Xstrata PLC (XTA.LN) said Thursday it approved the US$542 million transformation of the Ernest Henry copper mine in Australia's Queensland state from open-pit to underground mining, extending the mine's life to at least 2024.

The mine will continue to feed Xstrata's Mount Isa copper smelter, though at about half current output levels.

"We will be looking for additional smelter feed, primarily from late-2011," a company spokeswoman said.

A number of smaller copper developers in the Mount Isa area, such as Cudeco Ltd. (CDU.AU) and Exco Resources Ltd. (EXS.AU), are closely monitoring the smelter's concentrate needs, hoping to provide future feed or marketing themselves as takeover targets.

The Ernest Henry underground mine will have an annual output of around 50,000 metric tons of copper and 70,000 troy ounces of gold in concentrates from 2012, when processing from open-pit mining operations ceases. The Mount Isa smelter has an annual capacity of 300,000 tons.

Copper-gold concentrates from Ernest Henry will continue to be hauled by trucks to Xstrata's Mount Isa copper smelter, with the anode then sent by rail to the company's refinery in Townsville.

Construction of the underground mine is expected to start in the first half of 2010, with first production in late 2011 and full production in early 2013.

-By Elisabeth Behrmann, Dow Jones Newswires;

61-2-8272-4689 elisabeth.behrmann@dowjones.com
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