Earlier this year, Crown Mining (TSXV: CWM) bought 100% of the Moonlight-Superior property in northeastern California for US$375,000 in cash and 2.75 million shares.
The land package is best known for its Superior and Engels deposits, which produced over 161 million lb. copper as underground mining operations between 1915 and 1930.
But the property, 200 km northeast of Sacramento and 145 km northwest of Reno, also has a third deposit called Moonlight that wasn’t discovered until the 1960s, and was never developed.
Moonlight, about 2.5 km from Superior and Engels, has nearly 1.5 billion lb. copper, the company says.
According to a resource estimate Crown completed in December 2017, which was based on 202 historic drill holes, Moonlight has 252 million indicated tonnes grading 0.25% copper for 1.3 billion lb. contained copper, and 109 million inferred tonnes averaging 0.24% copper for 534 million lb. copper.
Of the historic drill holes, 189 were drilled by American Exploration between 1966 and 1970, and the other 13 were undertaken by Sheffield Resources between 2005 and 2006.
In March, Crown completed a preliminary economic assessment (PEA) on Moonlight that concluded an open-pit mine would produce an average of 85 million lb. copper, or 163,000 tons copper concentrate a year, over a 17-year mine life.
The early-stage study did not take into account any mineralization from the Superior deposit, which, according to an inferred resource estimate from 128 historic drill holes Crown completed in 2014, has another 54.4 million inferred tonnes grading 0.41% copper for 487 million lb. contained copper.
Using a base case copper price of US$3.15 per lb., the PEA forecast a 16.4% internal rate of return, US$179-million net present value and US$708-million operating cash flow, all post-tax.
Initial capital costs were forecast to reach US$513 million, including a US$71-million contingency, and the study estimated a pre-tax payback period of just under five years.
“The bottom line is the PEA helps us to talk to people about the merits of the property,” Crown’s president and CEO Stephen Dunn says. “The PEA shows people that this thing can be economic at US$3.15 per lb. copper, so it makes it a lot easier to talk to people about the pros and cons.”
Dunn notes that the study did not factor in any gold credits, and points out that previous owners of Moonlight did not assay the first 15 metres of oxide, which so far has been categorized as waste.
“It is actually mineralized and can be mined,” he says, “so we need to do more work and drilling to be able to delineate the oxide, and that will help the economics.”
Dunn says it would cost US$500,000 to punch 20 holes into Moonlight’s upper oxide layers, but with the current market as poor as it is for juniors with early-stage projects, the timing just doesn’t seem to be right.
“When the markets get better and it wants juniors, we will do that, but my market cap is only $5 million, so we really don’t get any appreciation for what we have,” he says. “If we tried to raise $2 million right now it would dilute my shareholders too much, so I’m waiting for markets to get better.”
Dunn, who founded the company, is the largest shareholder, with 20% of Crown’s 40 million common shares outstanding. Five other investors (most of them high school and university friends) own another 30%.
“Whenever we need money we just pass the hat,” Dunn says. “We put in $100,000 a month ago, and I did half of that.”
The company has 40 million common shares outstanding and has traded within a 52-week range of 6.5¢ (October 2018) to 28¢ (March 2018).
Dunn doesn’t kid himself about the prospects of putting Moonlight into production any time soon.
“No one is going to build this mine unless copper is over US$3.50 per lb.,” he says. “Because of the last cycle, producers don’t want to start building huge new mines unless they’re almost assured of making profits in the first few years.”
But Dunn is bullish on the market fundamentals for the metal, and likes to quote mining guru Robert Friedland of Ivanhoe Mines (TSX: IVN), who predicted earlier this year that “you will need a telescope to see copper prices in 2019.”
Dunn says copper is setting itself up for “a pretty big rally” next year and could hit US$5 per lb. “very soon.”
“Everyone is pointing fingers at trade wars, but the thing is, the global economy is still growing,” he says. “There’s still positive growth and demand everywhere … the reality is, there’s a copper deficit, and one of these days prices are going to reflect that.”
He also dismisses arguments that copper demand from China — which he calculates consumes almost half the global market for the metal — can’t continue at the same pace.
“A lot of people who don’t understand economics say, ‘that can’t last,’ but of course it can,” he exclaims. “They are building out their grid. They are building new office buildings and electric trains and will continue to use the same amount of copper.”
Meanwhile, he reasons, “India is looking over China’s shoulder and wants the same things.”
Like most copper bulls, Dunn points to declining copper grades around the world, a shortage of new mines coming on stream, and what he calls the looming “pinch point,” where demand will suddenly exceed supply.
“When that happens prices explode, because buyers need that pound of copper for the refrigerator or the car they’re making,” he says. “People are going to make a lot of money in copper and the market is ignoring that right now.”