Inca Pacific Resources Inc.
TSX VENTURE : IPR

Inca Pacific Resources Inc.

December 03, 2007 09:00 ET

Inca Pacific Completes Final Feasibility Study for Magistral Copper-Molybdenum Project

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 3, 2007) - Inca Pacific Resources Inc. (TSX VENTURE:IPR)(LIMA:IPR) is pleased to announce the results of a Final Feasibility Study ("FFS") for its 100% owned Magistral Copper-Molybdenum Project (the "Project") located in Ancash, Peru.

The FFS has confirmed the technical and economic viability of the Project. Highlights of the study are as follows (all dollar figures in US dollars and current at 3rd Quarter, 2007):



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NPV (After Tax & 8% Discount Rate) $146.0 million
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IRR (After Tax) 14.9%
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Capital Payback 3.3 years
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Initial Capital Expenditure (before IGV(i)) $402 million
including a 14% contingency
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LOM C-1 Cash Costs (net of Mo & Ag by-product credits) $0.28/lb Cu
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Mill Capacity (nominal) 20,000 tpd
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Annual Throughput 7 million tonnes
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Mine Life 15 years
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Strip Ratio (including pre-production waste) 2.2:1
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LOM(i) average annual copper-in-concentrate production 34,100 tonnes
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LOM(i) average annual molybdenum-in-concentrate production 2860 tonnes
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(i)LOM equals Life of Mine, IGV equals Value Added Tax


Anthony Floyd, President & CEO, said, "I am very pleased that, while capital costs have escalated, we do have a robust project with a rapid payback. In the case of copper our engineering consultants have realistically balanced conservative long-term prices with higher ones indicated by the futures market for 2011 and 2012. In the case of molybdenum they have balanced conservative long-term prices with higher short term ones predicted by a very rigorous and current supply and demand study."

The FFS was managed by MTB Project Management Professionals Inc. ("MTB") and included work by Samuel Engineering Inc. ("SE"), Mine Development Associates ("MDA") and Vector Peru ("Vector"). Richard Kunter, Neil Prenn, Steve Ristorcelli and Scott Elfen from SE, MDA, MDA and Vector respectively were the Independent Qualified Persons responsible for the preparation of the FFS. The FFS includes a new NI 43-101 Mineral Resource estimate for Magistral and a corresponding block model, which were used by MDA to develop a mine plan and production schedule for the Project. The FFS will be available on Inca Pacific's website (www.incapacific.com) and SEDAR (www.sedar.com) within 45 days. Richard Kunter, one of the independent qualified persons within the meaning of National Instrument 43-101 that prepared the Final Feasibility Study, has reviewed and approved the content of this news release.

Inca Pacific will host a conference call on Monday, December 3, 2007 at 9:00 am (Pacific Time) or noon (Eastern Time) to discuss these results. Call-in information is provided at the bottom of this news release.

Project Economics

A project specific market study by H&H Metals Corporation, a metals trader, was conducted to provide pricing, treatment and refining charges, and freight for Magistral's concentrate production and grades. The results of this market study are the basis for the economic evaluation model. MTB developed a cash flow valuation model for the Project based upon the geological and engineering work completed to date. The base case was developed using the following metal prices:



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YEAR Copper Price per lb Molybdenum Price per Silver Price per
in lb in troy oz
US$ US$ US$
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2011 & 2012 2.76 22.38 12.00
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2013 to 2025 1.50 12.00 12.00
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These price forecasts are considerably lower than current prices which, as of November 29, 2007, were $3.08/lb for copper, $33.00/lb for molybdenum and $14.20/oz for silver. The first year of production is assumed to be 2011. Copper concentrate treatment charges and copper concentrate refining charges were assumed to be $80.00/tonne and $0.08/lb respectively. The following table shows the NPV of the base case at various discount rates:



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Discount Rate (Real) NPV
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0% $584.0 million
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5% $259.3 million
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8% $146.0 million
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10% $ 90.9 million
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12% $ 47.5 million
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The following chart in millions of dollars shows the sensitivity of the base case's NPV (at an 8% discount rate) to various long term copper and molybdenum prices but keeping the metal prices in 2011 and 2012 the same as the base case. The impact of silver pricing changes is not significant and therefore sensitivities are not presented.



