VANCOUVER – Curis Resources (CUV-T) managed to buck two of the mining sector's most persistent problems – creeping capital costs and rising operating expenses – with a prefeasibility study for its Florence copper project in Arizona that lowers initial costs by 18% and predicts an operation able to produce copper for just US$0.79 per lb. over its 25-year lifespan.
Curis completed a preliminary economic assessment (PEA) of Florence in late 2010, shortly after acquiring the project. For that study, the company relied primarily on historic data. After two years of hard work, Curis has a new economic study based on contemporary costs and estimates – and the project is stronger for it.
"After rethinking the mine plan and doing extensive work on metallurgy and bringing all the capital and operating costs up to current levels, we've come out with a project that is even more financially viable," said Michael McPhie, Curis president and CEO, in an interview. "At a time when the market has been seeing mining project after mining project come out with significantly inflated capital and operating costs, we've been able to deliver something that's even more prospective than what we presented two years ago. That's a very gratifying thing."
Florence, 70 miles northwest of Tuscan in central Arizona, is home to a near-surface porphyry copper deposit. Much of the deposit is oxidized, which means the copper it contains is amenable to in-situ recovery.
BHP Billiton (BHP-N, BLT-L) knew this. In the late 1990s the major took Florence to prefeasibility as an in-situ operation, even developing a pilot-scale set of injection and recovery wells. BHP also acquired full production permits, but a turn in the markets prompted the company to shelve and eventually sell the project.
In the two-plus years since Curis acquired Florence, the company has amended and updated those operational permits while also expanding the resource and reassessing the economics.
Its efforts are starting to pay off. The new Florence prefeasibility study outlines a project with robust economics and the news lifted CUV shares to a 52-week high of $1.21. In the last month, keen investors have boosted Curis' share price more than 70%.
The study was based on Florence's probable mineral reserve, which totals 308.4 million tonnes grading 0.358% copper. It is enough to support a mine producing 55 million lbs. of copper cathode per year for six years, followed by 85 million lbs. a year for the another 15 years before output declines in the final four years.
Over its 25-year lifespan, the planned mine at Florence should be able to produce a pound of copper for US$0.79; total production costs come in at US$1.09 per lb. when royalty payments and reclamation costs are included.
At Florence it is not just production that is well-priced: development costs are also very reasonable, with initial capital costs estimated at US$196 million. That's 18% less than was predicted in the PEA.
The prefeasibility offers another significant improvement over the PEA from 2010. As mentioned, Curis completed the PEA within its first year at Florence and primarily used old BHP data. Since it was outdated data from another party, McPhie says they used very conservative numbers.
One of those very conservative numbers was an average copper recovery of just 49%. BHP's testwork showed in-situ leaching recovered 49 to 70% of the copper in the rocks at Florence; conservative Curis used the lowest number for its PEA. Since then the company has conducted extensive testwork of its own, which supports an average recovery of 70%. That change alone provided a healthy boost to Florence's economics.
At a copper price of US$2.75 per lb. and a 7.5% discount rate, Florence carries a pre-tax net present value (NPV) of US$748 million and is expected to generate a 38% internal rate of return (IRR). That would enable Curis to repay the mine's capital costs in 2.4 years.
Boosting the copper price to US$3 per lb. raises the pretax NPV to US$875 million and increases the IRR to 41%.
The mine would be developed in two stages. In the first stage, Curis plans to build what it calls a production test facility. This pilot project will involve 24 injection and recovery wells as well as a full-scale solvent extraction-electrowinning (SXEW) plant.
Curis is fully funded to build this $32-million test facility and is keen to break ground soon. It awaits just one permit, which is known as a Class 3 Underground Injection Control permit and comes from the Environmental Protection Agency.
"The project actually received this permit already, in the late 1990s," said McPhie. "We've been working on it for quite a while and we believe all the technical issues have been addressed. At this point we're certainly confident in the outcome and are hoping it will be here pretty soon – these things always take a bit of time."
The test facility is important for two reasons. First, it will enable Curis to refine and optimize its processing techniques, which will give the company greater confidence in how to build the full-scale facility and give the markets greater confidence that the process works.
Second, McPhie is hoping the test facility will demonstrate to residents of the nearby town – where opinions on the project are divided – that in-situ mines are clean, low-impact operations.
"You throw the word 'mine' around and people can often have a very specific and very emotive reaction," he said. "I'm very sensitive to folks who have questions and want answers. It's fair that they're requesting that of us. So with this phase one production facility the plan is to have a very open-door policy, because we believe we're providing an opportunity for folks to really get familiar and comfortable with what this is all about."
Getting the locals comfortable with the idea of a mine at Florence is important. For the first nine years the mine would operate exclusively on land controlled by the Arizona State Land Department, where Curis already has permission to operate. In year ten the operation will expand onto land that Curis owns, but where it needs approval from the town to operate.
It has yet to gain that approval, but McPhie is hopeful that local support will start building soon.
"Someone said to me the other day, 'You should build a model of the mine so people can understand how it will work,'" McPhie continued. "I said, 'Actually, I am building one – a $32-million model. Fortunately for us, this model also produces some copper.'"
Provided it receives the final permit, Curis aims to build the test facility in the coming months and produce its first copper before the end of the year. Long lead-time items are already on order. The subsequent expansion to full scale would boost the number of wells at Florence from 24 to roughly 250 and the company hopes to achieve commercial production by 2016.
On news of the prefeasibility study Curis gained 6¢ to reach $1.21, a new 52-week high. In August, Curis share were trading for less than 40¢. The company has 56 million shares outstanding.
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