Mining

2. Organic and sustainable growth of the Core Business

Sierra Gorda District

The Group’s primary focus for exploration in Chile remains the Sierra Gorda District, where El Tesoro and Esperanza are located. Promising exploration results have been obtained from drilling programmes at the Caracoles, Mirador and Telégrafo deposits. These could eventually provide further resources to extend the life or scale of the existing El Tesoro and Esperanza plants, or for additional stand-alone operations in the future.

The Group owns or controls a number of properties in the Sierra Gorda District and during 2009 a total of US$20.4 million of exploration expenditure was incurred in respect of this district, predominantly in respect of the Caracoles deposit.

Caracoles is situated approximately 10 kilometres south-east of Esperanza, and was identified by the Group’s exploration team in 2007. In February 2009, the Group consolidated its interest in Caracoles to 100% by acquiring the remaining 18.5% interest from Compañía Minera Milpo of Peru S.A.A. for a cash consideration of US$25.0million. During 2009 total exploration spend amounted to US$14.3 million. The total mineral inventory at the deposit is estimated at between 0.7–1.1 billion tonnes, with a corresponding copper grade of between 0.60% and 0.49%. It is anticipated that a pre-feasibility study in respect of the deposit could commence later in 2010, following the incorporation of the results of the 2009 drilling programme into a block model and potentially into a mineral resources estimate by the first half of this year. Depending on the results of this work, it will be possible to evaluate whether the deposit could provide additional feed for the Esperanza plant, or support a stand-alone project.

The Mirador oxide deposit, located approximately five kilometres east of Tesoro North-East and 100% owned by the Group, was identified by the Group’s exploration team in 2008. Following completion of in-fill drilling work in April 2009, the decision was taken to proceed with a feasibility study, evaluating the potential for processing the oxides from this deposit at the El Tesoro plant. It is expected that this feasibility study could be completed during the first half of 2010. The deposit has total mineral resources of 32 million tonnes, with an average copper grade of 1.04% at a cut-off grade of 0.20%. There is a relatively limited amount of overburden above the deposit, and so only a comparatively low level of pre-stripping is likely to be required to exploit the deposit. Mirador could provide additional higher grade feed for the El Tesoro plant, to supplement the existing ore reserves at the original El Tesoro pit and the Tesoro North-East satellite deposit,which have an average grade of 0.77% copper. Work is also continuing to explore for sulphide potential at Mirador.

The mineral inventory at Telégrafo Sur is estimated at between 1,100–1,600 million tonnes, with a corresponding copper grade of between 0.45% and 0.38%, and at Telégrafo Norte is estimated at between 330–660 million tonnes, with a corresponding copper grade of between 0.44% and 0.34%, along with gold and molybdenum credits. The Telégrafo Sur and Telégrafo Norte deposits are adjacent to Esperanza and, as explained above, could extend the life of Esperanza beyond its current mine plan. These deposits are owned through Minera Esperanza and hence the Group’s interest is 70%. A drilling programme totalling 24,100 metres was carried out during 2009, which will allow the completion of the geological model and the calculation of a mineral resource estimate which is expected in the first half of2010. Additional drilling work will continue throughout 2010 with a view to further recategorisation of any mineral resources which could potentially lead to the initiation of pre-feasibility work during the course of 2011.

Exploration work is also continuing at other targets and potential deposits in the district. With combined total mineral resources for Esperanza, El Tesoro and Mirador of over 1.5 billion tonnes and a mineral inventory for other prospects in the range of 2.6 to 4.1 billion tonnes, the Sierra Gorda district provides a range of good opportunities for growth in the medium and longer term.