consistent with the climate, the mill has been designed as an open structure in almost all areas.

The process starts at the mine with twin relocatable primary gyratory 60-113 crushers, one dedicated to ore and one dedicated to waste. The crushed ore is then transported to the 270,000 t coarse ore stockpile (90,000 t live) located near the process plant. The waste rock is conveyed to the Cazadero valley near the mill for disposal by stackers.

The primary grinding will be performed using a single circuit of one 40 ft diameter SAG mill and two 26 ft diameter ball mills in closed circuit with cyclones. The ore is reasonably soft (10.7 kWh/t Work Index) and the grinding circuit will process 90,000 tpd to grind to 80% passing 150 µm. The pulp will pass through a rougher, regrind and cleaning flotation circuit, to produce a bulk copper/gold/molybdenum concentrate. This concentrate is sent to the copper/gold/molybdenum separation circuit where the molybdenum will be separated by flotation to form a saleable molybdenum concentrate. The expected molybdenum concentrate will contain approximately 52% Mo and less than 1% Cu. The molybdenum concentrate will be thickened, filtered, dried and bagged for road transport, assumed to be a facility in Chile. The “tailings” from the molybdenum separation circuit will be the final copper-gold concentrate. The copper concentrate will contain between 22% and 36% copper on an annual basis, depending on the ore being treated.


The copper concentrate will be pumped through a 213 km concentrate pipeline to a filter plant located next to the NCA rail line at Tucuman. The plant will be a stand alone filter plant with its own offices, warehouse and tree farm. The filtered concentrate will be loaded into rail cars and transported to the port facilities at Rosario on the Paraná River.

25.12 Processing The metallurgical process flowsheet designed for the Agua Rica Project is essentially a conventional flowsheet for processing copper/molybdenum/gold porphyry ores. The notable flowsheet differences between the Agua Rica plant and the majority of similar plants relates to the crushing, conveying and stacking of waste rock and the filtration, conveying and stacking of dry tailings. They are included to accommodate the site terrain and to minimize water consumption in the arid climate of this location.

Previous studies by BHP/NNO examined a number of potential process plantsites, relative to tailings storage areas and water supply areas. The FSU has focused on the most suitable plant, tailings and waste rock storage sites in the Campo El Arenal area, on the following basis:





• The majority of the waste rock is potentially acid generating, and can best be managed in a low precipitation environment.

• The Campo El Arenal area receives significantly less precipitation than does the minesite (less than 250 mm/yr versus 430 mm/yr respectively), and is flat with few perennial streams.

• Areas suitable for storage of large volumes of waste rock in the mine area are very limited.

• A number of potentially suitable sites for tailings and waste rock storage were identified in the Campo El Arenal.

• Groundwater supply is a significant local community and environmental resource and issue. Proven processes to maximize water recovery and hence to minimize groundwater usage are favoured.

A number of options for copper concentrate transportation were evaluated. A slurry pipeline route to Andagalá that approximately parallels the MAA route to a filter plant in Tucuman was selected, followed by rail transport to a port near Rosario. Molybdenum concentrate will be filtered, dried at the plant, drummed and trucked to Chile or other international locations for further processing.

25.13 Design Criteria The key process design criteria was developed from a combination of the extensive metallurgical testwork carried out to date, industry practice and experience. Other criteria that have been considered in the development of the process flowsheet and plant layouts are summarized below:

• The selection of the major equipment considered the largest unit size and capacity demonstrated in commercial operation. This approach allowed for the inclusion of a 40 ft (12.2 m) diameter SAG mill suitable for single train 90,000 tpd throughput, the use of 250 m3 flotation cells, 160 m2 belt filters, 1,800 mm wide conveying/stacking systems capable of handling up to 11,000 tph of primary crushed rock and a fleet of 345 tonne haul trucks.

• The inclusion of gravity gold concentrators was not justified from testwork at this time. None the less, space has been allowed in the layouts for future addition, both in the primary and regrind circuits.

• Due to environmental concerns, a decision was taken that sodium cyanide would not be considered in the flotation circuit to depress pyrite or sphalerite (zinc).

• For plant design, penalty levels of arsenic and zinc in copper concentrate were assumed to be 0.2% and 3% respectively. The copper grade of the concentrate will vary somewhat to manage contaminant grades.

• The Campo El Arenal site climate is suitable for an unenclosed process plant. Mobile cranes will be employed for all heavy lifts required for construction, and scheduled maintenance.

• The majority of the waste rock will be crushed, conveyed to and stacked in a waste rock storage site in the Campo El Arenal, some 20 km from the minesite.

• Minimizing water consumption is essential for the project and practical, proven techniques were investigated. This includes filtering the tailings, which will be conveyed and stacked near the waste rock, some 10 km from the plantsite.





• The water treatment plant at the Tucuman concentrate filter plant will treat filtrate to achieve Argentinean irrigation water standards, suitable for discharge to the environment as possible irrigation water for a tree farm.

The waste Rock and Ore Overland Conveyors will represent a significant technical, design and constructability challenge for the Agua Rica Project. The belt length and power requirements of these single flight conveyors will put the project at a comparable level with Los Pelambres in Chile. Other installations such as Barrick’s Pierina in Peru and Collahausi also in Chile share similarities with the Agua Rica overland conveyors. All three of these installations were provided by Krupp, who assisted in the technical design and development of the Agua Rica overland conveyors.

25.14 Tailings Disposal Hatch conducted a trade-off study for a number of tailings handling options, as follows:

• Pumping un-thickened tailings to a conventional tailings dam;

• Pumping thickened tailings to a conventional tailings dam; and

• Filtration, conveying, and stacking of tailings.

The following factors were considered in selecting the preferred option:

• Technical

• Economical

• Environmental and social impact

• Closure liabilities

• Technological Risk

• Social licence to operate from local authorities and from potential stakeholders in the project

The tailings filtration and conveying option was concluded to be best in terms of cost, fresh water consumption, and reduced impact on the environment. In terms of technological risk and operability, the proposed filter plant will be one of the largest commercial operations of its type, and will require commensurate design effort.

To minimize water consumption and to minimize the potential environmental impact of tailings storage, all the plant tailings will be filtered and the material stacked using conventional conveyor stacker technology at the tailings site. The proposed filter plant will use vacuum belt filters similar to those currently in operation elsewhere. The scheme proposed for Agua Rica, similar to that used at the La Coipa mine, allows for coarser material to be placed on the filter belt prior to the finer material.

The filter cake will be conveyed overland some 10 km and stacked in layers in the tailings storage site. Filtrate water will be pumped to the tailings thickener for clarification and the supernatant will flow by gravity to the 96,000 m3 lined process water pond.





25.15 Copper Concentrate Handling Copper concentrate slurry will be pumped overland approximately 213 km to a filter plant located near Tucuman. From there, it will be filtered and loaded as a cake into rail wagons and transported some 800 km to a new port, located near Rosario on the Rio Plata. The concentrate will be mechanically unloaded from the rail wagons, conveyed to a 40,000 t capacity storage building, and loaded into Handimax sized vessels, as required, for shipment to overseas smelters.

Filtrate water, containing low solids concentrations will report to the thickener, where it will be thickened and the underflow fed back to the concentrate storage tank. The clarified filtrate water will flow to the 20 m3 process water tank for recycle within the plant, and to the 7,000 m3 capacity, lined filtrate storage pond. Filtrate water will be pumped from the pond to the water treatment plant, where the following operations take place:

• Dissolved metals precipitation by lime slurry in a series of three 50 m3 agitated reactor tanks;

• Solids removal in a 3 m diameter lamella clarifier. The thickened solids will be periodically pumped to the concentrate storage tank; and

• Fine solids removal in a series of sand filters, which will be periodically back flushed to the lamella clarifier. Final water quality will meet Argentinean irrigation waste standards.

Treated water will be finally disposed of as irrigation water for a tree farm established on site by MAR.

25.16 Tailings and Waste Rock Storage The filtered tailings method involves filtering the tailings to greater than 80% solids, and thereby recovering a significant portion of the process water prior to disposal. The tailings would no longer behave as a fluid; rather they would have the consistency of “cake” allowing them to be transported by conveyor and placed as an engineered dry stack. The tailings and waste rock would be conveyed to Cazadero Valley and deposited separately using a mobile conveyor and stacker system. The tailings are expected to be deposited in the southwest or upstream end of the valley, and the waste rock will be deposited in the northeast or downstream end of the valley. For the purpose of this report, the tailings and waste rock have not been differentiated since the deposition methodology has yet to be established. Small surface water reclaim dams (referred to as the north and south dams) are required to handle surface runoff from within the impoundment.

25.17 Infrastructure – On-Site Support infrastructure will be required at all the main areas of the project. The infrastructure includes the following facilities:

• Infrastructure at the minesite, to support the mining operation;

• Infrastructure at the plantsite, to support the processing operations;

• Infrastructure at Andalgalá, the main centre of administration for the project;





• Power distribution at the mine and plant sites; and

• A tunnel connecting the mine and plant areas.

The filter plant facilities are remote from the mine and concentrator.

25.17.1 Minesite Facilities The minesite facilities include:

• A permanent camp;

• Mine truckshop, warehouse and light vehicle shop;

• Mine administration offices;

• Assay laboratory;

• Mine security offices;

• Medical and ambulance post;

• Firehall;

• Helipad;

• Fuel storage and dispensing facilities;

• Tire change and repair facilities;

• Mine maintenance shop;

• Sewage and refuse disposal;

• Communications system; and

• Explosives plant.

• The entire facilities are located on a bench cut on the Melcho hill, approximately where the minesite access road reaches the mine. The layout allows for separation of the mine fleet traffic to the truckshop facilities from the light vehicle traffic to the offices and camp. Access to the minesite will be controlled from the security gatehouse located at El Portón.

25.17.2 Plantsite Facilities Plantsite facilities include:

• A 250 person permanent camp;

• Administration offices;

• Maintenance shop;

• Warehouse;

• Assay laboratory;

• Gatehouse security office;





• Medical station;

• Firehall;

• Training Facility;

• Helipad;

• Changehouse;

• Fuel storage and dispensing facilities;

• Sewage and refuse disposal;

• Communications system; and

• Airstrip.

25.17.3 Andalgalá Andalgalá will house the main management and administration facilities for the project. The facilities will include the following:

• Administration offices

• Fenced secure storage area

• Training office

• Sewage disposal

• Communications system

25.17.4 Site Power Distribution The primary electrical distribution system generally follows a radial design with little or no redundancy in transformers, feeders and busses. A radial design is typical of mine/concentrator facilities of this type.

The design of the electrical system and selection of the major electrical components is based on standardized sizes and ratings.

A load study indicates a normal operating load of 118 MW with a peak demand load of 130 MW. The normal operating load is derived from the normal operating power of each load. The ratio of peak to normal demand is within accepted values.

The utility power supply to the plant will be a single circuit, 220 kV, 50 Hz overhead line terminated on a structure located in the main substation. The main substation will be equipped with two outdoor, oil-filled 220/27.5 kV step-down transformers.

Bulk power distribution within the main plant and to the remote sites will be at 27.5 kV in a radial configuration. Remote areas including the mine and waste disposal areas will be fed by insulated cable routed along the ore and waste rock conveyors.





25.17.5 Tunnel Hatch Mott MacDonald (HMM) undertook a feasibility assessment of the proposed conveyor tunnel. Key details are:

• Total length (including excavation for both portals) ~ 5,681 m

• Tunnel alignment direction is 318°

• Elevations of South and North Portals are 3,365 m and 3,106 m respectively, resulting in a downward grade of 4.5 % towards the North Portal

• Maximum cover along tunnel alignment is about 900 m

• Cover rises sharply at the South Portal and gradually at the North Portal

The proposed conveyor tunnel is a wide-span horseshoe-shaped tunnel (10.0 m wide x 6.65 m high) for an ~63 m2 cross section (Figure 25-9). The tunnel dimensions incorporate:

• Dual 2.3 m wide conveyors with 3.0 right-of-way clearance in between

• 0.6 m clearances outside of the conveyors for maintenance access and space requirements for pit water piping and tunnel drainage

• Vertical clearance to allow for conveyor maintenance and access of tunnel construction equipment during excavation

Figure 25-9: Conveyor Tunnel Cross Section





25.18 Infrastructure – Off-Site The off-site general infrastructure required to support the project includes:

• Minesite and plantsite access roads;

• A wellfield, pump and piping system to provide a water supply to the concentrator;

• A power supply system consisting of approximately 100 km of new transmission lines and substations and approximately 130 km of upgraded existing transmission lines; and

• A concentrate transport system consisting of 213 km of pipeline, a filter plant near Tucuman and a port near Rosario.

25.18.1 Access Roads

25.18.1.1 Mine Access Road A technical and economic assessment was undertaken by Ruiz to investigate potential routes for an access road to the mine site that was evaluated fro both the construction phase and the operations phase of the project.

For the preferred route, two road options south of Portezuelo de Oviedo were considered: the West By-Pass and the East By-Pass (see Figure 25-10). Either route is feasible and the cost differential is marginal.

The preferred route starts in Portezuelo Melcho and runs along the Quebrada del Potrero, overlapping the corridor along the existing access road in some sections, finishing with the final section at Andalgalá. The road is divided into three sections, which are called:

• Andalgalá By-Pass: East Alternative

• Portezuelo de Oviedo – El Portón

• El Portón - Portezuelo Melcho





Figure 25-10: Mine Access Road Options

25.18.1.2 Plantsite Access Road The plantsite access road will be an upgraded existing road from Route 40 to the proposed plantsite.

The existing road will be upgraded to accommodate the traffic during construction and operations phases.

25.18.2 Water Supply A significant field program was carried out in 2005 and 2006 to identify, prove and model a suitable supply of water for the Project. This work was focused on the Campo El Arenal basin, due to its proximity to the plantsite and the potential size of the basin.

Exploitation of groundwater has been identified as the optimum solution for water supply to the Agua Rica Project. Campo El Arenal, a large sedimentary basin contiguous with the northwestern limit of the proposed mine area has been the focus of the groundwater supply evaluation.

The adjacent Alumbrera property draws its process water from a field of 6 production wells in the west-central region of the Campo El Arenal basin. This is the only existing large-scale abstraction in the basin at present. Abstraction by Alumbrera began in May 1997. Review of information received from MAA indicates a mean abstraction rate to March 2006 of 522 l/s with a monthly range between 259 l/s - 670 l/s.

Hatch estimate that the Agua Rica project will require 250 l/s (which includes a 25% contingency) of make-up water to process 90-ktpd throughput of ore.





25.18.3 Power Supply The estimated peak demand load for the plant and mine at Agua Rica is approximately 130 MW. The plant will include a SAG mill; two ball mills, conveyors and pumping. A stable power supply is required to permit the reliable operation of these loads and to permit adequate starting torque to be developed when the drive is energized.

Ian Hayward International Ltd. (IHI) prepared a feasibility study to deliver electrical power to the Agua Rica Project for an electrical load of 130 MW.

Transmission line routes are established by determination of start/end points (stations); map study; aerial and ground reconnaissance to final route location.

This study was completed based on start/end points and a map study only. The preliminary routes are shown on Figure 25-11. and Figure 25-12.

• Next 25 km of route starts in valley west of Rio Choya

• Last 5 km into the plantsite on edge of Campo El Arenal.

A variety of options for the delivery of power to the Agua Rica plantsite and minesite were developed. The solution chosen as the best option is described as Option 2A, from Andagala to Agua Rica plant site.

Aerial and ground reconnaissances were not conducted for the proposed route options. Presented below is a brief route description:

• Start point: 132 kV bus at existing El Bracho 500/132 kV substation

• End point: 220 kV step-down substation at proposed Agua Rica plantsite

• 55 km section of new 220 kV transmission line route between MAR El Bracho and Villa Quinteros

• From MAR El Bracho substation, runs west and parallel to existing MAA Alumbrera transmission line (~15 km), then southwest past Monteros Argentina to Villa Quinteros.

• At Andalgalá, transmission line ties into existing Villa Quinteros-Andalgalá transmission line, then proceeds from Andalgalá to Agua Rica plantsite (~50 km from Andalgalá to Agua Rica)

To advance and complete the route selection, aerial and ground reconnaissance needs to be conducted to investigate items not identified during the map study, including: soil, access road, riverbank and floodplain conditions and limitations and private land access.





Figure 25-11: 270 kV Transmission Line - Option 1,2A and 2B Shown





Figure 25-12: 220 kV Transmission Line Between El Bracho and Andalgalá for Option 2A and 2B





25.18.4 Concentrate Pipeline A scoping study was carried out initially to evaluate potential alternative pipeline routes. The route carried in the FSU was selected primarily because it was accessible and the geohazard and construction risks largely known. Work is ongoing to evaluate further options that could significantly reduce the overall line length.

The concentrate pipeline is designed to accommodate the planned mine production as summarized in Table 25-9.

Table 25-9: Concentrate Pipeline Capacity

Case Solids Throughput

Nominal throughput 77 t/h

Maximum throughput 98 t/h

Minimum continuous throughput 72 t/h

The maximum pipeline slope is generally limited to 12% (based on another copper slurry in the region). Due to the lack of samples, no laboratory tests have been run to verify this slope limit.

