The following is another in a series by Casey Research on “Troubled Titans”… huge deposits that, for one reason or several, have yet to be turned into a mine. If the puzzle of these deposits can be solved… in most cases a big if… then the potential returns for early-stage investors could be exceptional.

In this installment, geologist K Brent Cook deconstructs Baja Mining’s Boleo copper/cobalt project.

Doug Casey
January 11, 2005


Baja Mining’s Boleo copper/cobalt project in Baja California falls under the heading of “mines are made, not found”. The property was actually discovered in 1868 when a farmer noticed a number of small blue spheres (copper boleos) laying within a stone’s throw of the Sea of Cortez. By 1885, a French group had taken over the property and begun a mining operation that, between 1887 and 1897, accounted for nearly 90% of Mexico’s copper production. The mine continued to produce through wars, depressions, revolutions and hurricanes until 1938 when the Mexican government levied a massive back tax and the Boleo Mining Company finally threw in the towel.

Fast-forward to the 1990s when the Lundin Group, by way of International Curator, spent over $20 million on the Boleo deposit. Their efforts ultimately failed, primarily because of metallurgical problems associated with high clay content in the sulfide ore, the high strip ratio due to the open pit mining scenario envisioned, and falling metal prices.

Now, a new group has taken up the challenge to make this a mine. Baja Mining Corp (BAJ) recently commenced the work program necessary to complete a feasibility study by late 2005. They anticipate the feasibility should cost ~C$12 million; Baja’s current working capital stands at about C$5.5 million. The key components (by which their plan of attack differentiates from that of Int. Curator) involve a different approach to metallurgy and mining. If Baja can overcome these hurdles in time to catch the metals bull market, Baja’s current capitalization of C$48 million could be a steal. If things don’t work out, you’re stuck.

There are a lot of variables and moving parts to deal with on the project, most of which will have to fall in Baja’s favor. Essentially, Baja is “targeting” capital costs of under $300 million, operating costs of under $20/tonne of ore, production of ~7,500 tpd, overall recovery of 87% for Cu, 70% for Zn, and 83% for Co. If (and it’s a big if, currently consisting of little more than an idea and a hope in the hands of some very capable and persistent engineers and metallurgists) Baja can reach its targeted goals and catch the strong metal prices, the project could show a value of between $300-$500 million. Here’s where progress stands now and what issues will be addressed over the coming year.

Resources: The Boleo property represents a massive copper/cobalt/zinc resource containing a total metal budget of about 7 billion pounds of copper, 600 million pounds of cobalt, 7 billion pounds of zinc and 6 million kg of gallium. Within this global resource, open pit resources were estimated at 80Mt @ 2.6% Cu-eq. Baja Mining estimates total underground indicated resources of 23Mt @ 2.11% Cu, 0.09% Co, 0.82% Zn and inferred resources of 21Mt of slightly high grades. More important, within this underground resource they have defined a higher-grade indicated resource of about 7Mt @ 2.9% Cu, 0.07% Co and 0.37% Zn, and an inferred resource of 7.6Mt at similar grades. Baja is in the process of upgrading the confidence level in these resource figures through drilling. They are also drill-testing nearby depositional basins for mineralization which could host high grades amenable to underground mining. All of that means there’s plenty of metal here; they just need to convert it to ore.

Mining: Previous studies by Int. Curator were directed towards a massive open cut mining operation. The life of mine strip ratio got as high as 25:1 and made little sense given the location. Baja is investigating an underground mining scenario using continuous miners similar to equipment used in Australian and South African coal mines. If this mining method proves feasible, the continuous miners will provide flexibility and high production, which should keep the mining costs at reasonable levels. It also offers the advantages of significantly less waste and strip, higher head grades and fewer environmental hurdles.

