Amerigo Reports Molybdenum Concentrate Production
April 26, 2005
AMERIGO RESOURCES LTD. (Vancouver, British Columbia) is pleased to report that it is producing saleable molybdenum concentrate at its Minera Valle Central S.A. (MVC) plant located near Santiago, Chile. The molybdenum plant extracts molybdenum from the copper concentrate which MVC has been producing for several years from the tailings of Codelco’s El Teniente mine. MVC’s copper concentrate has traditionally contained approximately 0.8% molybdenum, but MVC has not previously extracted the molybdenum from the copper concentrate and could not receive credit for the molybdenum.
Commissioning of the molybdenum plant started in March 2005, 3 months ahead of schedule. During the commissioning period MVC undertook mechanical, electrical, instrumental and operational testing of the plant including the training of operators. After fine-tuning and initial optimizing of reagents, MVC is now producing molybdenum concentrates with saleable specifications. MVC expects to ship the first commercial quantity of approximately 25 tonnes of molybdenum concentrates towards the end of the month, containing approximately 25,000 pounds of molybdenum. The production of this quantity of concentrates to specification is significantly ahead of internal schedules, and vindicates the rigorous study and analysis undertaken by MVC management of metallurgy and process design prior to committing to construction. It is estimated that plant construction costs will come in at less than US$3.5 million; at current moly prices it is anticipated that this project will generate an exceptional rate of return on investment.
During commissioning it has also become apparent that the molybdenum plant has significant spare capacity allowing MVC to increase molybdenum production as copper concentrate volumes increase in future without further expansions.
MVC estimates production in excess of 500,000 pounds of molybdenum in concentrates in 2005, and expects to increase molybdenum production to approximately 800,000 to 1,000,000 pounds in 2006.
A sales agreement has been reached with Molybdenos y Metales S.A. (known as “Molymet”), one of the world's largest molybdenum producers with a conversion facility only 75 km from the MVC plant. The agreement has an initial period of 3 years with a base treatment charge of US$0.60 per pound of molybdenum plus a price participation factor based on the molybdenum price.
Demand for molybdenum, or “moly”, is very strong because of demand from China and global petroleum pipeline construction. Molybdenum is generally found as a by-product of copper production and is used in steel alloys, particularly stainless steel. Current prices for molybdenum oxide are approximately US$35 per pound, as compared to an average price for 2004 of about US$17 per pound and a five-year average to the end of 2004 of about US$6.27 per pound.
Production costs are expected to be below US$3 per pound of molybdenum, with the majority of these costs being for reagents.
MVC will pay Codelco a royalty of 10% of the revenue of MVC that originates from the sale of molybdenum concentrate. The royalty on net revenue was negotiated as part of the agreement for increasing extraction from the Colihues tailings impoundment from 10,000 tonnes of tailings per day to 45,000 tonnes per day, and is set out in an agreement in principle reached between MVC and El Teniente. El Teniente is preparing a final form of the agreement.
Based on present molybdenum prices, El Teniente would receive approximately US$3 for each pound of molybdenum in concentrates produced. Based on the five-year average molybdenum price of US$6.27, the El Teniente royalty would be approximately US$0.50 per pound.
A royalty is also payable to a company associated with 2 of the Company’s directors, Mr. Steven Dean and Dr. Klaus Zeitler, on all production by MVC. Based on the agreed formula, this royalty would amount to approximately US$0.33 per pound of molybdenum produced at present prices, and approximately US$0.11 per pound, based on the five-year average molybdenum price. This royalty was negotiated between Amerigo and Mr. Dean and Dr. Zeitler when Dean and Zeitler assigned the option to acquire MVC to Amerigo in an agreement completed in March 2003 (the “Assignment Agreement”), and was approved by shareholders in June 2003. Under that agreement, Dean and Zeitler could either receive 7,500,000 common shares of the Company, or a royalty on all production by MVC. Dean and Zeitler subsequently elected in May 2003 to receive the royalty as consideration for the assignment of the option.
Recently it was brought to the board of directors’ attention that the description of the royalty payable pursuant to the Assignment Agreement was incomplete, as the method of calculating the royalty paid on metals other than copper produced by MVC was not addressed. The correct description of the royalty is: (i) US$0.01 for each pound of copper equivalent produced if the price of copper is under US$0.80; and (ii) US$0.015 for each pound of copper equivalent produced if the price of copper is US$0.80 or more. The incomplete description of the royalty in the Assignment Agreement was a mutual mistake between the Company and Messrs. Dean and Zeitler. In connection with their review of this matter, the board of directors received sworn affidavits from the two former directors of the Company involved in the negotiations at the time who approved the original Assignment Agreement as well as from Messrs. Zeitler and Dean confirming that there was an agreement between the parties to pay the royalty on all production by MVC. Based on these facts and on legal advice received from the Company’s external counsel Gowling Lafleur Henderson LLP, the board of directors of the Company has determined that the Assignment Agreement and related disclosure should be rectified to reflect the original agreement of the parties.
Amerigo Resources Ltd. is a Canadian copper and molybdenum producing company forecasting 18,000 tonnes of copper production and 500,000 pounds of molybdenum in 2005 from its MVC operations near Santiago, Chile. Tel: (604) 681-2802; Fax: (604) 682-2802; Web: www.amerigoresources.com; Listing: ARG:TSX
Jeffrey Giesbrecht, Secretary
Amerigo Resources Ltd.
The Toronto Stock Exchange has not reviewed nor accepted responsibility for the adequacy or accuracy of the contents of this news release, which has been prepared by management. Statements contained in this news release that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from estimated results. Such risks and uncertainties are detailed in the Company’s filings with the TSX and on SEDAR. Forward-looking statements are based on the beliefs, estimates and opinions of the Company’s management on the date the statements are made. The Company undertakes no obligation to update these forward-looking statements if management’s beliefs, estimates or opinions, or other factors, should change.