25.19 Marketing

25.19.1 Metal Prices Key to commodities in general and to metals in particular over the next few years is the emergence of new demand in the new economies of Asia in face of finite production without new mine development. Underlying this are various other factors. These include the weakening of the US dollar (the main arbiter of prices), the relentless rise in energy prices, the effect of “funds investment”, the increase in CAPEX in new projects and industry consolidation. Today, it is not unusual to find increases of 20% to 100% in present project estimates compared to two to three years ago. All of these factors point to higher longer-term dollar prices.

Following the upward move in 2003, commodities are enjoying a price spike of significantly longer duration than has been seen in recent previous cycles.

Beyond 2008 or 2009, BME note the knowledge horizon for go-ahead and timing of a host of possible green-field projects is uncertain and also that as a direct or indirect consequence of industry consolidation, a substantial part of future project inventory is held by the major mining houses. This leads to the likelihood that many such mining houses will exhibit internal discipline and schedule project development to achieve an acceptable return. Such discipline, if it proves to be the case, will be price supportive.





Over 2006-2007, BME expects continuing small deficits in the refined copper market and severe under-supply in the custom concentrates market. Stocks of semi-manufactures are already low and will fall further in China particularly during the balance of 2006. The result will be an industry that is de-stocked severely from miner to end-user by mid 2007. The consequence is likely to be continuing very high prices in 2006-2007, following on from two years of above-average prices in 2004-2005. This is prompting an increase in exploration and project development activity and is likely to result in mine production rising sufficiently for the industry to begin rebuilding stocks of concentrates, refined copper and semi-manufactures from 2008. Rebuilding of commercial stocks is however likely to take place in competition with the Chinese SRB's need to re-stock for strategic purposes. Only by around 2012 are prices likely to fall back to a longer-term equilibrium level around $2750 per tonne in constant 2006 terms

25.19.1.1 Molybdenum Market Background The molybdenum market is currently in the most buoyant mode seen for many years and this confidence is evident in all sectors of the industry. Demand has risen very strongly in the last two years following a period of six years of recession with declining demand and high stocks and low prices.

Production is at record levels. Copper mines with by-product molybdenum production account for 70% to 75% of total world production. Primary producers are the other major source of molybdenum.

Copper mines that produce molybdenum as a by-product are currently increasing molybdenum production at the expense of copper. Almost all the increase in production in 2005 will come from the by-product producers.

Consumption of molybdenum is dominated by the iron and steel industry. Consumption in iron and steel and associated products accounts for about 75% of total consumption. This includes stainless steel, which is the largest single consuming sector with 36% share. The second largest area of consumption is in catalytic converters, accounting for about 12% of usage.

A long-term growth rate of about 5% to 6% compared to the historic rate of 2% to 4% seems likely. Demand in Western Europe and the USA may decline as a percentage of world demand as the Far East industries expand. Demand growth is expected to continue above historical levels for some years to come and this will stimulate both a surge in new production and expanded production from existing mines. Such production growth will eventually balance the supply/demand equation and allow stocks to be rebuilt to normal levels. The impact on prices would be a return towards lower levels but remaining above well above the long-term historic average.

A shortage of roasting capacity in the West is restricting production of Technical Grade Moly Oxide (TGMO) and is one of the reasons for the price rising rapidly in 2004 and 2005 and continuing through 2006.





This is expected to ease as more roasting capacity is opened in Chile and possibly some dormant facilities are reactivated elsewhere. Much capacity shutdown during the recession of the 1990’s has not been replaced. Such idled roasting capacity in the USA and other countries, including Eastern Europe, possibly could be brought into production if the prices are high enough to cover the logistical costs and the treatment charges.

The outlook for molybdenum is, therefore, very positive for the foreseeable future and demand will continue to be strong, with growth above historical norms. Such demand for molybdenum in steel is evident in the oil and gas industries (for pipe production). Similarly the demand for use in stainless steel is strong, although high molybdenum and nickel prices are having a dampening effect.

By-product production from copper is increasing. Although a number of new primary mines and by-producers will come on stream in 2006 and 2007, prices will remain above the long-term average, but not at current levels.

A price range of $5 to $8 per pound would encourage continued production expansion and not impact significantly on demand and discourage the substitution of molybdenum by other metals. It is unlikely that prices will fall in the short term to the historic range, but long term trends in production and consumption suggest that demand and supply will return to balance and the prices will return towards a range somewhat above the long-term historic average.

In summary, the molybdenum price is likely to stay above historical levels and a range of $6 to $8 seems an appropriate assumption for long term planning.

25.19.2 NSA Price Summary and Recommendation

25.19.2.1 Copper The Copper prices used in the financial evaluation were supplied by Neil Seldon and Associates, quoting a long-term forecast in prices as presented by Bloomsbury Minerals Economics Ltd. for the period 2012 to 2032. Copper prices for the period 2010 and 2011 were derived from the Barclays Capital forward price curves as reported by Neil Seldon and Associates in a report dated October 2006.

25.19.2.2 Gold Gold has moved up with the fall in the Dollar value and in 2003 gold averaged about $364, $409 in 2004, and $445 in 2005 and about $590 to date in 2006 (July). Hatch has used the NNO management base case of current forwarded gold prices of $795/oz and $835/oz for 2010 and 2011 respectively and $465/oz for the period 2012 to 2032, in constant 2006 dollars.

25.19.2.3 Silver Silver, like gold has enjoyed a renaissance and after averaging $4.88 in 2003, $660 in 2004 and $7.31 in 2005, has averaged about $11 to date in 2006 (July). While the speculative side to silver in this cycle has been influential, industrial demand is strong. The NNO Management base case of $8.00 in constant 2006 dollars have been used in the financial model.





25.19.2.4 Molybdenum The molybdenum price is likely to stay above historical levels and a range of $6 to $8 seems appropriate assumption for long term planning. In the shorter term, forward prices, based on NNO management base case have been included in the financial model of $10 per pound for 2010 and 2011. Thereafter a molybdenum price of $8.00 per pound has been used.

25.19.3 Copper Smelter Terms – Introduction BME provides detailed statistics on the copper concentrates balance and treatment charges and these are published in the BME Quarterly to which NNO subscribes. Statistical Tables contain propriety information and are copyright.

NSA has reviewed this information and Hatch has drawn on it for this Report. In discussing treatment and other charges, it needs to be recognized that various charges have an economic effect and are a matter of negotiation.

Other charges, including payables, refining charges, generic penalties in concentrates and payment timing are included in the Summary of Assumed Smelter Terms, which follows this section.

25.19.3.1 Copper Copper Treatment and Refining Charges and Price Participation

Treatment charges under long-term contracts for copper concentrates in 2004 were in the range of $44 to $46 per dmt for smelting and $0.044 to $0.046 per pound for refining and were well below long-term trend numbers. Competition for limited concentrates supplies resulted in treatment and refining charges falling to historical low levels.

However this level was not sustainable and mid-year annual settlements between miners and smelters rose to around $62 per dmt and $0.062 per pound with Price Participation. (“PP”) This represented about a 50% increase over the annual 2004 contract terms. Annual contract terms for 2005 between mines and Asian smelters settled around $85 and $0.085 with PP. Negotiations for mid-year 2005 annual contracts settled at $110 to $115 per dmt and 11 to 11.5 cents per pound with PP. 2006 terms for such annual contracts are $95 and $0.095 for TC and RC with PP at 10% ±10% at $0.90

It is pertinent that while there is now a surplus, smelters are beginning to erode their stocks as the year progresses. Key to this is increased Indian capacity and completion of major maintenance shutdowns. However, this is not expected to have a material effect on annual smelter charges for 2006. For 2007 a downward trend in annual charges is likely. Indeed, by April 2006 a drop in spot charges appeared and this could well affect mid year 2006 levels.

Annual Benchmark terms are not published numbers and are not finite. They represent a consensus of the likely average base numbers negotiated by the major players. Over the period from 1984 to date, total treatment refining and price participation have averaged just under 22% of the price. Over this period the price averaged about 93.3 cents and treatment and refining charges about $77 and 7.7 cents respectively.





Annual terms in recent years have generally included price participation at ±10% basis copper price $0.90 per pound in Asia and only +10 in Europe, although there has been some variation.

For long-term valuation, a treatment charge of $95.00 per dmt and a refining charge of $0.095 per pound of payable copper is recommended, with price participation of ±10 % from a base price of $1.20 per pound with a price floor of $0.90 and a price cap of $1.80.

At the assumed long-term price of $1.20, such terms equate to 20.3% of the price at a concentrate grade of 30%. This approximates the average over the last twenty–two years, which includes periods when concentrates were both in surplus and in deficit.

25.19.3.2 Smelter Terms Assumptions Introductory Comment In discussing treatment and other charges, various charges have an economic effect and are a matter of negotiation.

The terms and charges shown below are typical of what may be expected over the longer term in the Asian international market. In Europe, different gold and silver payment formulae are applicable and price participation is generally not negative

The following is a summary of terms applicable for an evaluation of copper concentrates. Based on the information available at the time of this report preparation, it is likely some penalties will be applicable but this is subject to review once more assays are available. It should also be noted that penalties vary with the market and the capability of particular plants.

Table 25-10: Summary of Assumptions for Treatment & Refining and Other Commercial Terms for Copper Concentrates

Payable Metals

<30%, pay 96.5% with minimum deduction of I unit

30/33% pay 96.5% with minimum deduction of I.1 units Copper

>33,pay, 96.75%

If over 30 grams per dmt, pay 90% in Japan Korea India Silver

Deduct 30 to 35 grams and pay 97% to 100% of balance in Europe

< 1 gram per dmt, no payment

1 to 3 grams per dmt, pay 90%

3 to 5 grams per dmt, pay 93%

5 to 10 grams per dmt, pay 95% to 96%

10 to 20 grams per dmt, pay 96% to 97%

Over 20 grams per dmt, pay 97% to 98%

Scale above apply in Japan Korea India

Gold

In Europe deduct 1 gram and pay 97% to 100%





Payable Metals

Deductions

Treatment Charge CIFFO MEP or MJP MKP - $82.50 per dmt

Copper Refining Charge $0.0825 per pound

$5 to $7 per ounce Japan Korea India Gold Refining Charge

$3 to $5 per ounce Europe

$0.40 to $0.50 per ounce Japan Korea India Silver Refining Charge

$0 to $0.40 Europe ±10% basis $0.90 in Japan Korea

Price Participation In Europe +10%

Arsenic $3.00 per 0.1% over 0.1%

Antimony $3.00 per 0.1% over 0.1%

Lead $3.00 per 1% over 1%

Zinc $3.00 per 1% over 3%

Mercury $0.20 per ppm over 20 ppm

Bismuth $5.00 per 0.01% over 0.05%

Selenium $3.00 per 0.01% over 0.05%

Penalties

Payment

Provisional 90% on average 45 days after production

Final Production 10% balance when all facts known deemed to be 150 days after production Comment: The above objective is to provide a guideline to terms, which will eventually be negotiated. As indicated

above, terms are likely to vary both with geography and with the actual market. For evaluation purposes, the Table 25-10 includes numbers adjusted to provide an indication of terms averaged for all markets

25.19.3.3 Molybdenum Market Costs and Charges While the price on which concentrates are sold is universal (in North America the Metals Week Dealer Oxide Price) the return to the mine will depend on a number of factors:

• Concentrates have to be moved to the market, which is a deduction from the price

• Concentrates need to be roasted

• Conversion loss

• Payment timing

• Quotational Period

• Applicable Penalties

It must be recognized that terms are market driven and unlike many other commodities where certain terms are standard and future term guidelines are often quoted, buyers are reluctant to quote today for future delivery tomorrow (so to speak) in view of the nature of the market. Sales terms have been discussed with several sources and the indications herein are generic and are intended to provide a basis for assumptions for the Review.





Of the off-site costs, roasting fees are price and supply/demand related and may vary from around ±$0.75 per pound of molybdenum contained, up to ± $4 depending on the price and market.

Transportation costs are location and market dependent and are likely to range from 25/30 cents up to 35/40 cents per pound.

Conversion costs (losses) are1% in Europe and can be 2.5% in China.

The trader, in many commodities, has traditionally played an important role as stockholders and a market last resort either as buyer or seller. This is particularly true in the molybdenum market where traders in molybdenum are very active due to the large percentage of off-grade by-product material that is produced.

Commercial Terms

Commercial terms will vary from buyer to buyer and roaster to roaster, depending on the state of the market at the time of negotiation and the direction the buyer considers the market will change during the life of the contract.

Payment terms are normally cash against documents on delivery of the material or some days after delivery. Given the mix of price relationship and market conditions it is not easy to show this as a price percentage, which would be valid long-term.

In summary, a mine could expect to net some 75% to 80% of the price.

25.19.3.4 Ocean Freight Parcel size for the shipments will be a key factor in determining freight rates and port storage requirements. With production expected to be 600,000 dmt, sales contracts will range from a low of 20,000 to 40,000 dmt to 100,000 dmt (and up) and shipments will likely be in the 10,000 to 20,000 and 30,000 to 40,000 wet tonne sizes. This is not finite and will be a matter both of negotiation with the smelter and an evaluation of storage costs and interest against freight saving for varying parcel sizes. With such volumes Agua Rica will need about 40,000 to 50,000 tonnes of dedicated storage at the port.

Ocean freights were discussed with Simpson, Spence and Young (Canada), (SSY). In summary SSY used voyage estimate calculations for an assumed market distribution (Europe, Asia, India, North and South America) and weighted the calculations according to that distribution. In arriving at this assumption, we assessed the availability of vessels, time charter rates and bunker trends.

For the purpose of this Review an ocean freight cost of $45 per dry tonne should be used.





25.19.3.5 Marketability Based on assays received to date, it is noted the copper concentrates are relatively clean, except for arsenic, which is becoming more of an issue with smelters around the world and this concern will likely increase in the future. Smelters are faced with increasing regulation as to handling and disposal of harmful elements and this issue will not go away.

Specifically, with regard to arsenic, this appears to be the only significant quality issue that has raised concern with smelters. Initially it seemed arsenic should not be an issue for the initial 5 to 10 years. Recent indications point towards arsenic being about 0.2% for the first about six years under the likely mine plan presently being worked on and will then rise to levels in the range of 0.3% to 0.5% for the next five years, coming down to the 0.2% to 0.3% range for the following five years.

On a positive note, NNO has had discussions with every major smelter over the last year and the interest level is very high, basis the arsenic levels indicated. Many smelters are expanding capacity and several new green-field projects are underway in China and when this is coupled with a dearth of new significant mine projects, there is likely to be a concentrate shortage in the next decade. This is borne out by the interest of smelters with respect to contracting for tonnage from 2010 onwards.

Initial discussions with smelters have reached the LOI stage with sufficient interest in total in purchasing at least twice the production and with some smelters still to indicate quantity.

In summary, based on information available, there is every reason to assume the copper concentrates can be marketed, despite the arsenic content, which is somewhat above the levels indicated to smelters before the mine plan was optimized and the next stage with smelters will be to present a detailed mine plan showing the quantity and quality profiles. However, given the level of smelter interest, it is believed this is not an insurmountable obstacle.

25.19.3.6 Other Off-Site Costs Losses

Handling losses – generally about 0.1% to 0.25%, depending on number of transfers and overall handling - with pipe-line delivery and modern transfer facilities – assume losses at lower end of range say 0.125%.

Insurance

The seller bears the insurance to market. Generally, inland cover from the minesite to smelter or port is under the mines general insurance and will likely be about 5 cents per $100 of value. Cover from the port of loading to the discharge port requires marine insurance. The rate is market driven and the premiums relate to volume, type of movement and other factors. Ocean marine insurance rates currently run between 10 – 15 cents per $100 of value. ($1/dmt)

Seller may also need to cover charterer’s liability insurance, which would be about $0.50 per dmt.





Supervision, Including Drafts Surveys and Assaying (Umpires)

This is not a set figure and will depend on various factors but should amount to about $1 to $1.50 per dmt.

Marketing

There are two alternatives: appoint an independent third party as agents; or undertake in-house marketing

In-house Marketing through the appointment of full time personnel is the likely scenario, given the volumes anticipated.

An alternative is to outsource the marketing function. Without seeking outside quotations, sales commissions for copper concentrates are usually about 0.5% to 1.5% of the net smelter return. This assumes a third party would handle all logistics and administration as well as contact negotiations and normal sales expenses, incurred by such party.

The commission will likely be volume or value related and subject to a scale, and given this production volume, will be at the low end of the range.

In summary, the cost of marketing including negotiation of initial contracts, maintenance negotiations (periodic negotiation of terms), contract administration (including fees and travel etc.) would be about $2 per dry tonne.

