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With construction complete, the SX/EW processing plant at the Franke Mine is now ramping up to commercial productionfollowing the harvesting of first copper cathode in the third quarter of 2009. Locality, Climate, Accessibility and Infrastructure: The Franke Mine is located in the Altamira district, near the southern limit of the Antofagasta Region (Region II) of Chile. The area is accessed from Km 1075 of the Pan-American Highway by about 60 km of gravel road running due east. The project is linked to the local rail system. The property is located in a plateau between the coast and mountains of Chile in the Atacama Desert, which is one of the most arid deserts on Earth. As such, there is almost no rainfall in normal years and vegetation is minimal, comprising only desert scrub and sparse cactus. Water is critical to the development of any project in this region and an agreement for 50 lps with Codelco (Salvador Division), located 70 km from the site, has been secured to supply the water for the entire mine life of the Franke project. The Franke ore contains elevated levels of carbonates, which will result in a high acid consumption. As such, the cost of sulphuric acid will be a very significant component of the overall processing costs. There is the possibility of mitigating this by blending ore from the China deposit, which, based on recent testwork results, has a lower acid consumptions than Franke ore. Nevertheless, a key component of the project is a long term acid supply. To date, a contract has been signed with a local smelter for a supply of 150,000 tons per year of sulphuric acid, which represents approximately 45% of the life-of-mine average annual consumption. Negotiations are ongoing for the balance of the supply. Power for the project is supplied from the local grid via a 110 kV high voltage line. A power supply agreement has been entered into with Pacific Hydro. History: This area of Chile is rich in copper minerals and has been commercially mined since the 1920s by local "pirquinero" miners. A discovery in 1983 of the neighbouring Altamira deposit by CODELCO (now owned by Minera Las Cenizas) triggered some interest in the Franke Hill by RTZ Chile but activities were abandoned when no sulphide intersections were encountered. ASARCO began exploration in the district in early 1997, identifying the potential for leachable copper ores in the Franke area. Results confirmed the presence of a significant copper oxide deposit at the site. However, activity on the project ceased in February 1999 and ASARCO returned the property to the original owners. Centenario Copper Corporation signed an option agreement in January 2004 and acquired title to the property in April 28, 2006. Centenario advanced the project producing a technical report in March of 2008 that identified an estimated 31.7 million tonnes of mineral reserves, with an average grade of 0.83% total copper and a strip ratio of 1.23:1 at Franke. An updated Technical Report was issued in February 2009 that increased the reserve by 10.0 million tonnes to 41.7 million tonnes @ 0.75 CuT. Quadra purchased Centenario in April 2009 with construction of the Franke Mine facilities substantially complete prior to the acquisition. Production Results
Current Status and Outlook: A total of 13.5 million pounds of copper cathode was produced at Franke during the second half of 2009. Mine production was from the Franke orebody. The plant processed ore from the mine as well as stockpiled material from previous small scale mining operations. Franke is still ramping up production. This ramp up will continue to put pressure on the pit and plant systems to perform according to design. As with all heap leach operations it will take time to get enough information to fully evaluate resource/reserve performance and leach pad performance in terms of recovery and acid consumption. Preliminary analysis of leach pad recovery indicates that stockpile material may have negatively impacted copper recovery. Results are not conclusive at this time. These studies will be ongoing during 2010. The remaining design issues at Franke are the reliability of the pad loading conveyor system and dust control across the crushing plant. Both will be addressed in the first half of 2010. A plant optimization study is being conducted to identify bottlenecks and identify and prioritize opportunities. The major operating costs components for Franke are labour, acid, power, and fuel. Acid supply has been contracted in advance for 2010 with half of the required quantity contracted for at a price dependent on copper price and the remainder at a fixed price. Average acid costs for 2010 are expected to be in the $80-$90 per tonne range based on current copper price. Power costs are also controlled by contract. There is no cost history for the operation but the Company