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Metal Price/lb Cu $1.00 Cu $1.25 Cu $1.50 Cu $1.75 Cu $ 2.00
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Mo $16.00 $98.0 $155.0 $212.0 $268.7 $324.9
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Mo $14.00 $65.0 $122.0 $179.1 $236.0 $292.5
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Mo $12.00 $32.2 $88.7 $146.0 $203.2 $260.0
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Mo $10.00 $4.5 $55.4 $112.8 $170.3 $227.3
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Mo $8.00 $0.8 $22.6 $79.4 $137.1 $194.5
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The following chart in millions shows the sensitivity of the base case's IRR to various long term copper and molybdenum prices but keeping the metal prices in 2011 and 2012 the same as the base case:



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Metal Price/lb Cu $1.00 Cu $1.25 Cu $1.50 Cu $1.75 Cu $ 2.00
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Mo $16.00 13.0% 15.3% 17.3% 19.1% 20.7%
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Mo $14.00 11.5% 14.0% 16.1% 18.0% 19.8%
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Mo $12.00 9.9% 12.6% 14.9% 17.0% 18.8%
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Mo $10.00 8.3% 11.0% 13.6% 15.8% 17.8%
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Mo $8.00 8.1% 9.3% 12.2% 14.6% 16.7%
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Mineral Resources & Reserves

MDA updated the resource model and the corresponding block model in 2007 to develop a mine plan and production schedule for the project. The estimation in all cases included a nearest neighbour, Krige, and inverse-distance interpolation, but in all cases the inverse-distance model was selected as the final and reported model. MDA utilized mineral domains defined by grade and geology to control the estimation. Estimation parameters were chosen to be appropriate for the drill spacing, geologic complexity, sample locations and parameters defined by point validation and correlograms. The new NI 43-101 Mineral Resource estimate is based on assay results from 65,214 metres of core drilling in 286 holes and at a 0.4% Cu equivalent(i) cut-off is as follows:



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Tonnes Grade Copper Grade Molybdenum
Resource Category Millions (% Cu) Millions lbs (% Mo) Millions lbs
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Measured 108.8 0.52 1237 0.055 133
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Indicated 86.7 0.51 974 0.047 90
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Measured & Indicated 195.5 0.51 2,211 0.052 223
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Inferred 55.4 0.55 673 0.023 28
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(i) Copper equivalent calculation of 5 to 1 reflects metal prices used in
the Pre-Feasibility Study (Cu - US $1.20/lb, Mo US $6.00/lb) with no
adjustment for metallurgical recoveries and relative processing and
smelting costs.


Using Whittle (Lerchs-Grossman) optimizations of potential economic pit limits on only the Measured & Indicated Resource, MDA determined the mine plan and production schedule. The estimate of mineral reserves within the pit phases was reported using an internal NSR cut-off value of $5.25. The table below shows the Mineral Reserves within the designed ultimate pit based on the MDA resource model. Proven and Probable Mineral Reserves have been estimated as of today's date to be:



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Tonnes Grade Copper Grade Molybdenum
Reserve Category Millions (% Cu) Millions lbs (% Mo) Millions lbs
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Proven 76.1 0.48 805 0.051 86
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Probable 37.4 0.51 421 0.047 39
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Proven and Probable 113.5 0.49 1226 0.050 125
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Mining & Milling

The Project will utilize conventional mining and milling processes. The open pit is scheduled to deliver a nominal 20,000 tonnes per day (7 million tonnes per year) of sulphide ore to the primary crusher for 15 years. The processing plant is forecast to produce, on average, 34,178 tonnes (75.2 million lbs) per year of copper in concentrate, 2,860 tonnes (6.3 million lbs) per year of molybdenum in concentrate and 380,000 ounces per year of silver in copper concentrate. Average LOM metallurgical recoveries have been estimated to be 95% for copper and 79% for molybdenum, producing a copper concentrate grading on average 33.5% copper and 117 g/t silver and molybdenum concentrate grading 53% molybdenum. The copper concentrate will attract minor penalties for arsenic. In all years the arsenic content will average less than 0.5% except in year 12 when it will average 0.74%.

Capital Costs

SE developed capital cost estimates for the proposed mining and processing operation at Magistral. The following table summarizes the capital cost estimates in the FFS for the Project:



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Direct Capital Costs $258 million
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Indirect Capital Costs $109 million
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Owner s Direct and Indirect Capital Costs $34 million
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Closure Cost-Annual Advance Payment $1 million
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Total (Base Case) $402 million
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Upfront Working Capital $2 million
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LOM Sustaining Capital $169 million
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The total (Base Case) Capital Cost estimates contain a contingency of $50 million (14%) and excludes IGV. The estimates have been compiled with an accuracy level of -4% to +14%.

There has been a material increase in capital costs since the publication of our Preliminary Feasibility Study (PFS) in October 2006. The following table summarizes the increase in capital cost estimates from the PFS to the FFS:



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PFS FFS Increase
Item Description Millions Millions (Decrease)
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Direct Costs
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Mining $54.3 $21.4 (61%)(i)
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Process $86.4 $137.0 59%
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Infrastructure $81.2 $107.7 33%
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subtotal Direct Costs $221.8 $266.1 20%
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Indirect Costs $15.5 $101.0 552%
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Owner's Costs $22.0 $34.2 56%
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Total Capital $259.3 $401.3 55%
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(i) Owner mine equipment purchases were deferred due to
contract mining being employed in years minus one and
minus two (pre-production).