Total Other Costs

Estimated as US $6 - $8 per dmt

Table 25-11: Summary of Key Assumptions for Revenue Calculations Agua Rica Copper Concentrates

Copper Concentrates Grade Copper % 28 Gold g/dmt 12 Silver g/dmt 37 Moisture % 8 Metal Prices Copper $/tonne 2,750 Gold $/oz 435 Silver $/oz 6.5 Molybdenum $/per lb Mo 7.00 Payable Metals Copper % 96. 5 Gold % 97 Silver % 90





Copper Deductions Treatment charge $/dmt 95 Refining charge - copper $/lb 0.095 Refining charge - gold $/oz 6.0 Refining charge - silver $/oz 0.40 Price Participation (PP) - copper +/- PP price basis $/lb 1.20 PP share excess over basis + % 10 PP share under basis - % 10 Penalty As base % 0.1 Penalty As increment % 0.1 Penalty As amount $ 3 Penalty Sb base % 0.1 Penalty Sb increment % 0.1 Penalty Sb amount $ 3 Penalty Pb base % 1 Penalty Pb increment % 1 Penalty Pb amount $ 3 Penalty Zn base % 3 Penalty Zn increment % 1 Penalty Zn amount $ 3 Payment -Provisional Timing from production Days 45 Amount paid % 90 Payment -Final Timing from production Days 120 Amount paid % 10 Transportation & Handling Mine to port $/wmt 24 Storage & vessel loading $/wmt 8 Ocean freight $/wmt 45 Other off-site costs $/dmt 7 Molybdenum Deductions % of price 20





Table 25-12: Summary Assumptions for Revenue Calculations – Agua Rica Copper Concentrates Copper Notes Concentrates Grade Copper % 28 Gold g/dmt 12 Silver g/dmt 37 Moisture % 8 Metal Prices Copper long -term $/tonne 2,750 $1.25 per pound 2006 Constant Dollars Copper 2010 - 2014 $/tonne 3,175 $1.44 per pound 2006 Constant Dollars Copper 2015 - 2020 $/tonne 2,825 $1.28 per pound 2006 Constant Dollars Copper 2020 - 2030 $/tonne 2,575 $1.18 per pound 2006 Constant Dollars Gold $/oz 435 2006 Constant Dollars Silver $/oz 6.50 Molybdenum $/ per lb Mo 7.00 2006 Constant Dollars Payable Metals Copper % 96.5 Over 28.57%, 96.5% applies Gold % 97 Scale will apply Asia –Europe see text Silver % 90 Deductions Treatment charge $/dmt 95 Refining charge - copper $/lb 0.095 Refining charge - gold $/oz 6 See text Refining charge - silver $/oz 0.40 Price Participation (PP) - copper +/- PP price basis $/lb 1.20 PP share excess over basis + % 10 Price Cap $1.80 PP share under basis - % 10 Floor Price $0.90 Penalty As base % 0.1 Penalty As increment % 0.1 Penalty As amount $ 3 Penalty Sb base % 0.1 Penalty Sb increment % 0.1 Penalty Sb amount $ 3 Penalty Pb base % 1 Penalty Pb increment % 1 Penalty Pb amount $ 3 Penalty Zn base % 3 Penalty Zn increment % 1 Penalty Zn amount $ 3 Payment -provisional Timing from production Days 45 Amount paid % 90 Payment -final Timing from production Days 120 Amount paid % 10 Transportation & handling Mine to port $/wmt N/A Storage &vessel loading $/wmt 8 N/A Ocean freight $/wmt 45 Other off-site costs $/dmt 7 Molybdenum deductions % of price 20





25.20 Project Plan of Execution

25.20.1 General It is assumed that the Owner will award the EPCM (engineering, procurement and construction management) of the Agua Rica Project facilities to an experienced international EPCM contractor.

The EPCM contractor will be responsible for basic and detail design, specifications and procurement of equipment and materials, development and packaging of construction contracts as well as the supervision of construction activities. The EPCM contractor will implement systems to monitor, control and report progress against project budget and schedule.

The Owner will establish a project organization to control the project, review and approve design, purchase decisions and contract awards, liaise with Argentinean and local governments and obtain the necessary permits and land acquisitions.

25.20.2 Project Planning The project will be executed in phases. All services, supplies, construction labour and materials, operating workforce, support facilities, etc., will be competitively quoted and selected on a best-source basis. Local businesses in Catamarca Province and other provinces will be encouraged to develop competitive businesses to provide operations support services.

• A phased EPCM project delivery approach for execution is recommended because of the size, complexity, and location of the Agua Rica Project. The planning and capital costs have been developed on this basis.

• Phase I – Funding, Permitting and mobilization of EPCM Contractor to complete basic engineering (August 2006 – May 2007)

• Phase II – Detailed Engineering, Approval of funding for critical path construction (May 2007 – July 2008)

• Phase III – Construction (Various Start dates depending on area – January 2010)

• Phase IV - Plant commissioning (January 2010 – March 2010)





The approach for the EPCM phase is summarized below:

• EPCM will be awarded late 2006, during which time site investigations will continue to provide additional climatic, environmental, site survey, geotechnical and hydro-geologic data needed to support detail design. Specifications, tender and award of long-delivery and critical early construction contracts will be undertaken during basic design to meet the project schedule.

• Detail design and procurement will be carried out at appropriate local, regional and international locations to maximize efficiency and cost effectiveness.

• Earthworks mining and early concrete contracts are expected to be unit rate type, while structural steel fabrication and erection, mechanical and electrical contracts will be awarded on a lump sum basis, with an established unit rate basis for quantities greater than 10% of those tendered. The number of construction contracts will be optimized to avoid undue administration costs while still maintaining competitive bidding and flexibility.

• There are only a few major construction contractors in Argentina and regionally, capable of handling a project of this size in its entirety. However, these companies are gaining experience, for example at the recent Valadero Project.

25.20.3 Procurement and Logistics All major equipment purchases will be subject to the Owner’s prior approval. The EPCM contractor will provide a complete specification and evaluation of quotations to support recommendations to the Owner. Warranties will also be obtained in the name of the Owner.

It is likely that long lead item equipment will be purchased from the EPCM contractor’s base office during Basic Engineering.

An international freight forwarder will be used for goods purchased Free on Board (FOB) factory or FOB port of exit, in the country of origin. The goods will be containerized (when size and quantity permit) for simplicity and security of shipping to site.

25.20.4 Construction Management The execution of all site construction activities be under the direction of the EPCM contractor, who will tender, award and manage the construction and services packages.

Emphasis on the use of local contractors will be made. Their capability, experience and financial state will determine their potential participation.

In consultation with the Owner, detailed development of the contracting strategy will be an important activity during the Basic Engineering.

The following have been identified as critical path early construction works that need to be advanced to detailed engineering and commenced as soon as permitting is in place.





• Mine Access Road

• Mine Pre Stripping

• Tunnel

• Power Supply (Construction Power)

The Engineering for these areas will be advanced during basic engineering to allow construction to start as soon as the requisite permitting is in place.

25.20.5 Start-Up and Commissioning Construction and installation of the facilities and pre-operational testing of components will be the responsibility of the EPCM contractor. The introduction of ore, start-up and commissioning will be conducted on a sequenced basis, under Owner operations staff direction with the assistance of the EPCM contractor and construction contractor workforce. Commissioning will be directed by the Owner’s Operations Manager and his permanent operations and maintenance workforce. Facilities start-up will be timed to meet production schedules and the training program will be synchronized to support start-up.

25.21 Environmental and Social Work Social and environmental effects are considered in a holistic and integrated manner in accordance with the International Finance Corporation’s Performance Standards for Social and Environmental Sustainability. To this end, the social implications of potential changes to environmental conditions are discussed concurrently with the causative biophysical effect.

A scoping exercise was conducted to identify the principal issues for each project component. These issues were determined to be as follows:

• Air Emissions

• Alteration of Groundwater Quality and Quantity

• Alteration of Surface Water Quality and Quantity

• Alteration of Land Cover

• Employment and Business Opportunities

• Sensory Disturbance

• Stochastic Events

The primary social and environmental issues for the Agua Rica Project are anticipated to be as a result of alterations to water quality and quantity at the minesite and process plant. The high sulphide content of the ore, waste rock and dry tailings is expected to cause generation of acid rock drainage (ARD) and metal leaching (ML). Water, which will be obtained by a combination of pit dewatering and





groundwater abstraction from the Campo El Arenal, will be required for the process plant. Since water is an essential resource to residents of communities surrounding the project, it will be vital to avoid any change in availability or quality of water from traditional sources which may have adverse consequences for health, quality of life, and agriculture. The following Table 25-13 summarizes the mitigation and management measures that have been developed to address potential effects on water quality and quantity at the minesite and process plant.

Table 25-13: Summary of Water Quality and Quantity Mitigation and Management Measures for the Minesite and Process Plant

Potential Effect Mitigation and Management Measure • A series of retention dams and settling ponds will be constructed along the

Arroyo Minas. Sedimentation of surface water exiting the minesite

• After the third year of operations, minesite drainage will be directed into the open pit which will act as a settling pond.

• Seepage and run-off from the minesite waste rock dump will be captured and treated to meet Argentine irrigation standards.

• An engineered cover will be constructed on the minesite waste rock dump to minimize air and water infiltration.

• After the third year of operations minesite drainage will be directed to the open pit. Water will be used for dust control or pumped for use in the process plant, with any excess water treated and released to Arroyo Minas.

• A series of ditches and pipes will be constructed to divert clean run-off from above the minesite around the pit, released to Arroyo Minas downstream of the minesite.

ML/ARD contamination of surface water exiting the minesite

• For about the first 20 years after closure the pit will be allowed to partially fill, during which time no water will exit the minesite. Once the pit has filled to the desired level, water will be treated to meet Argentine irrigation standards and released to Arroyo Minas at a constant rate. This arrangement will remain in perpetuity.

Alteration of water volumes exiting the minesite: change in water availability for downstream users

• Wells will be established, if required, to supplement water sources for Andagalá and neighbouring communities.

• The waste rock and dry tailings disposal area has been sited in an arid valley to minimize ML/ARD.

• Drainage channels, water retention dams and seepage collection wells will minimize the release of contaminated water to the surrounding environment.

ML/ARD generation at the waste rock and dry tailings impoundment

• The dry stack tailings impoundment will be covered with a granular material at closure to reduce air and water infiltration.

• The tailings de-watering process will recover over 80% of process water from the tailings, reducing the amount of fresh water needing to be pumped from the Campo El Arenal by approximately 50 %.

• Wells will be established, if required, near affected communities along Valle de Santa Maria, Río Nacimientos and in the northern Campo El Arenal to supplement water sources.

Lowering of water table in the Campo El Arenal: change in availability of ground and surface water for domestic and agricultural use

• Pumping will cease at closure, allowing groundwater levels to return to baseline conditions. Supplemental water wells will remain in place as long as required.

Change to terrestrial and aquatic habitats in the valley bottom in the centre of the Campo El Arenal

• No direct mitigation is possible; however the company will investigate opportunities to enhance similar habitats elsewhere or to provide other forms of habitat compensation.





At the end of operations, all plantsite infrastructures, conveyor systems and non-essential roads will be removed and all disturbed areas will be reclaimed and revegetated with ecosystem-appropriate plants to re-establish wildlife habitat or grazing land.

The dry stacked tailings will be covered with granular material to minimize dusting and erosion, and to reduce air and water infiltration thus limiting the generation of ML/ARD. The diversion channels will remain in place to prevent any future runoff or debris flows from extreme rainfall events from entering the tailings and waste rock disposal area. The water retaining dams will be maintained to ensure contaminated water is not released to the surrounding environment. The seepage collection well downstream of the retaining dams will be maintained, and groundwater samples will continue to be monitored to assess the rate and quality of seepage.

At closure, pumping from Campo El Arenal will cease and groundwater levels will stabilize. Supplemental water wells across the Campo El Arenal will remain in place as long as required.

25.22 Taxation The data in this Section was provided by Northern Orion and Beretta Kahale Godoy (Due Diligence Report dated July 25, 2006) and has not been verified by Hatch.

There are three principal taxes under Argentina’s federal tax system: income, value added, and financial transaction taxes.

Minera Agua Rica Sucursal is the Argentinean branch of Minera Agua Rica LLC and is taxed as an Argentinean corporation.

25.22.1 Tax Rates The statutory rate of tax applicable to Minera Agua Rica as a mining company is 33%, compared to a statutory tax rate of 35% for non-mining companies. This rate is protected under a fiscal stability regime.

25.22.2 Depreciation The Mining Development Law (Law 24196 of May 1993) permits a 100% tax deduction in the year incurred for investments in prospecting, exploration, special studies, mineral and metal testing, pilot plants and other expenses related to determining the feasibility of mining activities.

25.22.3 Tax Losses Operating losses may be carried forward for five years to offset future net income.

25.22.4 Value Added Tax (VAT) Minera Agua Rica is subject to a 21% value-added tax (VAT), which applies to almost all transactions. It is levied at all stages of import, production and trading, including retailing. Full reimbursements of VAT are available to mining companies.





25.22.5 Turnover Taxes All of Argentina’s state jurisdictions levy turnover tax (impuesto a los ingresos brutos) on the gross revenue of any enterprise. Tax rates vary but the average rate is around 3%.

25.23 Capital Costs

25.23.1 Summary The base case capital costs for the Agua Rica Project have been estimated in second quarter, 2006 US dollars, and include no allowances for escalation, exchange rate fluctuations or project risks. The estimate is based on an EPCM implementation approach (based on the project execution plan set out in Section 25.20.

The scope of the estimate includes the following:

• A completely “stand alone” facility developed on a greenfields basis;

• Mining fleet and prestripping operations; by owner

• Concentrator and materials handling systems;

• Power supply system;

• Water supply infrastructure;

• Minesite and millsite infrastructures;

• Concentrate pipeline and pumping systems;

• Concentrate filter plant;

• Port for receipt, storage and shipping of concentrates; and

• Minesite and millsite access roads

Costs were developed from budgeting quotations for 94% of the equipment and approximately 43% of the bulk materials. A major Argentinean constructor, Techint was utilized to assist in the development of construction unit rates and indirect costs, as well as a number of selected local contractors with specific construction experience.

The summary capital cost estimate for the Project is presented in Table 25-14 and reflect an intended target accuracy level of ±15% after contingency, consistent with a feasibility study level engineering effort.





Table 25-14: Capital Cost Summary - Base Case, 90,000 tpd Mill ($000’s)

Description Responsibility Mine 391,462 AMEC Concentrator 569,035 Hatch Infrastructure 400,308 Various Total Directs 1,360,805 Hatch Indirects 334,030 Various EPCM 129,587 Hatch Contingency 255,419 Hatch Owner’s Cost 43,527 NNO Total Indirects 762,563 Hatch Total Estimate 2,123,368 Hatch

The detailed estimate is provided in Appendix B

The base case capital cost estimates for the project options examined are presented in detail in Table 25-15. The detailed capital cost schedules are presented in Appendix B.

Table 25-15: Capital Cost Breakdown - Base Case - 90,000 tpd Mill ($000’s)

Area Description Total Costs Responsibility 0100 Mine 391,462 AMEC 0200

Crushing, Conveying and Tunnel 306,821 Hatch and Hatch

Mott MacDonald 0300 Concentrator 262,814 Hatch

0400 Tailings Thickening and Disposal 121,868 Hatch 0500 Concentrate Pipeline 90,487 Brass Engineering 0600 Concentrate Filter plant 21,787 Hatch 0700 Port Facilities 40,573 Sandwell 0800

Roads, Power, Water and Plantsite Services 120,357 Iain Hayward

International 0900 Plant Ancillary Services 4,637 Hatch Total Direct Costs 1,360,805 Hatch 1100 Contractor Indirects 136,123 Hatch 2100 Temporary Construction Facilities (CM) 24,204 Hatch 2200 Construction Services and Support (CM) 9,484 Hatch 2300 Construction Equipment (CM) 8,614 Hatch 2500 Construction and Operation Camp (CM) 31,879 Hatch 2600 Other – Initial Fill, Vendor Reps 11,172 Hatch 3000 Engineering and Procurement – Home Services 65,828 Hatch 4000 Construction Management Field Office Services 63,759 Hatch 5000 Spares 39,430 Hatch 6000 Freight 73,124 Hatch 7000 Owner’s Costs 43,527 NNO 8000 Contingency 255,419 Hatch Total Indirect Costs 762,563 TOTAL PROJECT COST 2,123,368





25.23.1.1 Scope of Estimate The capital cost estimates include all the direct and indirect costs and appropriate project estimating contingencies for all the facilities required to bring the Agua Rica mine into production, as defined by a feasibility level engineering effort.

This cost estimate is based on the scope of work defined by engineering from the process discipline, facilities description, design criteria, flow diagrams, mechanical equipment list, general arrangement drawings and sketches. The following documents were used in the estimate:

• Mechanical Equipment List Rev D;

• Electrical Equipment List Rev P3;

• Process Flowsheets;

• General Arrangements/Layouts/Plot Plan;

• Civil Drawings;

• Single Line Diagram; and

• Third Parties Studies.

See Section 25.23.4 for exclusions to the estimate.

