Inmet Mining Corporation
TSX : IMN

Inmet Mining Corporation

March 31, 2010 08:32 ET

Inmet Announces Positive Study Results for Its Cobre Panama Project, Significant Progress on Financing and Milestones for Project Execution

TORONTO, CANADA--(Marketwire - March 31, 2010) - Inmet Mining Corporation (Inmet) (TSX:IMN) announced today the results of the front end engineering and design (FEED) study for the Cobre Panama project. AMEC Americas Limited (AMEC), Vancouver, carried out the study, with the participation of several specialized engineering firms and independent consultants. The executive summary of the FEED study is on Inmet's website www.inmetmining.com.

Jochen Tilk, President and CEO said, "We are very pleased with the quality and the results of the FEED study. The drilling carried out over the last three years has resulted in a significant increase in mineral reserves and resources, and the design parameters for the project have improved considerably due to the extensive environmental, social and engineering work that has been carried out in parallel. Cobre Panama is a very different project compared to the 2008 Interim FEED Study and has expanded 25 percent in output and size and more than tripled in terms of measured and indicated resources. We expect the project will deliver a levered rate of return of 15.1 percent at a copper price of US $2.10 per pound, which establishes Cobre Panama as a solid project economically. Going forward, our focus will remain on progressing work toward a final construction decision with the highest regard for the environment and people affected by this project."

The Cobre Panama project, located in the Donoso District of Panama, is owned by Minera Panama, S.A. (MPSA), a wholly-owned subsidiary of Inmet. Cobre Panama is one of the largest known copper porphyry deposits in the world. Through MPSA, we have been moving ahead with the development of Cobre Panama, with the objective of building a socially, environmentally and technically advanced mining operation. Cobre Panama has the potential to more than triple our copper production by 2016.

Highlights

Cobre Panama mineral reserves and resources

Mineral reserve estimates by classification



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million Cu (%) Au Ag Mo (%)
tonnes (grams/tonne) (grams/tonne)
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Proven 245 0.59 0.14 1.61 0.010
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Probable 1,897 0.39 0.06 1.41 0.007
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Proven and
probable 2,143 0.41 0.07 1.43 0.008
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These are based on the following assumptions:

Metal prices Mining costs
Copper (Cu): US $2.00 per pound US $1.33 per tonne of material mined
Gold (Au): US $750 per ounce Milling and general and administration
Silver (Ag): US $12.50 per ounce costs combined
Molybdenum (Mo):US $12.00 per pound US $5.37 per tonne of ore milled


The cost assumptions used are based on estimates made prior to completion of the study, and therefore differ from the final estimates in the "Costs" section below.

Mineral resource estimates by classification



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million Cu (%) Au Ag Mo (%)
tonnes (grams/tonne) (grams/tonne)
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Measured 261 0.56 0.13 1.5 0.009
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Indicated 3,010 0.34 0.06 1.2 0.006
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Measured and
indicated 3,271 0.36 0.06 1.3 0.007
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Inferred 3,194 0.24 0.04 1.0 0.005
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Mineral resources include mineral reserves. Grades are estimated using ordinary kriging with a nominal block size of 25 metres by 25 metres by 15 metres. Resources are limited inside a pit shell defined by a copper price of US $2.30 per pound, the same operating costs used for reserves, and are tabulated at a cut-off grade of 0.15 percent copper. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Contained metal:

Reserves of 2.14 billion tonnes of ore contain 20 billion pounds of copper and 5.0 million ounces of gold.

Measured and indicated resources, which include the mineral reserves, contain 26 billion pounds of copper and 6.3 million ounces of gold.

Inferred resources contain 17 billion pounds of copper and 4.1 million ounces of gold.

The current mine plan (which is based on mineral reserves) defines mining operations until 2045, or for 30 years after production begins. We expect operations to continue beyond 2045 because of the size of the mineral resource.

