DEVELOPMENT OF THE RAPU RAPU POLYMETALLIC PROJECT

 

Rod Watt

Suite 23, Legaspi Suites, 178 Salcedo Street,

Legaspi Village, Makati City, Philippines

Key Words: copper, gold, zinc, feasibility, development, mining, Rapu Rapu, Philippines

 

ABSTRACT

 

The Rapu Rapu polymetallic project is located on Rapu Rapu Island, southern Luzon, in the Republic of the Philippines where it has been the focus of Lafayette Philippines since its acquisition in 1999. Significant geological exploration, metallurgical test work and mine planning has defined an economically viable project centered on the Ungay deposit which lies at the eastern end of Rapu Rapu Island. Approximately 10,000 tonnes of copper, 14,000 tonnes of zinc, 50,000 ounces of gold and 580,000 ounces of silver will be produced annually. Life of mine at this stage is five to six years, although the prospects for additional discovery through regional exploration are excellent.

 

Regulatory and local government approvals are in place and the project is now ready for development. The Rapu Rapu mine will be the first new mining project to be started for many years in the Philippines, and as such is seen as a milestone in the resurrection of the Philippine mining industry which has been in steady decline since the 1980’s.

 

GEOLOGY

 

The Ungay Malobago area was initially discovered and explored through shallow test pits in the late 1930’s. Subsequent to this, Benguet Corp. entered the area in 1957 and conducted geological mapping and geophysical surveys. Between 1962 and 1965 Benguet drilled over 100 surface and underground drill holes and developed approximately 1,000m of underground development via an adit which exits near to the current camp location. Work continued to be conducted intermittently by Benguet until 1980. After this there was a gap in activity until TVI of Canada entered the area in 1995 and carried out exploration through until 1999 when Lafayette acquired their interest in the poject.

 

The Ungay massive sulphide deposit occurs within a folded sequence of mafic and felsic volcanic rocks. The sequence has been tightly folded into a megascopic fold plunging shallowly to the west. The deposit thus consists of a highly deformed and locally dismembered massive sulphide pod composed predominantly of pyrite with lesser chalcopyrite and sphalerite. Chalcocite, covellite, tetrahedrite, bornite and visible gold have also been identified.

 

For resource estimation modeling, median indicator kriging was the method employed, where 1m composites were included inside previously interpreted grade envelopes, with different kriging parameters being used for each element. A top-cut measure was employed by using the median grade as the last indicator bin grade. Bulk density values were assigned according to the lithology for the various weathering zones.

 

Classifications in terms of the Australasian Joint Ore Reserves Commission (JORC) code were used in which the distance from a block of the nearest drill hole and the search distances used during kriging define resource categories. Blocks were classified as Measured when this distance was less than 20m; Indicated for distances between 20 and 25m; and Inferred for >25m, or with search ellipses on the second kriging run with ranges twice as long as the original search ellipse.

 

The current resources estimated by this method are shown below:

Class	Tonnes	Gold g/t	Silver g/t	Copper %	Zinc %
Measured	6,397,000	2.7	28.9	1.3	2.2
Indicated	324,000	2.2	20.5	0.9	1.4
Inferred	301,000	1.9	20.9	0.8	1.0
Total	7,022,000	2.6	28.1	1.2	2.1

 

Based on the optimum pit design, technical, economic, geological, political and metallurgical parameters (including marketing, social and environmental factors), and the ore reserve has been estimated as follows:

 

Class	Tonnes	Gold g/t	Silver g/t	Copper %	Zinc %
Proven	5,852,000	2.5	28.1	1.2	2.1
Probable	120,000	2.1	22.7	1.0	1.9
Total	5,972,000	2.5	28.0	1.2	2.1

 

Potential exists for the addition of resources from within the Ungay system with extensions across strike where drilling has not yet closed off the orebody extremities. Exploration potential is high with targets identified, and production potentially available from satellite deposits, such as Hixbar and Hondo. Further delineation of these resources and assessment of their economic potential will commence upon construction of the project.

 

CONSTRUCTION AND OPERATION

 

Permitting and Contractual Agreements

 

The Government of the Philippines has issued the project with an Environmental Compliance Certificate, approved the Environmental Protection and Enhancement Programme and has issued a Declaration of Mining Feasibility for the project. These approvals are the key regulatory consents required for the project to be developed. In addition, all necessary community and operational management plans have also been approved. The area required for mine development is less than 180 hectares. Access to the area has been secured through the successful acquisition of 220 Hectares of land which was completed in early 2003.

