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. This work is essential to mine development, but the news it produces rarely moves markets.
Investors remain nonplussed until those studies become major project advancements, 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, WRN-X) announced completing 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 $4 peak that Western Copper 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-moly 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 serious infrastructure 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 boosts gold recoveries to 66% from 50%. This increase almost doubles 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 would use more power than the entire territory uses 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 $2.5 billion, which would be repaid in three years due to a 20.1% after-tax internal rate of return. Casino carries an after-tax net present value of $1.8 billion, using an 8% discount rate. These numbers are based on long-term metal price projections of US$3 per lb. copper, US$14 per lb. moly, US$1,400 per oz. gold and US$25 per oz. silver.
The deposit at Casino is a large 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, which is 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.
All these tonnes can be mined with a life-of-mine strip ratio of just 0.59 to 1. The low strip ratio is one of the main reasons that it could 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.
Positive operating economics make Casino’s initial capital costs more palatable. The $2.46-billion outlay has to cover mining equipment, 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.
Having ditched plans for a coal-fired facility in favour of a liquefied natural gas (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. Burning LNG instead of coal would also reduce the mine’s carbon emissions.
LNG will be hauled by highway tankers from Fort Nelson, a town near the northeast corner of B.C., to an on-site LNG storage facility at Casino. There are no natural gas liquefaction facilities 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 facilities.
The idea to use LNG instead of coal is economic because the facility is less expensive to build, but 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. The technology to fuel mine haul trucks of the class required for Casino is still in development, but haul-truck suppliers are targeting 2017 to make this technology commercially available.
This 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, and 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 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 return (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. At the end of September, Western Copper had $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 project on Vancouver Island into a new vehicle called North-Isle Copper & Gold (NCX-V).
The result was a slimmed-down company focused on the Casino project. Unfortunately, spinning its other projects out into new companies sparked a five-month share-price slide that took Western Copper shares from a 12-month high of $2 to a 60¢ low.
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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