Production



Production summary
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annual average: annual average: total:
years 2-16 life of mine life of mine
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Metal production (000s)
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Copper (tonnes) 289 255 7,641
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Gold (ounces) 108 90 2,690
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Silver (ounces) 1,544 1,508 45,228
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Molybdenum (tonnes) 3.6 3.2 96.5
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Grade
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Copper (%) 0.47 0.41
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Gold (grams/tonne) 0.09 0.07
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Silver (grams/tonne) 1.48 1.43
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Molybdenum (%) 0.008 0.008
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Mill recoveries
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Copper (%) 88.6 85.9
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Gold (%) 57.5 54.3
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Silver (%) 47.3 45.8
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Molybdenum (%) 61.9 59.0
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The current mine plan has been developed for a mine life of 30 years and includes three open pits - Botija, Colina, and Valle Grande. At peak production rates, a fleet of thirty-six, 360-tonne payload trucks will be loaded by four, 55 cubic metre capacity electric-powered shovels. Seven blasthole drills and 10 large dozers will be available to support production needs. An estimated 3.4 billion tonnes of material is expected to be mined within the pit limits, with a strip ratio of 0.61 tonnes of waste per tonne of ore.

Extensive metallurgical test work supports a conventional flow sheet that includes crushing, grinding, differential flotation, and filtration designed to process a nominal initial 150,000 tonnes per day of ore, at a head grade of up to 0.7 percent copper and 0.013 percent molybdenum. An expansion to 225,000 tonnes per day is included in year 10 of operations to maintain a steady copper output.

The project would produce both copper and molybdenum concentrates. Metallurgical results indicate that the concentrates will be of good quality with no deleterious constituents.

Over its 30-year life, the mine is expected to produce 27.3 million dry tonnes of copper concentrate at a grade of 28 percent copper. This concentrate is expected to contain an estimated 2.7 million ounces of gold and 45 million ounces of silver. The mine is also expected to produce 186,000 dry tonnes of molybdenum concentrate at a grade of 52 percent with a positive rhenium credit.

Costs



Operating cost summary (US$/tonne of ore milled)
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labour material power other total
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Open pit mining 0.16 1.69 0.06 0.22 2.14
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Processing 0.11 1.44 2.12 0.05 3.72
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Site services 0.12 0.18 0.06 0.38 0.73
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General and administration 0.09 0.00 0.02 0.52 0.64
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Total 0.48 3.31 2.26 1.18 7.23
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Open pit mining costs are 1.33 US$/tonne of material mined.

Costs per pound of copper (US$/pound)
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annual average: years annual average: life of
2-16 mine
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Cash costs 0.78 0.90
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Breakeven cash costs 0.92 1.00
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Financed breakeven cash costs 1.00 1.06
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Total costs 1.48 1.46
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Cash costs are the sum of operating costs, concentrate freight, treatment and refining charges, NSR royalty, and non-income taxes, per pound of recovered copper, net of by-product credits.

Breakeven cash costs are cash costs, plus sustaining capital, per pound of recovered copper.

Financed breakeven cash costs are breakeven cash costs plus interest expense per pound of recovered copper, assuming US $2.16 billion in debt.

Total costs are cash costs, plus interest expense, plus initial and sustaining capital expenditures, per pound of recovered copper.

A cash cost of US $0.78 per pound of copper for the first 15 years of full production would place Cobre Panama near the median of the world's existing copper producers.

Project capital



Capital expenditures (US$ millions)
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Mining $510
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Process plant 799
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Site and services 597
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Port site 320
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Total direct capital 2,227
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Indirects 805
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Owner's cost 364
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Engineering, procurement and construction management costs 472
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Contingency 453
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Total capital $4,320
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The total capital estimate includes the direct field cost for executing the project, the contractor's costs for engineering, procurement and construction management, the indirect costs of construction, the owner's indirect costs associated with design, construction and commissioning, as well as the cost of the owner-provided mining fleet and our internal costs for preproduction development.

All costs are expressed in second quarter 2009 US dollars. The capital does not include escalation, interest, or working capital. Interest and working capital are included in the economic analysis below.