25.23.2 Basis of Estimate

25.23.2.1 General The capital cost estimate is based on the following project data, qualifications and assumptions:

• Process design criteria (developed from extensive metallurgical testwork conducted in 2005 and 2006), from previous testwork carried out in 1999 and from experience.

• Process flowsheets identifying all major unit operations.

• Sizing of all major equipment items.

• Plantsite layout and development of general arrangement drawings for the major facilities and buildings.

• Mine design, mine scheduling and mine fleet sizing and selection.

• Preliminary geotechnical studies carried out in the area of the plantsite, tailings/waste, tunnel, pipeline and mine facilities area. No geotechnical studies were carried out on the conveyor alignments.

• Preliminary mapping of borrow materials suitable for road and dam construction has been carried out.





• Engineering cost studies for the access roads, concentrate pipeline, tunnel and powerline (based on feasibility level engineering design, field inspections, digital topographic maps and preliminary geotechnical investigations).

• The project plan of execution as described in 25.20 is followed.

• None of the “Risk Factors” mentioned in this report (and summarised in Section 21) occur and result in a material increase in project costs.

• The permanent camp for both the mine and the plant will consider a modification to part of the construction camps. These costs have been included in the direct portion.

• Tunnel Cost are based on subjective evaluation of rock quality by consulting contractors during their visit

• Plant and mine Site foundation design, is based on the preliminary geotechnical information and will be verified by additional geotechnical investigation in the next phase.

• The concentrate Filter Plant and the Port Facility location for this study has not yet been defined, and all the geotechnical assumption has been based on a similar project .

The estimate has been prepared using a combination of quoted, estimated and factored costs. All costs herein are quoted in second quarter, 2006 US dollars.

25.23.2.2 Exclusions See Section 25.23.4 for the Exclusions.

25.23.2.3 Equipment Preliminary specifications were developed for the following major equipment items, which were issued for bid and the budgetary quotations evaluated:

• Mills – SAG, Ball and Regrind

• Pressure filters

• Flotation cells

• Apron feeders

• Primary crushers

• Rock breaker

• Cyclopacs

• Major electrical equipment

• Agitators

• Thickeners





• Major Pumps

• Gearless mill drives

Data sheets or performance specifications were developed and budgetary quotations were obtained for the following equipment:

• Pumps

• Samplers and analyzers

• Cranes and hoists

• Compressors

• Lime Slaking Plant

• Mining Equipment

• Fire pumps

• Scales

Note: Feasibility study uses budgeting quotations. This implies no contractual commitment by vendor.

25.23.2.4 Quantities The methodology utilized for quantity development was:

• Mass earthwork (site preparation) quantities were developed by utilizing the FSU drawings

• Structural earthwork, concrete, steel, and architectural quantities for the process facilities were developed from the drawings and sketches prepared for this study, as well as historical information from similar installations.

• Mechanical equipment was specified based on the equipment list.

• Mechanical platework quantities for bins, liners, and tanks were developed from sketches of equipment identified on the list and from historical information.

• Piping quantities for the concentrator were estimated and factored based on historical information of similar concentrator plants.

• Fire protection and detection is based on unit rate from experience and assessed area of building. Fire protection yard piping quantities are based on buried piping.

• Electrical equipment was developed from the equipment list and Single Line Diagrams. It includes all the electrical rooms required to service all areas of the project, including transformers, High Voltage switchgear, Variable Speed Drives, Motor Control Centers and cabling.

• Electrical bulk materials were factored based on the information from similar projects.

• Instrumentation was factored based on historical data.





25.23.2.5 Third Party Quantities and Cost Support

Third party consultants provided the following quantities and costs. Hatch has reviewed them and adjusted them to be consistent with the overall estimate philosophy:

• Access Roads: By Ruiz y Asociados.

Quantities and cost were developed by Ruiz y Asociados and revised by Techint. Techint’s revised cost was accounted for in the estimate.

• Transmission Line: By IHI.

Quantities and pricing were developed by IHI, Techint reviewed erection cost and agreed to the costs presented by IHI.

• Pipeline: By Brass

Quantities and pricing was produced by Brass, Techint reviewed the cost and agreed, and therefore, no changes were made.

• Tunnel: Pricing was quoted and developed by Cartelloni. This cost was included in the estimate.

• Residue Storage & Handling: By BGC

Quantities and estimate support was provided by BGC. Techint also supported estimate pricing.

• Port Facilities: By Sandwell

Quantities and pricing were developed by Sandwell and reviewed by Hatch.

• Mine Development: By AMEC

Quantities and pricing was developed by AMEC.

• Techint:

During the total time frame of the estimate execution, Techint provided support in order to determine all the associated costs during the construction phase based on their considerable experience in Argentina. They also provided support with local companies and obtained various budget quotation and unit prices. Continuous work was done by Techint in their offices in Buenos Aires, under Hatch supervision and, in the Vancouver Hatch Office. The main support was to defined unit prices, labor cost and productivities.





25.23.2.6 Pricing Origin Equipment prices for the estimate were obtained in the first quarter 2006, and were not changed or altered to reflect overall estimate for second quarter of 2006.

Budgetary quotations were obtained for the main plant equipment. Equipment that was not quoted, was estimated based on Hatch’s up-to-date database.

Most bulk material pricing was quoted by Techint in Argentina and reviewed by Hatch.

All equipment and material pricing has been considered ex-works or at site.

The following table shows the origin of all pricing for materials and equipment, whether they are local, foreign, or at site:

Table 25-16: Origin of Pricing for Materials and Equipment

Cost in US$(000’s) Source

Equipment Materials Total

Site Work $161,688 $ 57,995 $219,683

Foreign USA-Canada $377,656 $ 319 $377,975

Foreign-Europe $56,963 $56,963

Foreign-Chile Brazil $12,839 $1,412 $14,251

Local $51,822 $75,889 $127,711

Total $660,968 $135,615 $796,583

Currency Exchange Rate

The estimate is expressed in US dollars at first Quarter 2006 price level. Future escalation is not included.

Table 25-17: Currency Exchange Rates Used in the Estimate

Base Currency Rate of Exchange Conversion = Foreign Currency per Base Currency Origin

= CLP 530 Chile = AR $3.00 Argentina = CAD 1.15 Canada

1 USD

= EUR 0.84 Europe





Plant Equipment

The plant equipment price percentage distribution (as per the source of the information) is as follows:

Table 25-18: Plant Equipment Price Percentage Distribution

Discipline Total (000’sUS$)

Budgetary Quote %

Estimated %

Factored %

Mobile & Mine Equipment 159,480 90.2% 9.8% 0% Mechanical Plant Equipment 452,928 99.1% 0.9% 0% Electrical 41,249 74.3% 5.5% 20.5% Instrumentation 7,311 0% 31.2% 68.8%

Total 660,968 94.3% 3.6% 2.0%

Bulk Materials

The bulk material price percentage distribution (as per the source of information) is as follows:

Table 25-19: Bulk Material Price Percentage Distribution

Discipline Total (000’s US$)

Budgetary Quote %

Estimated %

Factored %

Site Development 11,779 40.2 59.8 0 Earthworks 6,997 99.0 1.0 0 Concrete 25,399 84.5 15.5 0 Structural Steel 14,280 86.2 13.8 0 Architectural 15,170 0 100 0 Mechanical Platework 6,462 3.0 97.0 0 Piping 26,011 47.4 5.6 47.1 Electrical Bulks 22,837 4.5 46.8 48.7 Instrumentation 6.678 0 0.5 99.5 Total 135,615 43.5 34.4 22.1

25.23.2.7 Unit Construction Rates Unit construction rates were developed using a combination of budgetary estimates from selected contractors (based on preliminary material quantities) and on estimates from recent regional project experience. Budgetary estimates were obtained for the following rates:

• bulk concrete work, steelwork, and earthworks from two Argentinean contractors;

• bulk freight from two Argentinean contractors, and from a logistics study completed by a local contractor; and

• labour construction rates from two Argentinean contractors, and from recent Hatch experience in the region.





The following contractors provided support and cost studies for this estimate:

• Techint: Multidiscipline Hired Support, Full Time

• Skanska: Multidiscipline Support, Part Time

• Cartelloni: Tunnel

• Vecchiola, Parina, and V&C: Prestripping and Haul Road

25.23.2.8 Buildings Basic specifications for pre-engineered buildings (including climatic design basis and plan/section drawings) were sent to two contractors for the supply of the major building structures:

• Concentrate Filter Plant and Filtrate Treatment buildings

• Mine and Concentrator service buildings.

The estimates include design, fabrication and delivery of all the materials (including cladding, doors and architectural finishings).

Basic specifications for the camp were sent to two contractors (Travco and Atco) for the design, supply, delivery and installation of the permanent and for the construction camps in this location. The estimates include all fittings, furniture, water and sewage treatment and emergency power generators.

25.23.2.9 Subcontracts Subcontract Scope

The following main subcontracts were defined for the execution of the project:

Mine Area:

• CC-01: Mass Earthworks & Haul Roads (including Pre-stripping)

This contract’s scope of work includes the execution of pre-stripping, haul roads, mass earthworks, backfill and main platforms for the mine area.

• CC-02: Civil Works, Electromechanical & Building

This contract’s scope of work includes the structural excavation/backfill, concrete, steelworks and electromechanical erection for the mine area. This contract excludes the electromechanical erection for the overland conveyors.





Plant Area

• CC-03: Mass Earthworks

This contract’s scope of work includes mass earthworks/backfill and main platforms for the plant area. This contract also includes all the mass earthworks for the overland conveyors.

• CC-04: Civil Works, Electromechanical & Building

This contract’s scope of work includes the structural excavation/backfill, concrete, steelworks and electromechanical erection for the plant area and overland conveyors. This contract also includes all the mass earthworks for the residue storage and handling area.

Filter plant (Tucuman)

• CC-05: Filter plant

This contract’s scope of work includes all works associated to this area.

Port Area (Rosario)

• CC-09: Port Area

This contract’s scope of work includes all works associated to this area.

Other Main Subcontracts

• CC-06: Transmission Line

This contract’s scope of work includes all works associated to the 220 kV transmission line from El Bracho to MAR substation and all the works associated with the substations (MAR, Andalgalá and El Bracho).

• CC-07: Tunnel

This contract’s scope of work includes all civil works associated with the conveyor tunnel.

• CC-08: Pipeline

This contract’s scope of work includes all works associated with this area 0500.

• CC-10: Access Roads

This contract’s scope of work includes all civil works associated to this area and is split into the following access roads:

Access Road from Andalgalá to Mine

Access Road from Road No 47 and No 40





Installation Rates and Productivity

The estimated wage rate and unit hours were developed by Techint and Hatch, based on current experience in Argentina and similar projects. The cost reflects a construction schedule of 21 consecutive ten hour work days, followed by ten days away from the site. This corresponds to an average of 210 work hours per month.

The direct labour rate by discipline and main subcontract are the following:

Table 25-20: Direct Labour Rate by Discipline and Main Subcontract

Direct Labour Rate US$ per Job-Hour

Discipline CC-02 CC-04 CC-05 CC-09

Site Development 9.2 9.5 6.2 6.2

Concrete 7.1 6.7 6.2 6.2

Structural Steel 7.7 8.0 6.2 6.2

Roofing/Siding 7.7 7.7 6.2 6.2

Architectural Finish 7.7 7.7 6.2 6.2

Unit Construction 7.7 7.7 6.2 6.2

Mechanical Platework 9.1 8.9 6.2 6.2

Tankage 9.1 8.9 6.2 6.2

Mechanical Equipment 9.1 8.7 6.2 6.2

Piping 9.1 9.7 6.2 6.2

Electrical 8.5 8.8 6.2 6.2

Instruments 8.5 8.1 6.2 6.2

These rates reflect current Argentinean construction labour agreements.

These rates reflect current Argentinean construction labour agreements.

The Direct labour rates include:

• Taxable wage rate

• Payroll taxes

• Liability workers compensation insurance

• Small Tools

• Consumables

• Other minor expenses





The Indirect labor rates include (Contractor Indirect):

• Contractor's temporary buildings (office, warehouse, etc)

• Construction utilities

• Construction equipment

• Maintenance of equipment and tools

• Fuels and lubricants

• Safety supplies

• Clean-up

• Material handling

• Warehousing

• Camp and catering

• Transport of employees to and from the jobsite

• Cost of field non-manual labour

• Office equipment, furniture, supplies, reproduction, automation

• Overhead and profit

The total average labour rate (direct labour rate + indirect labour rate) of the project is US$ 23.0 per job hour worked. This calculation was developed by Techint and Hatch.

25.23.2.10 Indirect Costs Contractor Indirect

These costs correspond to all the indirect costs associated with construction subcontracts. These were calculated based on the contract packages mentioned above, and were developed in conjunction with Techint.

The contractor indirect breakdown is as follows:

Contractor Management

Includes all the costs associated with the administration of the contractor. These were developed based on a staffing plan, using a typical construction organization in Argentina.

Also includes the cost for monthly salaries and hourly salaries (drivers, helpers etc.).





Construction Equipment

Construction equipment are based on a construction equipment schedule developed for the Project. Equipment maintained “rental” rates were provided by Techint. Maintenance will be performed on-site.

Temporary Facilities

These are all necessary temporary installations needed for the proper work execution of the contractor. These were estimated based on a m2 ratio and according to the staffing plan previously developed.

Travel, Meals, and Other Expenses

Travel : Mina-Catamarca-Minas: Buses for 40 passengers were considered for all contractor personnel.

Catamarca – TBD – Catamarca: $50 travel allowance per person for travel to any destination within the country.

For supervision personnel, round-trip air fairs have been considered.

Meals: These were estimated at $13 per person/day

Security Gear: This was estimated to be $0.4 per man hour.

Other Services: such as training, pre-employment tests, induction, etc., were estimated to be $0.1 per manhour.

Office Supply, Communication and Other Services : were estimate to be $0.8 per manhour.

Pick-Ups & Buses : This corresponds to the internal transportation of the personnel and was calculated based on the construction program.

Overhead and Fee : The overhead and fee was estimated at 15% of the total cost for each contract. This includes the direct labour cost plus the associated indirect costs.

25.23.2.11 Field Distributables (Construction Management) Temporary Construction Facilities

Temporary construction facilities include: work areas and bays, roads, walkways, parking areas, temporary buildings, temporary utilities (power and sewage), and other minor temporary construction.





Construction Services

Construction services consist of general and final clean-up, material handling and warehousing, on-site services (drivers and general support for maintenance), operation and maintenance of temporary facilities, and on-site services transportation.

Construction Equipment and Pick-Ups

Construction equipment was calculated based on a work schedule. The strategy considers that if the rental cost of a certain construction equipment was higher than its purchase, cost then these would be bought for construction and later passed to operations for maintenance purposes (Mobile Equipment). This strategy only applies to specific equipment that operations will need to purchase anyways, and therefore results in a savings for the Project.

Pick-up trucks were considered as rental and included all the associated maintenance costs.

Construction Camp and Maintenance

Two different construction camps were considered, one in the mine area (estimated for 700 people), and another in the plant area (estimated for 3,000 people).

The cost for maintenance and operations for the camps has been calculated at a base cost of $12 per man-day.

Initial Fill

These were developed by Engineering , and pricing basis was from quotes and Hatch database.

Vendor Representative

Vendor Representative costs were calculated based on the main equipment included in the scope of the Project. These costs were split up into expenses and daily rates. Different rates were considered, depending on whether the vendor representative is foreign or local.

The information received from quotations complemented with historical data were used as the base of the calculation for the vendor representatives.

25.23.2.12 Design Engineering, Procurement and Home Office Services (EP) These services are evaluated based on the proposed project staffing plan.

• Labour cost was estimated using the current rate in Chile;

• Office expenses were estimated using historical data at 3.9 $/h;

• Automation and licences were estimated using historical data at 3.5 $/h;





• Communication was estimated using historical data at 0.4 $/h;

• Travel and relocation was estimated using historical data at 3.0 $/h;

• Subcontract and Outside Services were estimated using historical data at 2.5 $/h;

• Third party services includes engineering for pipeline, mine, road, power supply, and port area; and

• Basic engineering was excluded.

25.23.2.13 Field Construction Management (CM) These services are evaluated based on the proposed project staffing plan developed with Techint.

• Labour cost has been estimated using the current rate in Argentina;

• Office equipment and furniture were estimated at 0.5 $/h;

• Automation and licences were estimate using historical data at 0.87 $/h;

• Communication was estimated using historical data at 0.85 $/h;

• Travel and subsistence were calculated; and

• Supplies and reproduction estimated using historical data at 0.4 $/h.

25.23.2.14 Spare Parts The spare parts considered for the Project are for start-up, one year operation and insurance purposes. The insurance spare parts are only for certain equipment, and have been consolidated by engineering, using quoted amounts and historical data.

Spare parts for start-up and one year operation have been quoted for main equipment. Non-quoted spare parts have been factored, based on equipment cost.

No spare parts for materials have been considered.

25.23.2.15 Freight Freight and custom duties were calculated as a percentage of plant equipment and materials, and split up into imported and locally purchased items.

All equipment and materials (whether local or imported) shall be considered Ex-Works.