However, employing this style of mining in “hard rock” deposits is somewhat unique, and there are geotechnical issues and potential problems the trial mining will address. The highest-grade mineralization occurs as a roughly 80cm thick, sub-horizontal high-grade clay horizon that grades upward over a few meters into lower grade sands and conglomerates. The basal contact is quite sharp; however, the upper contact is variable and consists of sandstone with clay seams. The clay seams could prove problematic, posing a potential drawback to underground mining that would require considerable support (increased mining costs) and narrower mining widths (decreased mineable ore). Minor faults offsetting the mineralized horizon by only a few meters could likewise decrease mineable tonnes and increase costs.

The viability and cost of using the continuous miners will be addressed in April when a Mexican mining contractor will begin trial mining. Until the results of this test are released, we really can’t know if the underground miners will be exceptionally efficient or inefficient.

Metallurgy: The copper/cobalt/zinc sulfide mineralization occurs within clays. The recovery and separation of the metal from the clays poses a major hurdle to this project; one that has thwarted previous production attempts. Baja contracted Bateman Engineering of Brisbane, Australia, to develop a recovery process flowsheet, which leans heavily on Bateman’s experience with clay handling in laterites and the diamond industry. This is not a simple or direct process and will require continued testing and refinement. Baja’s description of the process goes something like this.

“The new flowsheet starts with two stages of acid leaching of the whole ore, which places approximately 90% of the copper and cobalt in solution, and 70% of the zinc. The next stage is the first of two important new developments for the Boleo ores. Bateman had demonstrated the ability to efficiently separate clays and wash the metal values using high-rate thickeners in a counter-current-decantation (CCD) configuration. After a final polish of the solutions in Bateman’s propriety Pinned Bed Clarifier, clarified solutions proceed to metal recovery circuits. Copper cathode is recovered in a conventional solvent extraction/electro-winning (SX/EW) circuit. Bateman has also introduced a second development, which is a solvent extraction reagent developed by the Commonwealth Scientific Industrial Research Organization (CSIRO). This combination of two existing (commercial) SX reagents called Direct Solvent Extraction (DSX) technology has proven to be effective in selectively recovering cobalt and zinc from the other (deleterious) metals in solution. After some additional purification steps, a high-grade cobalt metal can be electro-won and a zinc sulfate salt produced.”

Preliminary results, just released from a first-stage pilot test plant processing 2 tonnes of typical ore, are encouraging. The oxidation reduction leaching circuit extracted copper (generally greater than 90%), cobalt (up to 90%), and zinc (generally above 70%). Copper metal, cobalt metal, and zinc sulfate products from this pilot plant will be used in Baja’s marketing efforts. Bateman will be refining the recovery design criteria in preparation for processing a much larger sample through a pilot plant. The larger sample will be run for two months in April/May 2005 using ores from the underground test mining and drilling. Bateman, together with equipment vendors, will provide process guarantees after completion of the second-stage pilot plant that will be integrated into the feasibility study.

Although large CCD plants have been shown to be effective at removing clays from laterite ores in Australia and at the Sepon copper deposit in Laos, the large thickeners are not an insignificant capital cost. The hydrometallurgical process uses considerable sulfuric acid, power and reagents. Sulfur prices have increased to nearly double the cost used in a 2002 scoping study, and Baja will need to secure long-term sources and stable prices.

Logistics and capital: Something in the order of 2,400 tonnes per month of supplies plus considerable sulfur (or pyrite) will have to be shipped to this rather remote Baja location. Trucking out of S. California is possible but probably not preferable, while the port at Santa Rosalia offers the opportunity of bringing in material by barge.

Baja’s 2002 scoping study, which envisioned an 11,500 tpd plant and mining fleet, estimated capital costs of ~$400 million. Baja has scaled the plant throughput down to ~7,500 tpd and is aiming for capital costs of something under $300 million, including an acid plant with a co-gen electricity plant. Preliminary capital, mining and process costs that are being worked on by Bateman and an Australian (AMAD) group should be available in mid-January.

Summary: Big deposit, tough metallurgy, untested mining technique, unknown capital costs, logistics and materials still being worked on, not clear what, if any, environmental issues exist, about a year to completion of feasibility study, and ultimately a big potential win if all goes right. Place your bets.