Economic analysis



Levered after-tax financial results
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base + 5% + 10% + 14% + 19% + 24% + 29% + 33%
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Copper (US$/lb) 2.10 2.20 2.30 2.40 2.50 2.60 2.70 2.80
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Gold (US$/oz) 885 927 969 1,011 1,054 1,096 1,138 1,180
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Silver (US$/oz) 13.50 14.14 14.79 15.43 16.07 16.71 17.36 18.00
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Molybdenum (US$/lb) 13.00 13.62 14.24 14.86 15.48 16.10 16.71 17.33
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Cumulative net cash
flow (US$B) 10.9 12.3 13.6 15.0 16.3 17.6 19.0 20.3
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Net present value 8%
(US$B) 1.7 2.1 2.5 2.8 3.2 3.6 4.0 4.3
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Internal rate of
return (%) 15.1 16.5 17.8 19.1 20.4 21.6 22.7 23.9
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AMEC evaluated the economic viability of the project based on engineering studies and the cost estimates in the FEED study. Base case pricing was based on consensus prices and assumed debt of US $2.16 billion (50 percent of pre-production capital). The sensitivity analysis increases the price of input consumables as metal prices increase.

Background

AMEC prepared an initial feasibility study in 1998, an update in 2006, an interim FEED study in 2008, and the current FEED study in 2010. Since the 1998 study drilling on the property has been increased by 47 percent or 100,000 metres and, as a result, the 2010 study documents a significant increase in production and mine life.

The objective of the FEED study was to produce a capital cost estimate with an accuracy of +/-15 percent with a confidence level of 80 percent of estimated final cost based on 10 percent completion of engineering. AMEC has concluded that this target has been achieved and that the project is now ready to move on to basic engineering.

The study reflects a comprehensive level of engineering design and project execution planning. The estimate covers 153 separate areas and has more than 6,000 lines of detail. Approximately 130,000 hours of engineering went into its development. In addition to AMEC's work, specialized engineering companies carried out engineering studies for the marine work, pipelines, mine plan, power plant, and transmission line and associated facilities. Three leading laboratories in Canada and the United States carried out detailed metallurgical and grinding test work. Other firms carried out geotechnical and various site investigation studies, and several third-party reviewers also provided input on constructability, execution, schedule, logistics, earthworks and operating costs.

The total cost of the studies that have been undertaken since 2007 is US $86 million, including US $29 million for engineering, US $42 million for drilling and US $15 million for environmental and social impact assessments.

We carried out an independent analysis of our progress on the project using the Project Definition Rating Index (PDRI). The PDRI is a weighted score sheet used to determine the level of scope definition for building projects during pre-project planning, for example, during conceptual design, schematic design and design development. Developed by the Construction Industry Institute in 1999, the PDRI is widely used by owners and contractors in the construction industry. It uses a decreasing scoring scale from 1,000 to 1, reducing as project definition and engineering increases.

The assessment, performed together with McKinsey & Company, gave the project an overall score of 626. This compares favourably with PDRI scores for projects at this stage, prior to the start of basic engineering, which typically range from 800 to 700.

Project infrastructure and ancillary facilities

Copper concentrate will be pumped as slurry through a pipeline to the port site for filtration, storage and loading onto ocean-going vessels for shipment to market destinations. The molybdenum concentrate will be dewatered at the mine/plant site and bagged for delivery by truck to the port site.

Both the mine/plant site and port site operations will be supported by equipment maintenance shops, warehouses, container storage areas, administration and security facilities, potable water supply, sewage treatment plants and gravel batch plants for use during both construction and operations. A permanent camp at the mine/plant site will house personnel working in both operating areas.

An independently owned and operated coal-fired power station will generate 300 megawatts of electricity for the project. Excess power, expected to total at least 50 megawatts in the early years of the mine operations, will be available for sale on the Panamanian power grid. A new transmission line will connect the power plant to the mine, and the mine to the existing Panamanian grid system.

A new access road will connect the mine/plant site to the new port site in the Caribbean coast. Three pipelines will be buried next to the road, one for pumping the copper concentrate to the port site, one for diesel fuel delivery to the mine, and the third for returning filtrate water from the dewatered concentrate and fly ash from the power plant back to the tailings management facility at the mine/plant site.

