Caravel considers going all-out development instead of taking it in stages

Caravel is taking a serious look at the higher throughput option rather than taking a staged approach to developing its namesake copper project.

This comes after reporting a 40% increase in Stage One capital cost estimates (for the new 13.9 million tonnes per annum throughput rate) to $700m for its upcoming Pre-Feasibility Study.

According to capital costs estimates that Caravel Minerals (ASX:CVV) had received from lead engineer Ausenco, the cost increases are mainly attributable to a 20% increase for project scope changes and a 20% increase due to cost increases in labour, materials, freight and energy in line with current market conditions.

Initial mining equipment capital estimates have been estimated at $140m for an electrified and autonomous mining fleet, though this is expected to be largely vendor financed and thus independent of project finance.

All-in sustaining costs for mining have been estimated at $3.13 per tonne, up 7% from previous estimates, though this is still significantly lower than current market rates for contract mining which have increased substantially since the Scoping Study.

The company noted that the increased capital costs represent less than 10% of the project’s free cashflow while net present value – a measure of its profitability – will be impacted by higher up-front capital relative to discounted cashflow over the mine life.

Furthermore, the capital cost estimates are undergoing further review and optimisation that will be provided as guidance ahead of the final PFS report.

The silver lining

While capital cost increases are never welcome, the estimates from Ausenco do mean that the overall understanding and confidence in the project’s economics have grown substantially with key project elements now well advanced and technically de-risked.

It is also worth noting that with the updated Scoping Study flagging net cash flow of $4.49bn over the life of mine, a less than 10% reduction will still leave the company with cash flow of $4.04bn, which is certainly nothing to sneeze at.

The higher cost may also lead Caravel to favour the higher throughput (27.8Mtpa) option rather than the current staged approach to reduce upfront Capex and shorten the lead time to production.

Further studies are underway to investigate the benefit of taking this option.

This article was developed in collaboration with Caravel Minerals, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.