Operating Costs

The results of the FFS show that a mine at Magistral will be a low cost operation. The FFS estimates that the cash costs (net of Mo & Ag by-products) over the life of the mine will average $0.28 per pound of copper payable. Cash costs include mining, processing, mine site administration costs, all costs associated with delivery of concentrates to smelters and all treatment and refining charges. The LOM operating cost estimate is $8.31 per tonne, not including contingency. Operating costs in the cashflow include a 10% contingency on estimated cost.

Infrastructure

Magistral is 261 kms by road from the port of Salaverry from which concentrate will be shipped to smelters. Seventy seven kms of the road will require upgrading and 28 kms of new road will need to be constructed to allow the passage of 40 tonne trucks. Electrical power for the Project will require the construction of a 51 km power line (138kV) from the existing grid at Sihuas to Magistral. Water will be sourced locally from the Magistral valley and also recycled from the tailings impoundment.

Environmental

The Project will utilize World Bank Guidelines for environmental management practice, development and design. Preliminary baseline studies completed to date have included initial surface water quality sampling, archaeological studies, socio-economic reviews and biological and re-vegetation studies. A water treatment plant will be constructed to process discharges from the tailings impoundment.

Employment and Taxes

The project will create 1,200 temporary construction jobs and 231 permanent jobs. Over the life of the mine, the project should generate US $278 million in taxes and US $90 million in royalties.

Timing

The Company anticipates that it will take 12 months to obtain approval of its Environmental Impact Assessment (EIA) and obtain all permits to allow site construction to commence. It will then take a further 24 months to complete site construction of the project. Production is anticipated to commence in the first quarter of 2011. Under its agreement with the Government of Peru ("GOP") the Company must commence commercial production by the end of 2011.

Next Steps

The Company intends to deliver the Final Feasibility Study to the GOP on or before December 31, 2007. The Final Feasibility Study, in NI 43-101 format, will be available on Inca Pacific's website (www.incapacific.com) and SEDAR (www.sedar.com) within 45 days.

The project is situated on lands owned by the community of Conchucos. The community of Conchucos has voted to grant the company a surface right to allow development of the project. The Company is optimistic that it will obtain this surface right on fair terms and in such a manner that will benefit the community and promote sustainable development in the region.

The Company has appointed Pincock, Allen & Holt as Independent Engineer to review the Final Feasibility Study and to express an opinion as to whether the study is in a form and content that would allow major financial institutions to provide all or part of the debt and/or equity financing for the construction of the Magistral project.

On or before February 28, 2008 the Company must provide the GOP with one or more letters from major financial institutions stating that the Feasibility Study is a Bankable Feasibility Study.

Final Feasibility Study Qualified Persons

The Independent Qualified Persons responsible for the FFS are as follows:



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Name Responsibility Company
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Richard Kunter, Process and Metallurgy Samuel Engineering Inc.
FAusIMM(CP)
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Neil B. Prenn, PE Mine Design Mine Development Associates
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Steve Ristorcelli, RPG Resource Estimate Mine Development Associates
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Scott Elfin, PE Environmental, Roads, Vector Peru
Mine waste Tailings
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Conference Call

Call in details for the conference call to be held on Monday, December 3, 2007 at 9:00 am (Pacific Time) or noon (Eastern Time) are:

North American toll-free: 866-322-2356

International: 416-640-3405

A replay of this conference call will be available on Inca Pacific's website at www.incapacific.com. The replay numbers are:

North American toll-free: 888-203-1112

International: 647-436-0148

Replay Code: 7452209

INCA PACIFIC RESOURCES INC.

Anthony Floyd, President and Director

CAUTION REGARDING FORWARD LOOKING STATEMENTS:

This news release contains "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements include, but are not limited to, statements with respect to the future price of copper, molybdenum and silver, the timing of exploration activities, the mine life of the Magistral Project, the economic viability and estimated internal rate of return of the Magistral Project, the estimation of mineral resources, the results of drilling, estimated future capital and operating costs, future stripping ratios, projected mineral recovery rates and Inca Pacific's commitment to, and plans for developing, the Magistral Project. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "can", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Inca Pacific to be materially different from those expressed or implied by such forward-looking statements. The FFS includes a detailed discussion of the risks and assumptions underlying such forward-looking statements including but not limited to: risks related to the exploration and potential development of the Magistral Project, risks related to international operations, the actual results of current exploration activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, future prices of copper, silver and molybdenum. Although Inca Pacific has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Inca Pacific does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws.

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