The existing access road to the site leaves the Pan-American highway at the town of Penonome and runs northerly in the direction of the mine/plant site, bypassing the small community of Coclecito. This road will be upgraded and re-aligned where necessary.

All facilities are designed to operate continuously, 24 hours a day, 365 days a year.

The SUEZ power arrangement

MPSA has entered into a Joint Development Agreement (JDA) with GDF Suez Energy Central America S.A. (Suez), a subsidiary of GDF Suez of France. The main business of Suez in Panama is the generation and sale of electricity. As agreed in the JDA, Suez will develop, own, and operate a new power plant for the primary purpose of supplying electricity to the Cobre Panama project under a 30-year purchase power agreement (PPA). Major terms and conditions of the PPA have already been agreed to in the JDA.

Engineering, procurement and construction selection process

MPSA has initiated the selection process for the delivery of the Cobre Panama project. Four major consortia of engineering and construction firms have been prequalified, have signed confidentiality agreements and have confirmed their interest in a competitive procurement process for the project. The Request for Proposal will be released to bidders in April, 2010. We expect to evaluate the proposals and move into the basic engineering phase by September, 2010.

Project timeline

Project timelines in the FEED study are contingent on the receipt of permits and approvals and will be confirmed when basic engineering is complete.

The following are the main milestones of the project schedule. These are only indicators at this point and will change as basic and detailed engineering move ahead:



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(1) Limited notice to proceed and start of basic September 30,
engineering 2010
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(2) Notice to proceed and start of construction September 30,
2011
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(3) Port site capture completed September 2012
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(4) Process plant capture completed October 2012
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(5) Coast road open from process plant to the port January 2014
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(6) Start of mine pre-stripping July 2014
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(7) Marine facilities completed September 2014
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(8) Power plant commercial operation July 2015
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(9) First ore through the process plant October 2015
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(10) First concentrate shipped January 2016
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The contractor will begin site capture once the environmental and social impact assessment has been approved and construction permits are in place, which is expected by September, 2011.

The heavy civil earthworks phase will begin towards the end of site capture and is expected to be substantially complete by June 2013 at the port site, and by August 2014 at the process plant site. This phase will overlap with, and be followed by, plant and port construction.

We expect to complete the coast road by January 2014. The road will allow heavy transformers, mill shells and the largest pieces of the mining fleet to be delivered, all of which are critical to process plant construction and mine pre-stripping.

The schedule envisions mechanical completion of the process plant by the end of 2015, including three months of pre-commissioning and three months of commissioning with ore for the process facilities. Under this scenario, the first shipment of concentrate would be in early 2016.

Environmental and social impact assessment (ESIA)

We have been working on our ESIA since 2007 and on building our social license for the project. ESIA baseline work represents one of the most comprehensive studies ever undertaken of the socio-environmental context of the Atlantic slope of Panama. We are using best practice measures to address identified impacts, to reinforce the project's ability to provide a net benefit to local residents and to protect the environment.

Over the past 30 months, we have consulted extensively with a broad range of stakeholders in Panama, including local communities, governments and civil society groups. In response to feedback from local residents, the project has begun a number of community development programs, providing employment and demonstrating the benefits that responsible economic development can bring to the local area.

We are preparing the ESIA to fully comply with the requirements of the International Finance Corporation (IFC) Performance Standards (PS) on Social and Environmental Sustainability, and to demonstrate to stakeholders that the project will deliver on our commitment to provide an economic engine to help alleviate poverty, catalyze development of sustainable communities and protect the biodiversity in the area.

We will deliver the ESIA to the Panamanian authorities for their review late in the second quarter of 2010. At the same time, we expect the ESIA will be rigorously reviewed by external financing agencies to ensure compliance with the IFC PS and the Equator Principles.

Project financing

MPSA has engaged Rothschild Inc. to advise it and its sponsors on the financing for the project. The financing plan is being designed to include:



- enough cash on hand and committed debt facilities to fully fund the
project to completion by the time a development decision is made
- a conservative capital structure at the project level as well at the
Inmet level
- competitive financing terms and conditions.


The plan is based on a total financing requirement, including capitalized interest and working capital, of approximately US $5 billion. Approximately 50 percent of this will likely be senior secured limited recourse project debt from a variety of sources.