Main cost items included are:

• Off-shore inland freight to port of exit;

• Port handling charges;

• Forwarder fee;

• Ocean freight with insurance;

• Custom broker fee;

• Inland freight from port of arrival to site

25.23.3 Owner’s Cost This cost has been calculated and completed by the Owner.

This includes:

• Owner corporate expenses and allowances for community development and corporate Vancouver office;

• Working capital and first fills;

• Pre-production employment and training;

• Owner project management costs related to Buenos Aires office rental, Owner’s labour at various site offices for up to 40 months, vehicle rental and allowance and general office and communication expenses;

• Insurance ; and

• Contingency of 10%.

25.23.4 Exclusions The following have been excluded from the Capital Cost Estimate:

• Scope changes (based on the scope of the Project, as defined in this Report), including any facilities not identified in the Summary Description of the Project.

• Any work that has been recommended but which shall be conducted at the option of the Owner, as described in Section 22.

• No allowance has been made for either (a) the project risk factors that would be expected to potentially impact any project such as this Project (e.g., adverse weather conditions, acts of god and other force majeure events, delays due unforeseen factors such late delivery or unavailability of equipment or materials or unavailability of labour resources, poor performance by EPCM contractors or construction contractors, disputes with local residents, etc.) or (b) the specific project risk factors identified in Section 22, each of which could potentially have a material effect on the capital cost of the Project.





• No allowance has been made for (a) additional licensing or permitting costs, or (b) general political, legal or regulatory risk (e.g., changes to laws or agreements reached with regulatory authorities, expropriation, changes in taxation or royalty regimes or non-issuance, cancellation or revocation of permits or licenses required to develop and operate the Project).

• Fees or royalties relating to use of certain technologies or processes.

• Costs incurred to accelerate the work (e.g., overtime charges, expediting charges, etc.).

• Costs incurred prior to the commencement of the EPCM phase of the Project (e.g., basic engineering, site acquisition costs, costs associated with the preparation of this study and any prior studies, licensing and royalty charges already incurred).

• Working capital.

• Environmental, archaeological and ecological considerations, other than those incorporated in the current design.

• Costs for acquisition of Rights-of-Way, including the concentrate pipeline.

• The cost of producing any environmental impact statement and obtaining environmental permits and approvals from local or national authorities.

• Financing charges and interest during construction.

• Currency exchange fluctuations after the Second Quarter 2006.

• Credits for salvage value of any demolition, modification work, residual construction materials, vehicles, and temporary buildings.

• Costs of Public Relations activities and any costs of impacts to construction work associated with implementation of Public Relations operations.

• Escalation beyond Second Quarter 2006.

• Price fluctuations due to unusual market conditions.

• Value added tax is excluded.

25.23.5 Contingency See Section 25.26 for a description of contingency.

25.24 Operating Cost Estimate

25.24.1 Summary The base case operating costs for the Agua Rica Project, including mining, general and administrative and process costs, have been estimated in 2Q, 2006 U.S. dollars and include no allowances for escalation, exchange rate fluctuations or the risk factors applicable to the Project (see 22 and 25.23.4).





The operating project costs are presented in six major segments:

• General & Administration: includes the general costs to support the operation, camp and personnel transportation costs, as well as the legal, insurance, and local taxation costs for the entire operation.

• Mining: includes the operation maintenance of the mine, mining equipment, mine support, and water management facilities located at the minesite area.

• Process, Infrastructure & Pipeline: includes the operation and maintenance of all the processing facilities at the plantsite, support infrastructure in the Campo El Arenal area and the concentrate pumping and pipeline system to the filter plant.

• Concentrate filter plant: includes the operation, maintenance and support cost of the concentrate filter plant, and the filtrate water treatment plant located near Tucuman.

• Concentrate rail transportation: includes the costs for the supply, operation and maintenance of the locomotives and rolling stock for transhipment of filtered concentrate from the filter plant to the port. This is based on an indicative contract rate from NCA.

• Port: includes the operation, maintenance and general costs of all the process and support facilities at the port (to unload the rail wagons, for storage and loading of concentrate into ships, costs for tugs and land lease for the site).

The operating cost model assumes that the project will construct and operate all facilities, except for the railway systems, which are treated as a contract service.

Employee classifications, wages and benefits are based on a survey of current rates for other large scale mines in Argentina and on information provided by the Owner. Costs for consumables, such as grinding media and process reagents, were based on recent quotes from vendors. Routine operating supplies have been estimated using other projects as a guideline. The costs for maintenance supplies and materials have been factored from actual costs incurred by modern high tonnage open pit copper mines. The cost of electrical power at the plantsite is forecast at $0.025/kWh.

Hatch assumes that the Agua Rica Project will be exempt from all duties, taxes and protective tariffs for goods and services. These additives are not included in the operating cost estimates. It is further assumed that the Agua Rica project will become eligible for a rebate on the 21% value added tax (IVA), therefore, IVA has not been included in any of the estimates.

The lifetime average annual supply of ore to the mill is 32.85 Mt, which is processed to produce on average 525,800 dry tonnes per annum of copper concentrate for delivery to the port. In addition, on average 13,748 dry tonnes per year of molybdenum concentrate will be loaded in bags and trucked to Chile.

The project operating cost estimate is summarized in Table 25-21 and reflects an accuracy level of -5% +15%, consistent with a FSU level of engineering effort. The costs are presented as:





• Free on Rail (FOR), which values full mining and processing operation, up to concentrate loaded onto rail at the filter plant; and

• Free on Board (FOB), which is FOR plus the costs of rail transport and loading onto ships at the port.

Table 25-21: Opex Cost Summary

Annual Operating Cost Area Component

US$ US$/t Responsibility

Personnel 1,664,459 0.05 Fixed cost 15,079,537 0.46

G&A

Area total 16,743,996 0.51 Hatch Labour & wages 11,792,002 0.36 Consumables & Maintenance 50,718,387 1.54 Fuel 23,504,261 0.72 Power 45,097 0.001 MARC/Service Contracts 728,418 0.02 Dewatering 827,338 0.03

Mining

Area Total 87,615,504 2.67 AMEC Labour 8,167,116 0.25 Consumables & Maintenance 64,136,519 1.95 Fuel 1,865,953 0.06 Power 22,760,246 0.69

Plant & Infrastructure

Area total 96,929,834 2.95 Hatch Labour 1,163,136 0.04 Consumables & Maintenance 1,521,345 0.05 Fuel 253,164 0.01 Power 200,977 0.01

Concentrate Filter Plant

Area Total 3,138,623 0.10 Hatch Copper concentrate – rail 13,773,443 0.42 Neuvo Central

Argentino S.A. Molybdenum Concentrate - road 1,882,878 0.06

Concentrate Transportation

Area total 15,656,321 0.48 Hatch Labour 1,329,498 0.04 Hatch Consumables, Services & Maintenance

3,179,200 0.10 Sandwell

Power 74,543 0.00 Hatch

Port

Area total 4,583,241 0.14 224,667,519 6.84 Free on Rail (FOR)

220,084,278 6.28

Free on Board (FOB)

224,667,519 6.84

Copper concentrate rail costs proposal was received from Neuvo Central Argentino S.A., July 17, 2006.

The mining costs were provided by, and are the responsibility of AMEC.

Note: The operating cost estimate is based on unit costs and prices that were obtained between the 4th quarter 2005 and the first quarter 2006. No allowance has been included in this estimate for (a) escalations or (b) foreign exchange variations.





25.24.2 Scope of Estimate The operating cost estimates include all the costs normally expected with the mining, processing and infrastructure activities for a large scale mining operation in this location. The scope includes:

• Mining labour and consumables for operations, maintenance and technical support services and water management in the mine area;

• Process labour and consumables for operations and maintenance for crushing, grinding, flotation and concentrate;

• Concentrate pumping and pipeline operation;

• Filtrate water treatment costs, up to discharge;

• General and administration costs for the operations, including road, tunnel and powerline maintenance, crew rotation by air and property taxes.; and

• Supply of electrical power, including demand charges, and an estimate for line losses.

The scope of the estimate does not include:

• escalation beyond 2Q, 2006 for labour or material prices

• exchange rate fluctuations

• Any allowance for the risk factors that could potentially impact the project (see Section 21 and the exclusions to the capital cost estimate set out in Section 25.23.4)

The detailed operating cost estimates are shown in Appendix C – Operating Cost Estimate of the Feasibility Study Update.

25.24.3 Basis of Estimate

25.24.3.1 General The operating cost estimates are based on the following general project data:

• Feasibility level mine designs to determine the size and makeup of the mine fleet;

• Budgetary quotations for all major consumables, including grinding media, reagents, tires, fuel and explosives;

• Budgetary quotations for chartered air services for crew rotation and camp accommodations;

• Process reagent consumption rates generated from metallurgical testwork and from experience;

• Power requirements generated from material testwork; and

• Power consumption requirements generated from an assessment of the mechanical equipment and service electrical loads.

Note: Budgetary quotations do not provide a commitment by vendors to supply at some future date at these prices.





25.24.3.2 Electrical Power The average unit cost was derived from a blended, demand (MW) and energy (kWh) charge, to give an overall power cost of US$ 0.025/kWh on an annualized basis. The rates were provided by Sigla using tariff estimate software used by EDECAT, the local power company.

Power usage for the project was derived, starting with the “connected load” data from the mechanical equipment list. Equipment power demands under normal operation were assigned and coupled with equipment “on-stream” times to determine the average annual energy usage and cost. The resulting power costs by area are shown in Table 25-22.

Table 25-22: Project Summary Electrical Power Consumption

25.24.3.3 Labour Manning Levels

Manning will be by Argentinean nationals, wherever practical. A limited number of key supervisory positions have been nominated as expatriate, where it is considered unlikely that the required experience can be obtained or is available in Argentina at this time.

The estimated direct manning levels for the operation as proposed in the organization structures and detailed in Appendix C are summarized in Table 25-23 and do not include contract personnel for operation of the camps, molybdenum concentrate haulage or planned maintenance for mill relining.





Table 25-23: Manning Levels

Area Function Number Management 14 Information Systems 3 Material Management 8 Human Resource 3 Safety 6 Environmental 6

G&A

Subtotal G&A 40 Operations 101 Maintenance 118 Technical Services 45 General Management 76

Plant and Infrastructure

Subtotal Process 360 Operations 212 Maintenance 213 Technical Services 37

Mine

Subtotal Mining 462

Management and Administration 8

Operations 24

Maintenance 10

Environmental and Laboratory 12 Filter Plant

Subtotal Filter Plant 54

Management and Administration 16

Operations 22

Maintenance 22 Port

Subtotal Port 60

Total Direct Operations 976

Wage Rates

Labour rates for hourly and staff employees were developed from a survey of base wage rates of a number of large, recent mines in Argentina and from information provided by the Owner. Gross salaries include shift allowances and payments as shown in Table 25-24.

Table 25-24: Shift Allowances and Payments

Allowances Included in Gross Salary %

Turn around bonus 4.4

Holiday 2.6

Sundays 12.5

Saturdays 5.7

Extra time 12.5

Miscellaneous 3.0

Vacations 1.0





The average wage burden rate (approximately 40% over gross salary rate) was established to include the requisite statutory Argentinean, social and medical insurance, pension and the customary bonus costs. These are described as follows

• Social retentions - pension plan, health insurance = 30% of gross

• Mining Association - = 1.5% of gross

• Aguinaldo (one additional monthly salary per year paid 50% in July & December) = 8.3% of gross

The salary wage categories and rates selected for the project are presented in Table 25-25.

Table 25-25: Wage Categories and Rates for the Agua Rica Project

Gross Salary to the Employee by Month Cost to Employer Position

Wage

Category

Mine A

Avg. AR$

7 x 7

Mine B

Avg. AR$

14 x 14

Agua Rica

Avg. AR$

7 x 7

Total/Month

AR$

Assistant without specialization 1 1,930 1,125 1,800 2,516

Assistant, receptionist, secretary, security guard 2 2,750 1,759 2,250 3,145

Technician 3 3,250 1,999 2,850 3,984

Professionals, junior 4 4,250 1,566 3,750 5,242

Supervisors, junior/sub-areas responsible 5 5,000 3,150 4,650 6,500

Area Responsible 6 8,000 5,400 7,000 9,786

Professional or Senior Supervisor 7 9,500 7,000 8,500 11,883

Area Manager 8 11,000 12,000 16,776

Labour III 9 2,800 2,250 2,400 3,355

Labour II 10 4,000 2,600 3,750 5,242

Labour I 11 4,800 3,000 4,400 6,151

Expatriates US$ per annum US$ per annum

Expat 1, General Manager 20 210,000 294,000

Expat. 2, Senior Manager 21 150,000 209,700

Expat. 3, Manager 22 120,000 167,800

Working Schedules

The main operations and maintenance personnel for the mine, process plant, and filter plant facilities will operate 24 hours a day, 365 days a year, manned by four work crews (A,B,C, and D). Each crew will work a schedule of twelve hours, seven days in succession followed by seven days off per the schedule in Table 25-26. Generally, planned maintenance for the mine and process facilities will take place on one twelve hour shift only, although there will be some essential maintenance personnel on shift at all times.





Supervision, engineering and technical services staff will work day shift only, on a four-day week basis. Key supervision, engineering, survey and grade control positions will be covered at all times. Foreman positions for operations and maintenance will be covered on a seven days on, seven days off basis and will rotate with their crews.

The Port crews will generally operate on a day shift, but will cover concentrate unloading and ship loading as necessary, according to the train and shipping schedules.

Table 25-26: Work Shift 7 x 7, 12 Hours

Week Crew Mon. Tues. Wed. Thur. Fri. Sat. Sun.

A D D D D D D D

B N N N N N N N

C - - - - - - - 1

D - - - - - - -

A - - - - - - -

B - - - - - - -

C D D D D D D D 2

D N N N N N N N

A N N N N N N N

B D D D D D D D

C - - - - -- - - 3

D - - - - - - -

A - - - - - - -

B - - - - - - -

C N N N N N N N 4

D D D D D D D D

D = Day Shift; N = Night Shift; - = Day off

25.24.3.4 Consumables Budgetary quotations were obtained for all major consumables from local, regional and international suppliers, including:

• Diesel fuel (0.60 US$/l)

• Explosives

• Grinding media

• Flotation reagents

• Lime

• Mill and crusher liners.

The source of supply, mode of delivery and delivered costs for the consumables are summarized in Table 25-27.




Table 25-27: Consumables


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Table 25-28: Consumable - Consumptions and Costs

Consumption rates for the major consumables are shown above in Table 25-28, The major elements are discussed below:

• Grinding steel consumptions were obtained from similar operations and consistent with Industry experience including the Alumbrera operation. Consumptions are marginally lower than those

• predicted from theoretical modelling by R. Amelunxen. Mill liner steel consumption equates to one complete reline per year for each mill;

• Flotation reagents consumptions (collectors, frothers, depressants) were developed from testwork;

• Flocculant consumption was developed from recent and previous testwork;

• Lime consumption for the concentrator was developed from testwork and in the case of the water treatment plants, from experience and calculation;


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• Water consumption was calculated by mass balance and a unit rate fee for water usage of $0.03/m3, as provided by the Owner; and

• Operating supplies, which include molybdenum concentrate bags, assay laboratory chemicals and supplies, as well as domestic water and sewage treatment costs, were estimated from historic data. An allowance is made for personnel safety equipment and supplies.

25.24.3.5 Maintenance Supplies Routine supplies required for the concentrator are classified as maintenance supplies and materials used to maintain the process and mobile equipment. The cost of supplies and materials for the mining operation are described and carried in the mine operating unit costs.

Maintenance supplies and materials include equipment parts, piping and chutework maintenance, and materials for maintenance of the concentrate pipeline right-of-way. The cost for maintenance supplies and materials for the concentrator and filter plant was factored at approximately 5% of the capital costs for the mechanical, electrical and instrumentation components. Maintenance costs for the overland conveying system were provided by KRUPP, based on the experience of a number of overland conveying and stacking systems. Maintenance costs for the pipeline were provided by BRASS, from the experience of a large number of similar operations.

The estimated annual costs of maintenance supplies by area are shown below.

Table 25-29: Maintenance and Supplies

Area $ M per annum $/t Ore Concentrator 11.63 0.35 Conveying, stacking system 3.66 0.11 Contractors-relining 1.0 0.03 Pipeline 0.32 0.02 Filter plant 0.62 0.02 Port 0.70 0.02

25.24.4 Details by Area

25.24.4.1 General and Administrative Costs The general and administrative costs include the costs of general management personnel and general fixed bonuses and expenses that are common to the operation. General and Administrative costs represent approximately 8% of FOB costs.

Fixed Costs

The major components of the fixed costs are described as follows:

• QM Water Compensation: an allowance for the cost of pumping well water into QM to replace the loss of the natural flow once the pit extends below the QM.

• Mine Access Road Maintenance: an estimate from Ruiz for road maintenance, based on experience of other mountain roads. (See Appendix E-15).


