Thu Oct 16, 2014 3:13am EDT
* Sees first copper production at Las Bambas in Q1 2016
* Capital costs higher than flagged by ex-owner Glencore
* Cash costs of production still seen around 90 cents a pound (Adds CEO, analyst comments)
MELBOURNE, Oct 16 (Reuters) - China's MMG Ltd said it will spend about $3 billion completing the huge Las Bambas copper mine in Peru, more than previously expected, and will slightly delay the start of production to the first quarter of 2016.
MMG led a Chinese consortium that bought Las Bambas, set to become the world's third-largest copper mine, for $7 billion from Glencore Plc in August and outlined its plans for the mine for the first time on Thursday.
The company had been aware of significant risks to the project schedule and costs when it was negotiating the purchase, including a shortage of skilled labour, like crane drivers, changes in the design of the tailings dam and increased costs to resettle 400 families to a new town, it said.
"As a result, MMG expects first production of concentrate in the first quarter of 2016, with the capital expenditure required to complete the Las Bambas project to be in the range of $2.7-$3.2 billion," MMG said in its quarterly production report.
Glencore had forecast last year that a further $2.4 billion would need to be spent ahead of first production in the second half of 2015. Of that sum, $1.15 billion was reflected in the final price MMG and its partners paid.
That implies the remaining capital cost of up to $3.2 billion is more than double what had been previously flagged, although at least part of that increase had been expected.
"The revised capex might be a little higher than most in the marketplace expected," said Andrew Driscoll, an analyst with CLSA in Hong Kong, adding that the company was taking all the right steps and the delay into early 2016 was no surprise.
Chief Executive Andrew Michelmore declined to predict how quickly Las Bambas would reach full capacity or what that rate would be. Under Glencore, it was expected to produce more than 450,000 tonnes a year in the first five years.
"We'll ramp up as fast as we can through 2016 to get to full production and see whether we can squeeze it further," Michelmore told analysts and reporters on a conference call.
Early work at the mine has turned up ore in areas that were not in the original mine plan.
Most of the mine's output will go to MMG's parent Minmetals and one of its partners at the mine, state-owned CITIC Metal Co Ltd, which owns 15 percent. The remaining partner is Guoxin International Investment Corp Ltd with a 22.5 percent stake.
Cash costs of production are still expected to be around 90 cents a pound. Copper is currently trading at around $3.00 a pound.
MMG on Thursday pared its forecast range for copper output this year to 175,000-187,000 tonnes and further trimmed its forecast for zinc production to 565,000-590,000 tonnes from its mines in Australia, Laos and the Democratic Republic of Congo.
It had earlier expected to produce 177,000-190,000 tonnes of copper and 575,000-600,000 tonnes of zinc in 2014. (Reporting by Sonali Paul; Editing by Richard Pullin)
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