The balance will be met using a combination of cash on hand at the time the construction decision is made, the proceeds from equity issuances at the Inmet level, the funding commitment of Korea Panama Mining Company Ltd. (KPMC) assuming exercise of its 20 percent option in the project, and other sources if required.



Target financing plan (US$ millions)
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equity debt total
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Inmet cash $1,000 Off-take related debt $1,500
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Private placement $500 Other debt $1,000
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KPMC contribution $625
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Other equity $375
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Total $2,500 $2,500 $5,000
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We expect to have approximately US $1 billion in cash by the time a development decision is made.

Ellington Investments Pte. Ltd., an indirect wholly-owned subsidiary of Temasek Holdings (Private) Limited, has subscribed to a $500 million private placement of subscription receipts in Inmet. Please see our press release of today's date for further details.

KPMC as a 20 percent shareholder would provide approximately US $625 million in equity to the project.

We are evaluating additional sources of equity capital, including additional equity at the Inmet level, selling an additional equity stake in the project, and partially monetizing the precious metals produced by the project.

We have preliminary agreements with global customers (Aurubis and LS-Nikko) representing, in total, up to 400,000 tonnes of annual off-take production that would be under long term arrangements linked to import credit programs. These could provide up to US $1.0 billion in debt financing.

We are having ongoing discussions with other leading off-takers in Asia for commitments of up to another 400,000 tonnes per annum and related financing.

Discussions are also advancing with other potential sources of debt financing, including export credit agencies, development agencies and commercial banks.

Project risk

As is the case with any large development project, certain risks have an impact on the estimates and timelines in the FEED study. These include but are not limited to the following categories:



- regulatory and permitting
- project execution
- socio-environmental


Mitigation strategies are already in place and will be further developed in the basic and detailed engineering phases of the project.

Quality assurance

Mineral reserves and resources have been prepared in accordance with the definitions and guidelines adopted by the Canadian Institute of Mining, Metallurgy and Petroleum (called the CIM definitions and guidelines), and according to National Instrument 43-101 of the Canadian Securities Administrators.

Mineral resources were estimated by Robert Sim, P. Geo., of SIM Geological Inc. and Bruce Davis, Ph.D., Fellow of the AusIMM (FAusIMM), BD Resource Consulting Inc., both qualified persons under National Instrument 43-101.

Mineral reserves were estimated by William Rose, P.E., of WLR Consulting, Inc., a qualified person under National Instrument 43-101.

Webcast Conference Call

On Wednesday, March 31, 2010 at 10:00 a.m. Eastern Time, Inmet will hold a live webcast conference call as a follow-up to this press release that will be a question and answer session. The call will be hosted by Jochen Tilk, President and Chief Executive Officer.

You are cordially invited to listen to the audio webcast through either:

http://events.digitalmedia.telus.com/inmet/033110/index.php or www.inmetmining.com.

After the broadcast, an archive of the webcast will be available on both websites.

Interested persons who are unable to connect to the webcast can listen to the conference call by dialing +1 416-695-6616 (local/international) or toll-free +1 800-952-4972 (North America only).

Forward looking information

Securities regulators encourage companies to disclose forward-looking information to help investors understand a company's future prospects. This press release contains forward-looking information. These are "forward-looking" because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words such as may, expect, anticipate, and believe or other similar words. Capital and operating cost estimates are forward-looking statements, and are based on assumptions that we believe to be reasonable. However, actual events and results could be substantially different because of the risks and uncertainties associated with our respective business or events that happen after the date of this press release. You should not place undue reliance on forward-looking statements.

About Inmet

Inmet is a Canadian-based global mining company that produces copper, zinc and gold. We have interests in five mining operations in locations around the world: Cayeli, Las Cruces, Pyhasalmi, Troilus and Ok Tedi. We also have a 100 percent interest in Cobre Panama, a development property in Panama.

This press release is also available at www.inmetmining.com.

Contact Information

  • Inmet Mining Corporation
    Jochen Tilk
    President and Chief Executive Officer
    (416) 860-3972
    www.inmetmining.com