 

The various regulatory approvals necessary to commence the Project are listed below:

 

 

Legend:

 

DENR Department of Environment and Natural Resources

MGB Mines and Geosciences Bureau

BOI Board of Investments

EMB Environmental Management Bureau

 

 

Contractual agreements, complete with attendant price schedules, have been developed and agreed with the preferred contractor/s for construction and mine operations. Importantly, the style of contract negotiated for the construction of the process plant facilities and associated infrastructure confirms a guaranteed maximum price with the opportunity to include cost reductions identified during the final detailed engineering design work. Under the proposed construction contract, Leighton Contractors Philippines has agreed to undertake the development of the processing plant, camp, roads, tailings facility and wharf under a guaranteed maximum price contract. Once the contract is executed, Leighton will undertake the detailed engineering design phase to arrive at a fixed lump sum price contract for the completion of the construction to the required standard. As of the last week in September, Leighton has mobilised to site and commenced preliminary site-works in preparation for the commencement of construction in the first week October of the accommodation camps.

 

Mining

 

The current project is focused on the development of the Ungay orebody, with a plan to mine approximately 6 million tonnes of ore from a single open pit which will have final dimensions of approximately 850m long, 300m wide with a maximum depth of 140m. Of the 6 million tonnes, 0.85 million tonnes is gold rich ore which will be treated in a separate CIL gold plant located adjacent to the pit. The remaining 5.1 million tonnes is sulphide ore that contains economic quantities of copper and zinc in addition to significant quantities of gold and silver that will be treated in a separate sulphide flotation plant also located alongside the pit. It is planned that the open pit will be operated by Leighton Contractors using their own equipment and mining personnel. Lafayette Mining Limited personnel will be involved in the day to day operational requirements and maintain quality levels through technical mining, geological, geotechnical and survey control of the works.

 

Metallurgy

 

The proposed ore treatment facility will comprise separate plants for the treatment of the Ungay massive sulphide copper/zinc/gold bearing ore and gossan/primary gold bearing ore. The gold plant will produce gold dore whilst the sulphide plant will produce two separate concentrate products; one containing copper-gold-silver and the other, a zinc concentrate. The recovered and payable metal in ore reserves to be processed through the two plants is 58,000 tonnes of copper; 311,000 ounces of gold; 3,300,000 ounces of silver and 74,000 tonnes of zinc.

 

ENVIRONMENT, COMMUNITY AND COMMUNICATION

 

The company is very conscious of its responsibilities to the local community and the environment and it will continue to invest in and provide development opportunities within the areas that are impacted by the proposed mining operations. These development initiatives are being implemented and pursued in partnership with Local Government Agencies and the community. In addition, the Company commits to continue working with the community, government and NGO groups to effectively deal with socio-economic concerns that may occur as a result of the mining operation.

 

Environment

 

A significant amount of work has gone into environmental protection measures. The key points are summarized below:

 

• Following the issue of the ECC, the company has made commitments both in the EPEP and as part of its corporate policies that sound environmental management practices will underpin all its operations.

 

• Environmental impacts arising from a number of factors have been taken into consideration in the project layout, and mitigating measures introduced to minimize adverse environmental effects both during project life and following decommissioning. In particular, large structures such as the open pit, tailings dam and waste dump have been designed to take into account issues such as landform impact, slope stability, groundwater effect, soil erosion and acid mine drainage. Rainfall, wind conditions and seismic activity have also been taken into consideration. In the plant, particular attention has been paid to both the design of facilities and standard operating procedures, to ensure that chemicals and plant streams will not introduce spillage into the local environment. Similarly, layouts have been designed so as to contain noise and dust emissions.

 

• On a high rainfall island such as Rapu Rapu, site drainage and silt management is a key issue in promoting good environmental practices and in maintaining the stability of structures.

 

• The tailings containment dams have been designed so that tailings will always have a 2m cover of water and tailings will be deposited sub-aqueously so as to minimize the impact of acid generation.

 

• Spillways will be incorporated into the design so as to accommodate peak flows. Stormwater runoff around both tailings containment dams and the waste rock dump will thus be diverted so as to flow into a settlement dam at the toe of the waste dump without causing adverse environmental affects as a result of increased erosion.

 

• Drainage provision has been specifically made for the plant site to ensure that facilities can continue to run and are not compromised during periods of high rainfall. Appropriate culverts and collection sumps provide for normal water flows to be pumped out to tailings, whilst peak storm flows can be allowed to flow through the culverts/drains into the normal creeks.

