April 29, 2008

Spiralling construction costs drive up budget for Tenke copper mine

VANCOUVER

Lundin Mining Corp. said expected costs to build the Tenke copper-cobalt project in the Democratic Republic of Congo have nearly doubled due to spiralling construction and infrastructure expenses.

The soaring costs, a growing problem in the industry worldwide, add to the uncertainty around the project as Lundin and operating partner Freeport McMoRan Copper and Gold Co. work with the Congolese government to resolve issues around ownership.

Vancouver-based Lundin, which owns 24.75 per cent of Tenke, said 57.75-per-cent owner Freeport increased the capital cost estimate to US$1.9 billion, up from US$1 billion in October.

“We have just been advised of this overrun situation and an increase of this magnitude was not expected,” Lundin Mining CEO Phil Wright said in a statement.

“Fortunately the funding of the majority of this increase is covered by our overrun protection from Freeport and we do not expect this to have a material impact on our cash flow through to start-up.”

Freeport is responsible for funding 70 per cent of the development cost, and also must cover Lundin’s share of some overruns.

To date, US$475 million has been spent at Tenke, described as one of the largest and richest copper and cobalt deposits in the world.

Freeport president and CEO Richard Adkerson said “everyone in the industry is having their eyes pop out,” at the soaring costs to construct mining projects around the world.

At Tenke, he said the higher costs include construction as well as expanded housing for the project’s work force and enhancements to national roads and bridges.

“It’s a tough place to do business because of the infrastructure and location,” Adkerson said.

“We are investing to do this thing in the right way... to build a platform for what the future will be there.”

There are more than 2,200 construction workers currently on site at Tenke. Production is targeted for the second half of 2009.

The forecast for Tenke is 115,000 tonnes of copper and 8,000 tonnes of cobalt annually, “with significant future expansion foreseen.”

Discussions include such matters as transfer payments to the DRC, the percentage of government ownership in the project, and the implementation of social plans.

Canadian Press

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