Sandfire Resources NL (ASX: SFR) says its board has approved the development of its wholly-owned DeGrussa Copper-Gold Project in Western Australia, subject to completion of a definitive feasibility study and project funding package – both of which are on track to be finalised in Q2 of 2011 (all references in calendar quarters unless otherwise noted).

The conditional investment decision, which follows successful completion of a pre-feasibility study (PFS), will enable key mining and construction contracts to be let and lead items ordered by the end of this Quarter, paving the way for development of a new low-cost, high-margin copper-gold mine to commence by mid-2011.

DeGrussa is set to become a premier high-grade copper mine, with initial open pit production expected by Q1 2012 and initial underground production by Q3 2012. On this timeline, first cash flow from the open pit operation will be achieved within less than three years from the discovery drill hole in April 2009.

The PFS – which was compiled by WA-based engineering company Mintrex with input from a number of other key contributors and industry experts as well as in-house Sandfire personnel – has been undertaken to a high level of detail and quality, including quotations from key open pit and underground mining contractors and engineering companies.

The PFS has confirmed the financial and technical strength of an open pit and underground mining operation at DeGrussa with forecast annual metal production of 60-70,000 tonnes of payable copper in concentrate and 40-45,000 ounces of gold at competitive life-of-mine C1 cash operating costs of
US$0.90-$1.00/lb.

The project is anticipated to generate average annual pre-tax operating cash flows of A$330-$350 million from the 2012/2013 financial year onwards (life of mine plan of approximately 7+ years includes probable reserves and both indicated and inferred resources) based on open pit and 1.5Mtpa of underground production.

These cash flow forecasts include the high-value direct shipping material
(chalcocite) and sulphide mineralisation contained within the open pit but exclude, at this stage, the oxide copper and laterite gold resources in the open pit.
Pre-production capital including contingencies is estimated at A$270 million for plant and infrastructure and A$130 million for open pit and underground development.
Based on the economic and technical strengths of the DeGrussa Project, Sandfire has transitioned seamlessly into a Definitive Feasibility Study (“DFS”) which is on track for completion next Quarter, including ongoing work to convert the oxide copper, chalcocite and near-surface gold mineralisation, currently in Indicated Resources, into Ore Reserves.

Sandfire’s Managing Director, Mr Karl Simich, said the conditional development approval reflected the Company’s confidence in the outcomes and quality of the PFS and its commitment to progress development of the DeGrussa Project.

“This will enable us to award the open pit and underground mining contracts and place orders for key long-lead items this Quarter ahead of the final DFS – which we expect to complete during the June 2011
Quarter,” he said.

“The PFS shows that DeGrussa will be a high-grade, high-margin operation capable of generating substantial pre-tax cash flows in the order of A$330-350 million a year and rapidly repaying its capital.

Given the Project’s technical and economic strengths, A$114 million cash holding and the strong outlook for the copper market, we are well advanced in discussions with potential financiers regarding funding options, and we are confident that a suitable funding package will be completed in parallel with delivery of the DFS”.

ASX / Media Release 4 March 2011
“We have already recruited most of the key operational, technical and corporate support staff required to build a high-quality mining company and are on track to start mining in the June 2011 quarter. That should put us on course to achieve first copper production early next year from the open pit and deliver first underground ore to the concentrator in Q3 2012, followed by ramp-up to full production.”

Mr Simich said DeGrussa was expected to become one of the largest copper producers in Western Australia, generating substantial export revenue over its initial estimated life and total royalties to the State of Western Australia and indigenous communities of more than A$240 million.

“The construction phase will employ over 600 personnel at peak construction with long-term employment of around 400,” Mr Simich said. “In addition to the benefits to the community, DeGrussa will also be a great project for our shareholders and for our staff and contractors, creating exciting business and career opportunities for many people from different walks of life.