VANCOUVER – For resource companies, it can be hard to keep investors interested during the lull between discovery and development. During those years the story shifts from exciting exploration results to endless studies of metallurgy, hydrography, power supply options, and the like. The work is essential to mine development, but the news it produces rarely moves markets.
At least, investors remain nonplussed until those studies culminate in a major project advancement like a feasibility study or a development permit – those few and far between project milestones that often remind investors why mining projects are worth the wait.
Such was the case when Western Copper and Gold (WRN-T) announced the completion of a feasibility study for its Casino copper-gold-molybdenum project in the Yukon.
Western Copper's share price, which languished near 70¢ in the later months of 2012, jumped 63% in the week leading up to the release. On the big day it gained another 13¢ to reach $1.45. It's a far cry from the peak of $4 that WRN shares were worth in early 2011, but still a major improvement and it's one Western Copper's management earned.
Casino is a huge porphyry copper-gold-molybdenum deposit 380 km northwest of Whitehorse. There are billions of pounds of copper and millions of ounces of gold in the ground at Casino, but the isolated project presents some serious infrastructure challenges – challenges that Western Copper has addressed head-on in the new feasibility study.
The company improved the economics of recovering gold from the oxide cap by switching from a run-of-mine dump leach to a coarse crush and conveyor stack operation that will boost gold recoveries to 66% from 50%. That increase almost doubled the reserve tonnes of gold oxide ore.
And in addressing the biggest infrastructure challenge, Western Copper's new plan for Casino includes a $209-million natural gas power plant. Previous plans incorporated a coal-fired power plant, at a cost of $550 million. A mine at Casino has to be self-powered because the project is a long ways from the Yukon grid and, more importantly, would use more power than is used in the entire territory today.
Big mines simply use a lot of power, and Casino would be a big mine. The project is planned as an open pit operation with a concentrator processing 120,000 tonnes per day plus a gold heap leach facility processing 25,000 tonnes per day.
Costs are expected to total $2.46 billion, an investment that should be repaid in three years due to a 20.1% after tax internal rate of return. As currently envisioned, Casino carries an after-tax net present value of $1.83 billion, using an 8% discount rate. Those numbers are based on long-term metal price projections of US$3 per lb. copper, US$14 per lb. molybdenum, US$1,400 per oz. gold, and US$25 per oz. silver.
The deposit at Casino is a huge porphyry. The upper oxide layer bears only gold and silver, its copper having been leached out and redeposited in a supergene layer just above the main body of sulphide mineralization. Oxide reserves stand at 157.4 million proven and probable tonnes grading 0.292 gram gold per tonne and 2.21 grams silver per tonne, enough to feed the leaching operation for 18 years. Sulphide reserves total 965.2 million proven and probable tonnes, enough to feed the mill for 22 years.
Incredibly, all those tonnes can be mined with a life-of-mine strip ratio of just 0.59 to 1. That low strip ratio is one of the main reasons that it is only expected to cost $3.05 to mill each tonne of Casino ore. With the deposit relatively inexpensive to mine and the ore generating so many by-product credits, the cash cost to produce a pound of copper at Casino is negative 81¢. In other words, cash flows from Casino's gold, silver, and moly output more than cover the cost to produce copper.
Nicely positive operating economics make Casino's initial capital costs more palatable. The $2.46-billion outlay has to cover mining equipment, the milling and heap leach infrastructure, a camp and airstrip, the aforementioned power plant, and a 132-km all-weather road. The road alone is expected to cost $99 million.
In explaining its decision to ditch plans for a coal-fired facility in favour of a LNG plant, Western Copper notes that there is an oversupply of natural gas in North America at the moment, which has created favourable pricing for the fuel. In addition, burning LNG instead of coal would significantly reduce the mine's greenhouse gas emissions.
Liquefied natural gas (LNG) will be hauled by highway tankers from Fort Nelson, a town near the northeast corner of British Columbia, to an on-site LNG storage facility at Casino. There is not currently a natural gas liquefaction facility in Fort Nelson, but there are lots of producing natural gas operations in the area and Western Copper says it has heard from numerous companies interested in building and operating such a facility.
The idea to use LNG instead of coal is economic in that the facility is much less expensive to build, but it is also novel in that Western Copper also plans to use LNG to power the Casino mine haulage fleet. From the mine's haul trucks to the highway tractors used to ferry concentrates, lime, grinding media, and LNG to and from the site, Casino would be an operation fully powered by LNG. Interestingly, the technology to fuel mine haul trucks of the class required for Casino is still in development, but haul truck suppliers have publicly stated that they are targeting 2017 to make this technology commercially available.
That would be soon enough for Casino. Over the next year Western Copper plans to focus on submitting initial permitting applications. Permitting is expected to take two years; securing financing could take another year. As such Western Copper does not anticipate starting construction until 2016, with production from the heap leach expected in 2017 and from the concentrator in 2019.
To keep itself financially afloat through these permitting years, Western Copper recently added to its coffers through a deal with 8248567 Canada Ltd. The numbered company already held a 5% net profits interest royalty on Casino; it agreed to pay Western Copper US$32 million to convert its holding to a 2.75% net smelter returns (NSR) royalty. Western Copper has the right to repurchase 0.75% of the NSR royalty for US$39 million before the end of 2013 or US$59 million before the end of 2017.
The money came at a good time. As of the end of September, Western Copper had just $2.6 million in working capital, its bank account having been somewhat drained by the spin-out of two other companies. In early 2012 Western Copper put $2 million and its near-term Carmacks copper project into a new company called Copper North Mining (COL-V). It also put $2.5 million and its North Isle copper-gold on Vancouver Island into a new vehicle called NorthIsle Copper and Gold (NCX-V).
The result was a slimmed-down company focused solely on the Casino project. Unfortunately, spinning its other projects out into new companies sparked a five-month share price slide that took WRN shares from a 12-month high of $2 to a low of 60¢.
After the feasibility study news, Western Copper and Gold closed at $1.45. The company has 93.7 million shares outstanding and carries no debt.
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