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• Powerline Maintenance: an estimate from IHI for maintenance of the transmission lines on Agua Rica property and for the substations. The costs of maintenance of the TransNOA transmission line section is included in the power rate.

• Environmental Monitoring: an allowance for third party laboratory and survey costs.

• Communications: an allowance for all forms of communications, phone, fax, internet, radio and satellite.

• Crew Transportation: For the purposes of the FSU, it has been assumed that a small proportion (12%) of the project labour force will be flown in from Buenos Aires, Tucuman and Catamarca, with most of the labour residing in local communities. The Owner intends to train and recruit as many local persons as possible, and has initiated a number of programs to assess the training needs to develop the required skills locally. Quotations were received from commercial aviation companies for a scheduled air service to Andalgalá, Campo El Arenal, Tucuman, and Catamarca, requiring one 19 seater aircraft. Quotations were also received for ground transportation of personnel to Santa Maria, Belen and Andalgalá. The detailed schedules are presented in the Operating Cost Schedule in Appendix C. The average cost for flights per person is $4,524 per annum.

• Local Taxes: an allowance for local and municipal taxes, property taxes, etc.

• Tunnel Operations and Maintenance: an estimate for tunnel maintenance, including periodic rock scaling, meshing and grouting and support replacement. This was provided by HMM, based on experience. (See Appendix E-7).

• Insurances: including general business insurance and business interruption insurance.

• Legal Fees: an allowance based on experience from similar operations

• Office Rentals: an estimate for rental of marketing and community offices in Buenos Aires and Santa Maria respectively.

• Small Vehicles: an allowance to cover operation and repairs for company pick-ups.

• Mobile Equipment Rentals: an allowance to cover operations and maintenance costs of additional pick-ups and road maintenance equipment required for short term.

• Andalgalá Housing Allowance: an allowance that the Owner pays to personnel who elect to reside in Andalgalá, based on approximately $5,000 per annum per person for 150 persons.

• Mine and Mill Camp Operations: an estimate to cover the costs of board, lodging and services for the mine and concentrator personnel. Costs are based on the estimates of manning levels per shift and quotes received from a number of National and International contractors. A rate of $40 per man day has been utilized.

Allowances have been made, based on costs from other similar operations, for a range of other general costs including safety and training supplies, janitorial services for offices, consultants, recruiting and relocation, outside laboratory services and costs for regulatory compliance.


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Labour

The senior management, administration, purchasing and marketing personnel will be located in an office facility in Andalgalá. The numbers and functions are presented in Table 25-30, with the categories and wage rates as discussed previously.

The G&A labour complement will work a standard 8 hour day, 5 days per week schedule.

25.24.4.2 Mine Operating Costs Operating costs for the mine area are comprised of costs for labour, fuel, power and consumables. The mining operations include drilling, blasting, loading, hauling and support. Presented below are details of the operating cost components.

Labour

The majority of mine management, administration, operations and maintenance shall be accommodated in the camp at the mine site. The number of personnel and their functions are presented in Table 25-23 and Table 25-30.

Table 25-30: Mine Personnel

Company Cost Per Capita Per Position

# Personnel on Each Rotation

# Personnel on Working Shift Position #

Personnel Wage

Category US$/y US$/y A B Day Night

MINE GENERAL AND ADMINISTRATION

MAINTENANCE 34 1,354,942 18 16 14 3

Mine Maintenance Superintendent - Expatriate 2 22 167,760 335,520 1 1 1 -

Mine Maintenance Superintendent - National 1 8 61,512 61,512 1 1 -

Maintenance, Electrical and Tire Special Projects 1 7 47,532 47,532 1 1 -

Maintenance GF 6 6 39,144 234,864 3 3 2 1

Electrical Planner 2 5 26,003 52,006 1 1 1 -

Electrical GF 4 6 39,144 156,576 2 2 2 -

Tire GF 2 6 39,144 78,288 1 1 1 -

Maintenance Planner 2 5 26,003 52,006 1 1 1 -

Maintenance Training 8 5 26,003 208,022 4 4 2 1

Welding Shop Supervisor 2 6 39,144 78,288 1 1 1 -

Clerk/Secretary 4 2 12,582 50,328 2 2 1 1

OPERATIONS 51 2,104,829 26 25 16 10

Mine Manager - Expatriate - - - - 0 - -

Mine Manager - National - - - - 0 - -

Safety Officer - - - - 0 - -

Administrative Clerk/Assistant - - - - 0 - -

Mine Operations Superintendent - Expatriate 2 21 209,700 419,400 1 1 1 -


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Personnel Wage


Mine Operations Superintendent - National 1 8 61,512 61,512 1 1 -

Mine Trainers 4 5 26,003 104,011 2 2 2 -

Mine Supervisor 12 7 47,532 570,384 6 6 4 2

Dispatch Supervisor 4 6 39,144 156,576 2 2 1 1

Mine Operations General Foremen 4 6 39,144 156,576 2 2 1 1

Drilling and Blasting Supervisor 4 7 47,532 190,128 2 2 1 1

Drillign and Blasting Foremen 8 5 26,003 208,022 4 4 2 2

Special Projects (Dewater/Pioneering) Foremen 4 5 26,003 104,011 2 2 1 1

Dispatch Operators/Programmers 4 4 20,970 83,880 2 2 1 1

Clerk/Secretary 4 2 12,582 50,328 2 2 1 1

ENGINEERING 26 623,508 21 5 21 -

Superintendent Engineering & Geology 1 8 61,512 61,512 1 1 -

Senior Mine Engineer - Long Term 1 7 47,532 47,532 1 1 -

Mine Engineer - Long Term 2 4 20,970 41,940 1 1 1 -

Senior Mine Engineer - Short Term 1 7 47,532 47,532 1 1 -

Mine Engineer - Short Term 3 4 20,970 62,910 3 3 -

Engineering Technician 1 3 15,937 15,937 1 1 -

Chief Surveyor 2 4 20,970 41,940 2 2 -

Surveyor 4 3 15,937 63,749 2 2 2 -

Senior Geotechnical/Hydrological Engineer 1 7 47,532 47,532 1 1 -

Geotechnical/Hydrological Engineer 3 4 20,970 62,910 3 3 -

Drill Engineer 2 4 20,970 41,940 1 1 1 -

Blast Engineer 2 4 20,970 41,940 1 1 1 -

Dispatch Engineer 1 4 20,970 20,970 1 1 -

Clerk/Secretary 2 2 12,582 25,164 2 2 -

GEOLOGY 11 248,564 11 - 8 3

Chief Geologist 1 7 47,532 47,532 1 1 -

Senior Geologist 1 6 39,144 39,144 1 1 -

Pit Geologist 2 4 20,970 41,940 2 2 -

Exploration Geologist 1 4 20,970 20,970 1 1 -

Grade Control Geologist 2 4 20,970 41,940 2 1 1

Sampling Technologist 2 3 15,937 31,874 2 1 1

Clerk/Secretary 2 2 12,582 25,164 2 1 1

MINE OPERATIONS AND MAINTENANCE

GENERAL 56 1,222,970 28 28 16 12

Operations

Tool Crib Attendant 2 10 20,970 41,940 1 1 1 -

Warehouse Attendant 4 10 20,970 83,880 2 2 1 1


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Personnel Wage


General Mine Labourer 6 9 13,421 80,525 3 3 2 1

Trainee 2 9 13,421 26,842 1 1 1

Maintenance

Light Duty Mechanic 4 11 24,605 98,419 2 2 1 1

Tire Shop Operators 4 11 24,605 98,419 2 2 1 1

Lube Truck Driver 4 10 20,970 83,880 2 2 1 1

Apprentice 4 10 20,970 83,880 2 2 1 1

Electricians 6 11 24,605 147,629 3 3 2 1

High Tension Linesmen 8 11 24,605 196,838 4 4 2 2

Electrical Technicians 8 11 24,605 196,838 4 4 2 2

Pit Dewatering Mechanics 4 10 20,970 83,880 2 2 1 1

DRILLING 21 516,701 11 10 7 4

Operations

Drill Operator 1 14 11 24,605 344,467 7 7 4 3

Drill Operator 2 - 11 24,605 - 0 - - -

Maintenance

Heavy Duty Mechanic 5 11 24,605 123,024 3 2 2 1

Welder 2 11 24,605 49,210 1 1 1 -

Apprentice - 10 20,970 - 0 - -

BLASTING 12 295,258 6 6 4 2

Operations

Blasters 4 11 24,605 98,419 2 2 1 1

Blaster Helper 8 11 24,605 196,838 4 4 2 2

LOADING 47 - 1,156,426 24 23 13 11

Operations

Hydraulic Front Shovel 22 m3 8 11 24,605 196,838 4 4 2 2

Hydraulic Front Shovel 40 m3 8 11 24,605 196,838 4 4 2 2

Wheel Loader 20 m3 4 11 24,605 98,419 2 2 1 1

Wheel Loader 40 m3 8 11 24,605 196,838 4 4 2 2

Road Graders 4 11 24,605 98,419 2 2 1 1

Maintenance


Welder 5 11 24,605 123,024 3 2 2 1

Apprentice - 10 20,970 - 0 - -

HAULING 170 3,761,179 85 85 46 39

Operations Haul Trucks (145 t) 24 10 20,970 503,280 12 12 6 6


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Personnel Wage


Haul Trucks (290 t) 92 10 20,970 1,929,240 46 46 23 23

Maintenance - - - -


Welder 18 11 24,605 442,886 9 9 5 4

Apprentice - 10 20,970 - 0 - -

MINE OPERATIONS SUPPORT 93 2,117,411 48 45 26 22

Operations

Dozer Operator 30 10 20,970 629,100 15 15 8 7

Grader / RT Operator 20 11 24,605 492,096 10 10 5 5

Water Truck Driver 12 10 20,970 251,640 6 6 3 3

Excavator Operator 12 11 24,605 295,258 6 6 3 3

Maintenance

Heavy Duty Mechanic 9 11 24,605 221,443 5.00 4.00 3 2

Welder 5 11 24,605 123,024 3.00 2.00 2 1

Apprentice 5 10 20,970 104,850 3.00 2.00 2 1

Labour costs represent approximately 13% of total mine operating cost.

Consumables and Maintenance Materials

Mine consumables and maintenance materials include fuel, explosives, tires, ground engaging tools, lubricants and normal maintenance items. The schedule of consumables and maintenance materials is presented in Mine Operating Cost Summary table in Appendix C. Consumables and maintenance, except for fuel, represent approximately 58% of total mine area operating cost.

Fuel

Average annual fuel consumption during production period is 39 million litres, which shall be consumed mainly by haul trucks, mining shovel loaderss, drills, dozers, road graders and service vehicles. Diesel fuel costs represent approximately 27% of total mine area operating cost.

Power

Power costs represent approximately 0.05% of total mine area operating cost.


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25.24.4.3 Process Plant Operating Costs Operating costs for the process plant and support infrastructure are comprised of costs for labour, consumables and maintenance, power and fuel. The process plant area in this account encompasses the crushers, concentrator, ore waste and tailings conveying and stacking systems, the concentrate pipeline and the support infrastructure in the vicinity of the concentrator in Campo El Arenal. These cost elements are discussed below.

Labour

The plant management and administration, operations and maintenance personnel will all be accommodated in the Camp near the concentrator. The numbers of personnel and their functions are presented in Table 25-23 and Table 25-31, with wage categories, rates and shift schedules.

Table 25-31: Plant Administration, Operations and Maintenance

Company cost per capita per position

# personnel on each rotation

# personnel on working shift Position #

personnel Wage

category US$/y US$/y A B Day Night

Administration 20 723,605 12 7 9 3 Mill manager 1 21 209,700 209,700 1 1 - Mill superintendent 1 8 61,512 61,512 1 1 - Pipeline superintendent 1 8 61,512 61,512 1 1 - Accounting technician 1 5 26,003 26,003 1 1 - Accounting payable clerk 1 5 26,003 26,003 1 1 - General clerk 2 9 13,421 26,842 1 1 1 - Security 12 5 26,003 312,034 6 6 3 3 Conveyor superintendent 1 8 61,512 61,512 1 - 1 - Information Technologies 2 52,006 1 1 1 - IT Technicians 2 5 26,003 52,006 1 1 1 -

Materials management 17 206,904 5 4 4 1 Materials manager 1 6 39,144 39,144 1 1 - Warehouse foreman 2 4 20,970 41,940 1 1 1 - Warehouse clerk 6 4 20,970 125,820 3 3 2 1 Warehouse helpers 8 9 13,421 107,366 4 4 2 2 Human resources 2 41,940 1 1 1 - HR assistant 2 4 20,970 41,940 1 1 1 - Health & Safety 16 468,610 8 8 5 3 Safety supervisor 2 6 39,144 78,288 1 1 1 - Safety officer 8 5 26,003 208,022 4 4 2 2 Nurse 4 5 26,003 104,011 2 2 1 1 Trainer 2 6 39,144 78,288 1 1 1 -

Services 12 455,189 7 5 6 1 Chief electrical engineer 1 8 61,512 61,512 1 1 - Electrical engineer 1 7 47,532 47,532 1 1 - Site services supervisor 2 7 47,532 95,064 1 1 1 - Engineering technicians 4 5 26,003 104,011 2 2 1 1 Maintenance planner 2 5 26,003 52,006 1 1 1 - Mechanical engineer 2 7 47,532 95,064 1 1 1 - Environmental 7 217,529 4 3 4 - Environmental superintendent 1 8 61,512 61,512 1 1 - Environmental supervisor 2 5 26,003 52,006 1 1 1 - Environmental technician 4 5 26,003 104,011 2 2 2 - Mill operations 111 2,009,206 52 51 28 24


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Company cost per capita per position



personnel Wage


Mill Ops. GF 1 7 47,532 47,532 1 1 - Mill Ops. Foreman 4 6 39,144 156,576 2 2 1 1 Mill Clerk 2 4 20,970 41,940 1 1 1 - Control room operator 6 11 24,605 147,629 3 3 2 1 Crusher Operator 8 10 20,970 167,760 4 4 2 2 Grinding Operator 4 10 20,970 83,880 2 2 1 1 Flotation operator 4 10 20,970 83,880 2 2 1 1 Tailings Filter Operator 8 10 20,970 167,760 4 4 2 2 Reagents Operator 2 10 20,970 41,940 1 1 1 - Sample Bucker 4 10 20,970 83,880 2 2 1 1 Mill Helper 4 10 20,970 83,880 2 2 1 1 Conveyor/Stacking system operator 20 10 20,970 419,400 10 10 5 5 Dozer operator 4 9 13,421 53,683 2 2 1 1 Pipeline operators 16 9 13,421 214,733 8 8 4 4 Labourer 16 9 13,421 214,733 8 8 4 4 Pipeline foreman 4 6 39,144 156,576 2 2 1 1 Conveyor operations foreman 4 6 39,144 156,576 2 2 1 1 Metallurgy 7 511,668 4 3 3 1 Chief Metallurgist 1 20 349,500 349,500 1 1 - Metallurgist 2 6 39,144 78,288 1 1 1 - Technicians 4 10 20,970 83,880 2 2 1 1 Chemical laboratory 22 465,814 12 10 8 4 Chief Assayer 1 7 47,532 47,532 1 1 - Senior Assayer 1 6 39,144 39,144 1 1 - Assayers 4 5 26,003 104,011 2 2 1 1 Technician 8 10 20,970 167,760 4 4 3 1 Helpers 8 9 13,421 107,366 4 4 2 2 Plant maintenance 118 2,388,343 64 54 36 28 Mill Mtce General Foreman 1 7 47,532 47,532 1 1 - Mill maintenance superintendent 1 8 61,512 61,512 1 1 - Process Control Supervisor 4 5 26,003 104,011 2 2 1 1 Project Supervisor 2 4 20,970 41,940 2 2 - Senior Planner 2 6 39,144 78,288 2 2 - Planner 2 5 26,003 52,006 2 2 - Mech. Millwright Foreman 2 11 24,605 49,210 2 2 - Mech. Millwright 16 10 20,970 335,520 8 8 4 4 Mech. Millwright - Apprentice 4 9 13,421 53,683 2 2 1 1 Mech. Welder 12 10 20,970 251,640 6 6 4 2 Mech. Welder Apprentice 4 9 13,421 53,683 2 2 1 1 Mech. Lubeman 4 10 20,970 83,880 2 2 1 1 Mech. Maintenance Helper 8 9 13,421 107,366 4 4 4 Electrician - Foreman 4 11 24,605 98,419 2 2 1 1 Electrician 16 10 20,970 335,520 8 8 4 4 Electrician - Apprentice 4 9 13,421 53,683 2 2 1 1 Instrumentation - Foreman 4 10 20,970 83,880 2 2 1 1 Instrumentation 16 10 20,970 335,520 8 8 4 4 Instrumentation - Apprentice 4 9 13,421 53,683 2 2 1 1 Instrumentation - Helper 8 9 13,421 107,366 4 4 2 2 Site services 16 626,304 8 8 3 5 Carpenter 2 6 39,144 78,288 1 1 1 - Electrician 4 6 39,144 156,576 2 2 1 1 Helpers 10 6 39,144 391,440 5 5 1 4


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Labour costs represent approximately 9% of total process costs. The operations and maintenance crews for the crushers, concentrate pipeline and conveying/stacking systems, are integrated into the process plant complement.