anticipates total onsite operating costs will be in the range of $100 million, based on current input costs and exchange rates. Capital expenditures are expected to be $12 million mainly consisting of plant modifications and dust mitigation measures but excluding optimization opportunities. Strategic Joint Venture: In the first quarter of 2010, Quadra executed a memorandum of understanding ("MOU") with State Grid International Development Limited ("SGID"), a wholly owned subsidiary of State Grid Corporation of China, the largest Chinese utility company and a major end user of copper for the formation of a joint venture (the "Strategic JV"). The Strategic JV will develop and operate Quadra's Sierra Gorda project and Franke mine and seek to invest in other prospective copper assets, initially in Chile. The parties will be entitled to their proportionate share of the concentrate or cathode production of the Strategic JV on arms-length terms. Quadra shall be responsible for supervising day-to-day operations of the Strategic JV under the oversight and direction of a Board of Directors consisting of an equal number of representatives from both parties. SGID will lead the efforts of the Strategic JV to arrange the necessary project financing with a target of not less than a 60:40 debt equity ratio, subject to a bankable feasibility study and other conditions. Quadra will contribute the Sierra Gorda project and the Franke Mine, representing $900 million in assets, and SGID will contribute capital to each gain a 50% equity interest in the Strategic JV. Thereafter each party can contribute 50% of any further equity requirement to maintain its interest. Mineral Resources: The following table sets out the Measured and Indicated Leachable Mineral Resources for the Franke and China deposits: Measured & Indicated Leachable Mineral Resource (0.3% CuT Cut-off) (a) (b)
(b) Excludes primary sulphide mineral resource: Measured & Indicated of 4.2 million mt @ 0.41% CuT; Inferred 1.8 million mt @ 0.46% CuT The Measured and Indicated Mineral Resources have been developed at a 0.3% cut-off grade, consistent with previous Company practice. The Mineral Resources were developed by Geovectra S.A., a Santiago, Chile based geological services firm and have been audited and accepted by various Qualified Persons as follows: The Franke Measured and Indicated Mineral Resource was previously reported in a NI 43-101 Technical Report, dated March 31, 2008. The China Measured and Indicated Mineral Resource was previously reported in a news release, dated August 20, 2008, with Tom Henricksen acting as the Qualified Person, for purposes of NI 43-101. Tom Henricksen is the Qualified Person, for purposes of NI 43-101, for the Mineral Resource statement contained herein. The Mineral Resources are inclusive of the Mineral Reserves set out below. The table above excludes a total of 3.3 million tonnes @ 0.89% CuT of Inferred Leachable Mineral Resources and a primary sulphide Mineral Resource which includes a Measured and Indicated Mineral Resource of 4.2 million tonnes @ 0.41% CuT and an Inferred Mineral Resource of 1.8 million tonnes @ 0.46% CuT Mineral Reserves: The new Mineral Reserves include the Franke and China oxide portions of the Measured and Indicated Leachable Mineral Resource and discrete recovery formulas have been applied to each deposit. Whittle pit evaluation was performed using a copper design price of $2.00/lb, with all ore blocks having a net profit cut off of greater than zero. Whittle pit sensitivity analysis demonstrated that the Mineral Reserves are relatively insensitive to the selected design price over the range of $1.75 $2.25/lb. Operational mine planning was performed to a feasibility level of evaluation. The new Mineral Reserves are set out in the table below: Mineral Reserves: Franke + China Oxides (Net Profit Cut-off >0) (a)
In developing the Mineral Reserves, only the oxide portion of the China Measured and Indicated Mineral Resource (11.9 million tonnes at 0.57% CuT) was considered, since it is the only part of the China deposit where metallurgical column test work has been concluded. To date, Centenario has undertaken bottle role and sequential assay analysis on the mixed and secondary sulphide zones (17.1 million tonnes at 0.53% CuT), but additional column based test work is required in order to consider this portion of the China Mineral Resource for Mineral Reserve evaluation purposes The Technical Report on the Franke and Pelusa Integrated Project, Altamira District, Region II, Chile" dated February 19, 2009 is authored by Thomas A. Henricksen, Ph.D., P.Geo., Rodrigo Mello, B.Sc. (Geology) and Walter Segsworth, P.Eng. Mr. Henricksen, Mr. Mello and Mr. Segsworth are each a Qualified Person as defined in NI 43-101. Mr. Henricksen and Mr. Mello were independent of Centenario pursuant to NI 43-101.
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