 

The development schedule shows environmental works as preceding every earthwork or disturbance by the Project. In addition, the establishment of a buffer zone and mini forest will be undertaken at the outset. A nursery and arboretum will be constructed at the site, after which site delineation, preparation, and re-vegetation will follow.

 

Community

 

The company is mindful of the following issues that may arise from the mining operation:

 

Successful sustainable development on Rapu-Rapu will depend ultimately on the involvement and participation of local NGO’s and government agencies;

· Stakeholders who are financial beneficiaries from the Project may experience difficulties in dealing with sudden increases in disposable income. Appropriate training programs will be implemented with the assistance of the LGU and NGOs;

· Because the Project is located in a relatively remote and poor area of the country, the company recognises that it has to maintain a high level of corporate social responsibility. It will therefore co-operate with LGUs and appropriate NGOs in coordinating its social development program with their programs.

· If not properly managed and controlled, a sudden influx of outsiders coming to Rapu Rapu, settling in the host barangays and looking for work has the potential to cause a problem. The development plan addresses these concerns through appropriate human resource programs. One of the programs is that any outsiders employed on the project will be housed in company provided accommodation on-site, and on the completion of the work cycle will return to their place of origin.

 

Communication

 

Public consultation has been adopted as a tool for managing the flow of two-way information between the company and stakeholders. The objectives have been to build understanding of the project, enable feedback to company personnel about the activities of the company and the effect on the communities, and to improve decision making such that community concerns are adequately addressed in mine planning and implementation.

 

Commensurate with this, Information Communication and Education (ICE) programs were established early in the project to manage the relationship between Lafayette and those members of the community who will be directly or indirectly affected by the Project. In addition to the directly impacted stakeholders, these groups included

 

· Politicians of the local government units;

· National Government Agencies in Manila;

· Key Government Departments;

· Various Non Government Organisations (NGO’s);

· Churches;

· Media;

· Local businesses;

· College and Universities; and

· Shareholders in the Project companies.

 

An effective public consultation program has played a critical role in raising people’s awareness not just about the project, but also in raising the awareness of community concerns among company personnel, especially managers. This two-way process allows the benefits on the project to be maximised, whilst at the same time reducing the negative consequences that may develop through a lack of mutual understanding.

 

GOVERNMENT INCENTIVES

 

A number of government incentives have been made available to the Company in order to assist in diminution of financial risk. These are granted by the Board of Investments (BOI) of the Philippines Department of Trade and Industry who have approved a range of taxation concessions for the project. The BOI has distinguished between the copper-gold-silver production of the Project and its zinc production. As there is no existing zinc production in the Philippines, Pioneer Status has been awarded to this activity and a longer tax concessionary period granted for this.

 

The principal concessions granted to the Project are a complete relief from corporate income tax (presently 32%) on profits arising from copper, gold and silver production for four years, and for six years in the case of profits arising from zinc production. During the course of these Income Tax Holidays (ITH), application may be made to the BOI for an extension of the ITH for at least one more year for each form of production (generally to a maximum of two further years).

 

CONCLUSION

 

During the last three years Lafayette has completed detailed feasibility and engineering studies that show the proposed mine development to be economic, and has also cleared all government and regulatory hurdles to allow the mining project to proceed. This achievement is significant when it is considered that there have been no new mine developments for many years in the country despite a rich mineral endowment and long mining history.

 

The investment climate in the Philippines has been affected by legal challenges to the 1995 mining code, civil unrest in parts of the country, the impeachment of the previous President and community concerns about the industry’s environmental performance. Additionally, the country contains some of the most active and aware networks of NGO’s groups and organizations found anywhere in the world. Together these factors have posed significant challenges to the company in the development of a new mining operation.

 

The company has developed comprehensive strategies to mitigate the risks to development, specifically dealing with regulatory, environmental and approvals issues, social and community issues, the acquisition of land and technical, financial and marketing issues.

 

As of the third week in September, initial construction activities have commenced with the mobilization of Leighton to site and the off-loading of a number of heavy equipments for construction of the accommodation camps. This is in itself a milestone in the development of the project.

 

The Rapu Rapu Project is viewed as a test case – within both the country and the international mining industry – on whether minerals investment in the Philippines is an acceptable business proposition from a risk perspective. In the last three years the company has shown a solid commitment to the Philippines and proposes to continue this towards a successful project development that can be viewed as a show case for mining in the Philippines.