Consumables and Maintenance

The schedule of consumables and maintenance costs are presented in Table 25-28 and Table 25-29. Consumable and maintenance costs represent 50% and 18% respectively, of total process costs.

Power

The estimate of electrical power consumption is summarized in Table 25-22. Operating load for the Campo El Arenal process and infrastructure facilities is approximately 106 MW. Power costs represent approximately 22% of total process costs.

Fuel

Approximately 3.1 Ml of diesel fuel will be consumed per year at the plantsite by a fleet of mobile equipment required to support process operations, including:

• Three DII dozers at the waste and dry tailings disposal site;

• Front end loaders, forklifts and backhoes;

• Pick-up trucks;

• Mobile cranes; and

• Small dump trucks.

Diesel fuel costs represent approximately 2% of total process costs.

25.24.4.4 Concentrate Filter Plant The concentrate filter plant costs are comprised of costs for the operating and maintenance of the concentrate filtration equipment, the filtrate water treatment plant for disposal of the treated water, and the loading of filtered concentrate into rail wagons. The cost elements are discussed in the following sections. Filter plant costs represent approximately 1.4% of FOB costs.

Labour

The filter plant will operate 24 hours per day, 365 days per annum. All the personnel will reside in the city of Tucuman.

The manning levels, functions, wage categories and rates are presented in Table 25-32.


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Table 25-32: Concentrate Filter Plant – Personnel

# personnel on each rotation # personnel on working shift Area # personnel Company cost,

US$/y A B Day Night Filter plant 54 1,163,136 35 19 28 7 G&A Filter and Water treatment plant 8 179,783 6 2 5 1

Filter & Water treatment operations 24 397,032 12 12 7 5

Environmental & Laboratory 12 279,880 8 4 7 1

Filter plant maintenance 10 306,442 9 1 9 -

Company cost

per capita per position



personnel Wage


G&A Filter and Water treatment plant 8 179,783 6 2 5 1

Filter plant superintendent 1 8 61,512 61,512 1 1 -

Administration assistant 1 2 12,582 12,582 1 - 1 -

IT Technician 1 5 26,003 26,003 1 - 1 -

Clerk 1 3 15,937 15,937 1 - 1 -

Security 4 3 15,937 63,749 2 2 1 1

Filter & Water treatment operations 24 397,032 12 12 7 5

Filter plant operations foreman 4 11 24,605 98,419 2 2 1 1

Filter plant operator 4 10 20,970 83,880 2 2 1 1

Helper 8 9 13,421 107,366 4 4 3 1

Control room operator 4 9 13,421 53,683 2 2 1 1

Railcar loading operator 4 9 13,421 53,683 2 2 1 1

Environmental & Laboratory 12 279,880 8 4 7 1

Environmental supervisor 1 6 39,144 39,144 1 1 -

Environmental technician 4 5 26,003 104,011 2 2 2 -

Assayer 1 10 20,970 20,970 1 1 -

Laboratory helper 4 10 20,970 83,880 2 2 1 1

Agricultural technician 2 3 15,937 31,874 2 2 -

Filter plant maintenance 10 306,442 9 1 9 -

Filter plant maintenance foreman 2 7 47,532 95,064 1 1 1 -

Electrical engineer 1 6 39,144 39,144 1 1 -

Instrumentation engineer 1 6 39,144 39,144 1 1 -

Millwright 2 11 24,605 49,210 2 - 2 -

Helper 2 10 20,970 41,940 2 2 -

E&I technicians 2 10 20,970 41,940 2 2 -

Labour costs represent approximately 37% of total concentrate filter plant area costs.


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Consumables and Maintenance

The schedule of consumables and maintenance costs included in Table 25-27, Table 25-28 and Table 25-29. Consumable costs relate largely to lime, and water waste treatment. Maintenance costs were estimated at 5% of installed mechanical, electrical and instrumentation costs, and include routine filter cloth replacements. Consumable and maintenance costs represent approximately 48% of total area costs.

Power

The estimate of electrical power consumption is presented in Table 25-22 for an operating load of 1.8 MW. Power costs represent approximately 6% of the total area costs.

25.24.4.5 Concentrate Transportation The costs of concentrate transportation include the costs for rail transportation of copper concentrate from the filter plant at Tucuman to the Port near Rosario, and the costs of road transportation of molybdenum concentrate from the concentrator to the smelters in Chile. Concentrate transport costs represent approximately 7% of FOB costs.

Copper Concentrate Transportation

Rail transportation costs are based on contract rates from NCA for the transportation of an average of 571,536 wmt annually (includes moisture content of 8%), a distance of 832 km. The rates include the costs of supplying three locomotives, 162 wagons of 34 t capacity, and the operating and maintenance of the equipment and facilities. The costs equate to approximately $24/t of concentrate or 2.9c/t/km.

Molybdenum Concentrate Transportation

Costs were based on a trucking unit rate of 14 c/t/km, a distance of 900 km and a production rate of 14,943 wmt per annum of concentrate.

Port

Port operating costs cover the unloading of filtered concentrate from rail wagons, storage, reclaim and loading ships. The costs include labour, consumables, services and power for the operation and maintenance of the facilities. The port costs represent approximately 2% of the FOB cost.

Labour

The Port will be operating 365 days per year, with crews available to unload trains and load ships, as necessary. All personnel will live in adjacent communities.

The manning levels are presented in Table 25-33


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Table 25-33: Port Personnel

# personnel on each rotation # personnel on working shift Area #

personnel Company cost,

US$/y A B Day Night

Port personnel 60 1,329,498 32 28 26 6 Port administration 16 341,951 9 7 8 1

Port operations 22 385,848 12 10 7 5 Port maintenance 22 601,699 11 11 11 -

Port labour costs represent approximately 29% of total area costs.

Other Port Operating Costs

Consumables and services include:

• Navigation costs including the costs of tugs;

• Parts, consumables, and outside services;

• Operation of mobile equipment consists of the costs for operating and maintenance of the excavator for unloading concentrate and FEL for reclamation from storage; and

• Land lease of the site from Terminal 6.

These costs are summarized in Table 25-34.

Table 25-34: Port Operating Cost

Item Annual Cost US$

Navigation Cost 1,389,600

Parts, Consumables, and Outside Services 698,500

Operations of Mobile Equipment 91,100

Lease of Terminal Site 1,000,000

Labour 1,329,498

Power 74,543

Total Cost 4,583,241

25.25 Financial Analysis This financial evaluation of the project has been undertaken on a discounted cash flow (DCF) basis for a 90,000 tpd processing rate. Production is assumed to commence in January 2010, 32 months after receipt of project permits. Mining of current reserves will be complete after 24 years.

At the estimated copper prices, the Agua Rica Base Case provides an Internal Rate of Return (IRR) of 15% over the 23-year period on an initial investment of US$ 2,123.368 million. Payback is approximately four years after start of production.


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The project is most sensitive to the price of copper. If the base price of copper is decreased by 10%, IRR will decrease by 3.0% whereas a 10% price increase will increase the IRR by 2.9%. Changes in the operating costs and capital costs also impact the IRR.

If operating costs increase by 10% the IRR decreases by 1.4%, whereas a 10% Opex decrease will increase the IRR by 1.3%. If continued costs increase by 10% the IRR decreases by 1.9%, whereas a 10% decrease in Capex will increase the IRR by 2.3%.

Gold/Molybdenum price fluctuations have a relatively small impact on the IRR.

25.25.1 Qualifications, Assumptions and Exclusions The analysis set out in Section 25.25 has been developed based on the capital and operating cost estimates set out in Sections 25.23 and 25.24, and is therefore generally subject to the same qualifications, assumptions and exclusions. For example, the occurrence of any of the risk factors that have been excluded from the capital and operating cost estimates would likely have a material impact on the economic analysis set out in Section 25.25.

25.25.1.1 Economic Parameters In the cases denominated “real”, all prices and costs are given in constant United States dollar terms starting with estimates done June 2006.

25.25.1.2 Metal Price Estimates This analysis is based on the following price estimates; in US dollars (2006):

Table 25-35: Metal Price Estimates


Gold (US$/oz)

Silver (US$/oz)

Molybdenum (US$/lb)

2010 2.40 795 8.00 10.00

2011 2.16 835 8.00 10.00

2012 1.53 465 8.00 8.50

2013 1.45 465 8.00 8.50

2014 1.38 465 8.00 8.50

2015 1.38 465 8.00 8.50

2016 1.40 465 8.00 8.50

2017 1.35 465 8.00 8.50

2018 1.36 465 8.00 8.50

2019 1.37 465 8.00 8.50

2020 1.25 465 8.00 8.50

2021 1.26 465 8.00 8.50

2022 1.32 465 8.00 8.50

2023 1.25 465 8.00 8.50

2024 1.23 465 8.00 8.50


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Gold (US$/oz)

Silver (US$/oz)

Molybdenum (US$/lb)

2025 1.31 465 8.00 8.50

2026 1.29 465 8.00 8.50

2027 1.27 465 8.00 8.50

2028 1.30 465 8.00 8.50

2029 1.21 465 8.00 8.50

2030 1.26 465 8.00 8.50

2031 1.26 465 8.00 8.50

2032 1.26 465 8.00 8.50

LOM Average 1.40 495 8.00 8.63

Current forward prices for copper and gold were used for 2010 and 2011. Other prices were obtained from the report by Neil S. Seldon & Associates in Appendix E-10.

25.25.1.3 Copper and Molybdenum Payment terms Payable copper is estimated at 96.5% of contained copper in concentrate, with a minimum deduction of 1% of grade. Payable Molybdenum is estimated at 100%. A 0.125% deduction in copper concentrate has been applied for loss during shipping transfer.

25.25.1.4 Gold and Silver Payment Terms Gold payment is based on a deduction of 0.5 grams per dmt and payment of 97.5% of balance. Silver is based on a deduction of 15 grams per dmt, and payment of 95% of the balance.

25.25.1.5 Penalty Charges for Impurities The penalty charges for impurities in the concentrate have been based on data in the following table:

Table 25-36: Concentrate Impurities Cost

Impurity Level at which Penalties Begin

Charge per Unit

US$ Unit Charge

Arsenic 0.20% 3.00 0.10%

Lead 1.00% 3.00 1.00%

Zinc 3.00% 3.00 1.00%

25.25.1.6 Provincial Royalty Based on the fiscal stability agreement, the provincial royalty has been estimated to be 3% of the value of the ore (i.e. a Mine Mouth Value). This value is calculated as gross revenue less, deductible cash costs consisting of treatment and refining charges, freight, concentrator & pipeline costs, marketing costs and overheads not allocated to the mining process.


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25.25.1.7 Capitalized Costs All costs incurred prior to the commencement of production, including G&A costs and mine stripping costs, are capitalized during the construction period and are amortized upon commencement of production.

25.25.1.8 Contingencies Contingencies have been applied on a commodity basis to capital costs and a Monte Carlo simulation was run. The average contingency is 14% (expressed as Contingency/Direct costs).

25.25.1.9 Working Capital The financial model includes working capital equivalent to three month’s operating expenses.

25.25.1.10 Depreciation Depreciation is based on construction capex plus sustaining capital plant and mining equipment amortized over the first three years of operation on the basis of 331/3%, 331/3% and 331/3%, and all other fixed assets amortized over the first three years of operation on the basis of 60%, 20% and 20%.

25.25.2 Production Parameters The Base Case for the financial analysis is predicated on the Process Facilities being located in the Los Corrales, with concentrate being shipped via pipeline to Tucumán and onward by rail to the exit port. The tailings deposit is based on filtration and stacking.

25.25.2.1 Ore Grades to Process The following ore grades and stripping ratios, as stated in the mine plan, have been used:


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Table 25-37: Ore Grades and Stripping Ratios for the Mine Plan

Production Data Ore Grades

Ore Mined Data Waste mined Strip Ratio Cu Mo Au Ag Financial Year

'000 tonnes '000 tonnes % % g/t g/t

Preproduction

2007 0 27055

2008 0 51683

2009 104 98596

Production

Q1 3018.9 24873 8.24 0.79% 0.018% 0.457 1.895

Q2 6246 24873 3.98 1.02% 0.018% 0.447 2.188

Q3 8212.5 24873 3.03 0.88% 0.018% 0.421 2.468

2010 Q4 8212.5 24873 3.03 0.94% 0.020% 0.388 1.860

Q1 8212.5 31204 3.80 0.92% 0.018% 0.387 2.177

Q2 8212.5 31204 3.80 0.77% 0.019% 0.349 2.142

Q3 8212.5 31204 3.80 0.71% 0.027% 0.322 2.355

2011 Q4 8212.5 31204 3.80 0.51% 0.029% 0.229 3.022

Q1 8212.5 23532 2.87 0.36% 0.055% 0.103 2.718

Q2 8212.5 23532 2.87 0.55% 0.075% 0.136 3.298

Q3 8212.5 23532 2.87 0.78% 0.073% 0.166 3.235

2012 Q4 8212.5 23532 2.87 0.84% 0.058% 0.195 3.290

Q1 8212.5 25095 3.06 0.84% 0.049% 0.233 3.667

Q2 8212.5 25095 3.06 0.81% 0.039% 0.243 3.775

Q3 8212.5 25095 3.06 0.87% 0.032% 0.261 3.677

2013 Q4 8212.5 25095 3.06 0.79% 0.025% 0.237 3.139

Q1 8212.5 25603 3.12 0.70% 0.022% 0.242 3.727

Q2 8212.5 25603 3.12 0.63% 0.021% 0.290 4.428

Q3 8212.5 25603 3.12 0.54% 0.017% 0.345 5.666

2014 Q4 8212.5 25603 3.12 0.48% 0.016% 0.325 5.051

2015 32850 91346 2.78 0.44% 0.033% 0.191 2.271

2016 32850 78160 2.38 0.56% 0.046% 0.200 2.377

2017 32850 84753 2.58 0.53% 0.037% 0.248 3.404

2018 32850 55733 1.70 0.48% 0.024% 0.264 5.194

2019 32850 69218 2.11 0.50% 0.018% 0.258 2.783

2020 32850 44267 1.35 0.46% 0.039% 0.250 2.872

2021 32850 31945 0.97 0.50% 0.038% 0.246 4.341

2022 32850 30370 0.92 0.45% 0.033% 0.219 4.683

2023 32850 47491 1.45 0.38% 0.030% 0.194 4.280

2024 32850 54410 1.66 0.36% 0.025% 0.192 3.779

2025 32850 76421 2.33 0.33% 0.020% 0.174 3.448


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Production Data Ore Grades

Ore Mined Data Waste mined Strip Ratio Cu Mo Au Ag Financial Year

'000 tonnes '000 tonnes % % g/t g/t

2026 32850 88753 2.70 0.43% 0.047% 0.168 2.805

2027 32850 52830 1.61 0.38% 0.043% 0.167 2.625

2028 32850 26123 0.80 0.40% 0.030% 0.205 4.252

2029 32850 12193 0.37 0.40% 0.029% 0.286 6.498

2030 32850 6375 0.19 0.41% 0.033% 0.240 3.761

2031 32850 5342 0.16 0.46% 0.036% 0.217 4.146

2032 15043.7 1503 0.10 0.56% 0.040% 0.187 5.169

LOM Total / Average 730687.7 1555796 1.89 0.50% 0.033% 0.231 3.660

25.25.2.2 Recoveries and Concentrate Grades The following recoveries and grades are used in the Base Case financial model:

Table 25-38: Base Case Financial Model

Copper Concentrate Produced Years 1-10 Years 11-24 LOM

Copper recovery 84.4% 85.3% 84.8%

Gold recovery 51.70% 53.71% 52.7%

Silver recovery 63.20% 67.15% 65.6%

Arsenic recovery NA NA NA

Lead recovery NA NA NA

Zinc recovery NA NA NA

Moisture, % 8.00% 8.00% 8.00%

Copper grade, % 28.1% 23.7% 25.87%

Gold grade, g / ton 7.163 7.579 7.375

Silver grade, g / ton 110.3 178.7 145.1

Arsenic grade, ppm 4412 7132 5796

Zinc grade, % 2.40% 5.39% 3.92%

Molybdenum Concentrate

Copper recovery 0.03% 0.05% 0.04%

Molybdenum recovery 67.5% 68.3% 68%

Molybdenum grade in concentrate 52% 52% 52%


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25.25.3 Taxation There are three principal taxes under Argentina’s federal tax system: income, value added, and financial transaction taxes. A number of smaller taxes also apply, such as excise taxes and taxes on income, personal wealth, corporate assets and payroll. The provinces and the city of Buenos Aires also apply property and sales taxes.

Argentinean corporations must report their taxable income on a worldwide basis. Branches registered in Argentina of companies that are incorporated abroad are also treated as resident corporations for income tax purposes. Minera Agua Rica Sucursal is the Argentinean branch of Minera Agua Rica LLC and is thus taxed as an Argentinean corporation.

The data in this Section was provided by Northern Orion and Beretta Kahale Godoy (Due Diligence Report dated July 25, 2006) and has not been verified by Hatch.

25.25.3.1 Tax Rates The statutory rate of tax applicable to Minera Agua Rica as a mining company is 33%, compared to a statutory tax rate of 35% for non-mining companies. This rate is protected under a fiscal stability regime which also provides for defined treatment in terms of special deductions for interest paid on foreign loans.

Changes and potential changes to the tax regime, resulting from the 2001-02 Argentine political, economic and social crisis have been and are a risk to the estimated levels of future cash flow. However, it is not expected that any increased taxation would have a material effect on the value of the property or on cash flow, given the existing protection of fiscal stability under the Mining Investment Law granted by the government to the project.

25.25.3.2 Taxable Income Defined In determining taxable income, the profit or loss shown in the financial statements is adjusted by adding non-deductible expenses and deducting non-taxable or exempt income and other allowable deductions or expenses which are not accounted for in the accounting records. All deductions are subject to government review.

Corporations may generally deduct all expenses incurred in obtaining locally and foreign-sourced income.

25.25.3.3 Interest and Thin Capitalization Rules Interest paid on loans is generally deductible, but is subject to the thin-capitalization rules which restrict the deductibility of such interest. When foreign-based controlling entities provide loans to an Argentinean corporation, the interest is not deductible if it exceeds two times the amount of the shareholders’ equity at the corporation’s fiscal year-end. The exception is when interest is paid to foreign recipients in respect of loans that may have been procured abroad and is considered as deemed or presupposed as 100% Argentinean-sourced income and consequently subjected to 35% income tax withholding. Minera Agua Rica is exempt from the thin capitalization rules.


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25.25.3.4 Depreciation All tangible fixed assets, except land, which generate taxable income can be depreciated for tax purposes. The standard method is straight-line depreciation, although other methods are allowed provided they are considered technically appropriate. The usual rates are 2% for buildings; 5-10% for machinery and equipment; 10% for furniture and fixtures and 20% for tools and motor vehicles. For machinery and equipment with a shorter life expectancy than that implied under the standard rates, special depreciation rates may be negotiated with the National Tax Directorate.

The Mining Development Law (Law 24196 of May 1993) permits a 100% tax deduction in the year incurred for investments in prospecting, exploration, special studies, mineral and metal testing, pilot plants and other expenses related to determining the feasibility of mining activities.

In addition, for mining companies the following depreciation allowances apply for income tax purposes:

• Investments in equipment and construction to provide the required infrastructure may be amortized as to 60% during the first fiscal year and the remainder in two equal instalments over the following two years; and

• Investments in plant and mining equipment, vehicles, etc, not included in the above may be amortized one-third per year as from the start-up date.

25.25.3.5 Tax on Deemed Minimum Income (Tax on Assets) This tax (minimum presumed income tax or “MPIT”) is imposed upon the assets of Argentinean business entities (located both in Argentina and overseas) at the rate of 1%. It is also levied on the assets located in Argentina of permanent establishments owned by foreign individuals or entities. The income tax paid in a fiscal year can be offset against MPIT in the same year. If MPIT exceeds income tax, then it can be carried forward for 10 years and offset against income tax. Minera Agua Rica’s assets are exempt from MPIT under the Mining Promotional Regime Law No. 24196.

25.25.3.6 Tax Losses Operating losses may be carried forward for five years to offset future net income. Losses resulting from the disposal of shares, quotas and other interests, however, may only be offset by the income earned from such disposals. Foreign-sourced losses may only be offset by foreign-sourced income. No carryback of losses is permitted. In a merger or amalgamation, provided that specific conditions are met, the continuing company may carry forward the tax losses of the absorbed company provided that such tax losses had not been used up for offsetting purposes.

25.25.3.7 Foreign Income and Tax Treaties According to the Ministry of Economy and Production, Argentina has comprehensive treaties for the avoidance of double taxation with certain countries, a few of which are summarized below.


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Table 25-39: Taxation Treaties Between Argentina and Other Countries

Country Dividends resulting from revenues that have not been income-taxed (%)

Interest (%) Royalties (%)

Austria 15 12.5 15

Canada 10 or 15 12.5 15

Germany 15 15 15

Sweden 10 or 15 12.5 15

UK 10 or 15 12 15

Belgium 10 or 15 12 15

25.25.3.8 Transfer Pricing There are specific transfer-pricing rules in the Income Tax Law that are based on the notion of an arm’s-length transaction for the assessment of the price between related parties. Depending on the type of transaction involved, the Income Tax Act defines several criteria to be used for determining the price of any deal closed between related parties, and these criteria basically follow the OECD principles. Special tax returns furnishing details about the transactions subject to transfer-pricing rules have to be filed with the Argentine Tax Bureau (AFIP) twice a year and, in addition, a transfer-pricing study certified by a CPA must be filed once a year.

25.25.3.9 Value Added Tax (VAT) Minera Agua Rica is subject to a 21% value-added tax (VAT), which applies to almost all transactions. It is levied at all stages of import, production and trading, including retailing. Full reimbursements of VAT are available to mining companies.

The importation of services is VAT-taxed. This stipulation comprises all services that are rendered outside Argentina but that are put to economic use in Argentina, and only in the case where the recipient of such services is a VAT-registered taxpayer. VAT-taxed services encompass technical assistance, advertising, data processing, interest and other financial charges. Exports of goods are exempt from VAT, and the tax paid on export components is refundable.

Performances of services that have taken place in Argentina but that are of economic use overseas are considered as exportation of services and are not VAT-taxed.

25.25.3.10 Turnover Taxes All of Argentina’s state jurisdictions as well as the government of Buenos Aires F.D. jurisdiction levy turnover tax (impuesto a los ingresos brutos) on the gross revenue of any enterprise that carries out commercial, industrial, agricultural, financial or professional activities. Turnover tax legislation does not allow the computation of a tax credit on account of payments of other taxes. No credit is given for tax paid at previous stages; consequently, the cumulative effect of this tax is a substantial one. Tax rates vary depending on the type of activity and the turnover tax act of each state, but the average rate is around 3%.


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As part of a fiscal pact between the federal government and the various jurisdictions, productive activities are excluded from turnover tax; the idea of lawmakers has been to focus this tax mainly on the wholesale and resale sectors. State jurisdictions have been allowed to select the activities to which this benefit is granted, but they have reacted in different ways. Generally, the state jurisdictions having limited levels of economic activity have extended this benefit onto most sectors, while those having significant levels of activity (mainly Buenos Aires, Córdoba and Santa Fe) have been restrictive.

25.25.3.11 Other Taxes A federal tax based on credits and debits registered in Argentinean bank accounts was created under the Competitiveness Laws in April 2001 (Law 25413). The applicable tax rate is 0.6% on debits and credits in bank accounts, except salaries deposited directly to current accounts and transactions within the financial system.

25.25.4 Financial Indicators

25.25.4.1 Cash Flow and Payback The financial evaluation presented herein assumes 100% equity financing of the project.

Table 25-40: Base Case Summary -- Cash Flow Through Payback of Investment

2009 (pre-construction)

2010 2011 2012 2013 2014 Financial Year

US$000s US$000s US$000s US$000s US$000s US$000s

Gross Revenue 1,271,575 1,188,755 849,974 925,913 653,093

Processing Costs (148,303) (171,050) (166,303) (183,508) (168,051)

Operating Costs (223,270) (282,718) (254,365) (260,144) (262,021)

Sustaining Capital (67,808) (12,206) 0 (468) (14,284)

Cash Flow (Pre-Tax, Pre-Royalties) 832,195 722,780 429,306 481,793 208,737

Income Tax 0 (64,907) 0 0 (58,697)

Royalties (30,470) (26,420) (16,399) (18,161) (10,440) Cash Flow (After-Tax, After-Royalties) 801,725 631,454 412,907 463,633 139,601

Pre-Tax, Pre-Royalties Accumulated Cash Flow (2,179,185) (1,346,991) (624,210) (194,904) 286,889 495,627

After-Tax, After-Royalties Accumulated Cash Flow (2,179,185) (1,377,460) (746,006) (333,099) 130,534 270,135

This table demonstrates that payback occurs in the 4th year of production.

25.25.4.2 Internal Rate of Return and Net Present Value

Table 25-41: Rate of Return

Pre-Tax, Pre-Royalty IRR After-Tax, After-Royalty IRR

Nominal IRR 15% 12%


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Table 25-42: Net Present Value of Discounted Cash Flow

Discount Rate, % 0 8 10 15

NPV Pre-Tax, Pre-Royalty, US$MM 3853 868 536 (1)

NPV After-Tax, After-Royalty, US$MM 2421 372 138 (245)

25.25.5 Sensitivity Analysis The base case sensitivity to the following variations in economic parameters:

• Plus or minus 10%, 20% change in metal prices

• Plus or minus 10%, 20% change in operating costs

• Plus or minus 10%, 20% change in capital costs

Table 25-43: Base Case Sensitivity

NPV (PT,PR) @ 8%, $US Millions

IRR (PT, PR), %

NPV (PT,PR) @ 8% IRR (PT,PR) Sensitivity Factors Change

Calculated Calculated % Change % Change Base Case 0% $868.01 15%

20% $1,647.61 21% 89.82% 37.67% 10% $1,257.46 18% 44.87% 19.21% -10% $478.55 12% 44.87% 20.17%

Copper Price

-20% $91.20 9% 89.49% 41.41% 20% $976.64 16% 12.52% 5.22% 10% $922.32 15% 6.26% 2.62% -10% $813.69 15% 6.26% 2.65%

Gold Price

-20% $759.37 14% 12.52% 5.32% 20% $892.89 15% 2.87% 0.99% 10% $880.45 15% 1.43% 0.50% -10% $855.57 15% 1.43% 0.50%

Silver Price

-20% $843.13 15% 2.87% 1.00% 20% $1,092.31 16% 25.84% 9.46% 10% $980.16 16% 12.92% 4.81% -10% $755.85 14% 12.92% 5.00%

Molybdenum Price

-20% $643.70 13% 25.84% 10.22% 20% $477.86 12% 44.95% 18.99% 10% $672.93 14% 22.47% 9.19% -10% $1,063.08 16% 22.47% 8.70%

Operating Costs

-20% $1,258.15 18% 44.95% 17.00% 20% $500.57 11% 42.33% 23.75% 10% $684.29 13% 21.17% 12.84% -10% $1,051.72 17% 21.17% 15.34%

Capital Costs

-20% $1,235.44 20% 42.33% 34.01%


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This table is shown graphically in the following figures:

Sensitivity Analysis of Metal Prices on NPV (Pre-Tax, Pre-Royalty)

$0.00

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

$1,600.00

$1,800.00

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Copper PriceSilver PriceMolybdenum PriceGold Price

Figure 25-13: Sensitivity Analysis of Metal Prices on NPV (Pre-Tax, Pre-Royalty)

Sensitivity Analysis of Metal Prices on IRR

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Copper PriceGold PriceSilver PriceMolybdenum Price

Figure 25-14: Sensitivity Analysis of Metal Prices on IRR (Pre-Tax, Pre-Royalty)


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Sensitivity Analysis of CAPEX and OPEX on NPV (Pre-Tax, Pre-Royalty)

$0.00

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Operating CostsCapital Costs

Figure 25-15: Sensitivity Analysis of CAPEX and OPEX on NPV (Pre-Tax, Pre-Royalty)

Sensitivity Analysis of CAPEX and OPEX on IRR

0%

5%

10%

15%

20%

25%

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Operating Costs

Capital Costs

Figure 25-16: Sensitivity Analysis of CAPEX and OPEX on IRR (Pre-Tax, Pre-Royalty)

As shown from these figures, the project is most sensitive to the copper prices and relatively insensitive to the gold, silver, and molybdenum prices. The operating costs and capital costs have less impact on the NPV and IRR than the copper price.


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The following sensitivity matrix summarizes the effect different commodity prices have on the estimated 8% NPV, IRR, FOB cost per pound of copper and capital payback period for the project.

Table 25-44: Sensitivity to Copper and Molybdenum Price (Gold Price $465, Silver Price $8)

Copper Economic Molybdenum Price $/lb

Factor $6 $10 $14 $18 $22 ($/lb) NPV @ 8% ($USMM) (1020.49) (598.81) (222.36) 137.24 490.68

IRR (%) -0.3% 3.4% 6.4% 8.9% 11.2% FOB Cost (cents/lb Cu) 18.51 (3.39) (25.29) (47.19) (69.09) Payback (years) 23.0 12.5 8.7 6.8 5.8

$1.00

NPV @ 8% ($USMM) (98.51) 256.69 605.75 950.48 1291.78 IRR (%) 7.2% 9.9% 12.2% 14.2% 16.1% FOB Cost (cents/lb Cu) 18.51 (3.39) (25.29) (47.19) (69.09) Payback (years) 7.5 6.1 4.8 3.9 3.6

$1.50

NPV @ 8% ($USMM) 752.31 1092.47 1432.63 1772.78 2112.94 IRR (%) 13.4% 15.4% 17.3% 19.0% 20.7% FOB Cost (cents/lb Cu) 18.51 (3.39) (25.29) (47.19) (69.09) Payback (years) 3.9 3.7 3.4 3.1 2.9

$2.00

NPV @ 8% ($USMM) 1625.89 1966.05 2305.84 2643.70 2981.57 IRR (%) 18.9% 20.6% 22.2% 23.7% 25.1% FOB Cost (cents/lb Cu) 18.51 (3.39) (25.29) (47.19) (69.09) Payback (years) 3.1 2.9 2.7 2.6 2.5

$2.50

NPV @ 8% ($USMM) 2497.76 2835.63 3173.49 3511.35 3849.21 IRR (%) 23.8% 25.3% 26.7% 28.1% 29.3% FOB Cost (cents/lb Cu) 18.51 (3.39) (25.29) (47.19) (69.09)

$3.00

Payback (years) 2.5 2.4 2.3 2.2 2.2

In the assessment of prices, of necessity it is pertinent to recognize that for certain uses there are third party guidelines in place for evaluations. In accordance with the American Stock Exchange (AMEX) and U.S. Securities and Exchange Commission (SEC) guidelines, a commodity evaluation consisting of a rolling three year price average is suggested. The average metal prices for the past 36 months, 4th Quarter 2003 to 3rd Quarter 2006. are presented in Table 25-45 below together with the metal prices used for the SEC Base case

Table 25-45: Average 2003-2006 metal prices as per SEC guidelines

Metal Average Price (2003-2006) SEC Base Case Copper $1.82/lb $1.80/lb

Gold $467.44/oz $465.00/oz

Molybdenum $22.71/lb $22.75/lb

Silver $7.90/oz $8.00/oz


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An economic analysis of the project was done using the 36 month average metal prices (SEC Base Case) and under these assumptions, the Agua Rica project has an NPV (8%) of $1,827 million, post taxes and royalties, an IRR of 19.1%, FOB operating costs of ($0.73)/lb copper net of by-products and a payback of 3.1 years.

25.26 Contingency

25.26.1 Definition Contingency is a cost element to cover unknown items that are expected to occur but which cannot be properly defined at the feasibility stage of the project. It should be assumed that the contingency will be spent. The contingency allowance specifically excludes costs arising from scope changes, project risk factors and all other items that are excluded from the capital cost estimate (see Section 25.23)

A contingency evaluation of the risk on key project cost elements is included in the total project capital cost.

Risk analysis is a structured approach, using probability theory to:

• Define the accuracy of the estimate; and

• Present the most probable cost.

25.26.2 Contingency Calculation – Results The risk model was performed using the @Risk™ software, with 10,000 iterations of the model using a Monte Carlo distribution. The software obtains values for the subtotals by discipline and risk code on each of the model’s iterations. Prior to the calculation of the contingency with the @Risk™ program, a two day workshop took place in which all the parties involved with the estimate provided valuable feedback and contingency percentages, based on data quality and experience. This information was later extracted and applied to the contingency software.

25.26.3 Recommended Contingency The contingency figure for a feasibility level estimate will depend on the risk exposure that the Owner considers appropriate. The trade-off between the contingency as a percentage of the total project costs and the Project’s probability of experiencing a cost overrun is shown in the

Figure 25-17 below. In most cases, a contingency of 80-90% probability of underrun (or 20-10% of overrun) is appropriate. For this project Hatch recommends a contingency of 90% probability of underrun.

After running the @Risk™, the contingency with a 90% confidence level resulted in USD 253,536 million. This represents ±14% over the total of direct plus indirect costs. Contingency for the Owner’s cost was not included in this analysis and was treated separately within the Owner’s cost.


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Contingency Level

0%

3%

6%

9%

12%

15%95

%

90%

85%

80%

75%

70%

65%

60%

55%

50%

45%

40%

35%

30%

25%

20%

15%

10% 5%

Probability of Overrun

Con

tinge

ncy

as %

of T

otal

Pr

ojec

t Cos

t14% Contingency w/ 10% probability of overrun (P90)

Figure 25-17: Cost Overrun Probability

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