Excelsior Mining (TSXV: MIN) shares have jumped 17% since the company tabled a positive feasibility study on the North Star deposit of its Gunnison copper project in southeastern Arizona.
The project, located in Cochise County, is a 2.5-hour drive southeast from Phoenix and 105 km southeast of Tucson. The Dec. 5 feasibility study, completed by Tucson-based M3 Engineering & Technology Corp., envisions North Star as a low-cost, copper in-situ recovery (ISR) mine, with a 24-year mine life.
Excelsior’s CEO Stephen Twyerould says the feasibility study is the “last major technical milestone” before the company receives final operating permits in 2017.
North Star’s initial production rate is 25 million lb. a year of copper cathode using the adjacent Johnson camp mine facilities, which Excelsior acquired last December from Nord Resources. Excelsior paid US$5.2 million on closing the agreement and has another US$3.2 million in payments due by year-end.
After initial production, the company intends to expand annual production to 75 million lb. in year four, and to 125 million lb. in year seven. The last stage would require building an acid plant. This should occur in year six, and lower the amount Excelsior spends on sulphuric acid.
The study advises staging the production profile so Excelsior can fund future expansions out of cash flow.
Getting the project up and running should cost US$46.9 million, including a 20% contingency. The initial capital includes US$14.6 million for the production wellfield, US$26.8 million for upgrades to the solvent extraction and electrowinning (SX-EW) plant and related infrastructure at the Johnson camp, and US$5.5 million for owner’s costs.
Total sustaining capital over the mine life is US$742 million. This figure includes production wellfield expansion, SX-EW expansion, acid plant construction and water-treatment facilities.
Production costs are relatively low, with direct-operating cash costs of US65¢ per lb. and all-in costs (life of mine capital plus operating costs) of US$1.23 per lb. copper. This is partly because North Star contains oxidized copper, making it amenable to ISR mining.
Excelsior says that ISR mining consists of drilling boreholes (injection and recovery wells) into the copper orebody. It then pumps a weak acid solution into the injection wells to dissolve the copper in the rocks. Next, it retrieves the copper-rich solution from the recovery wells and pumps it to the SX-EW plant to produce copper cathodes.
Other ISR copper projects and mines in Arizona include Taseko Mines’ (TSX: TKO; NYSE-MKT: TGB) Florence, where phase-one production should start after final permits; Capstone Mining’s (TSX: CS) producing Pinto Valley mine; and BHP Billiton’s (NYSE: BHP) past-producing San Manuel mine, which ran for 14 years.
The Gunnison project has strong economics based on an initial production rate of 25 million lb. per year. The base-case scenario generates a post-tax net present value (NPV) of US$807 million at a 7.5% discount rate, and a 40% internal rate of return (IRR). Payback for the initial capital is a little over two years. The scenario uses a copper price of US$2.75 per lb., 48% total copper recovery and considers full annual production of 125 million lb. in year seven.
The company has also considered economics for the project without building an acid plant. Under the alternative scenario, initial capital remains the same at US$46.9 million. Total sustaining capital over the mine life drops to US$661 million. However, all-in costs increase 25% to US$1.50 per lb., as it is more expensive to buy sulphuric acid than produce it on-site. In the “no-acid plant” scenario, the post-tax NPV is US$691 million, at a 7.5% discount rate, with a 41% IRR.
“We have always been attracted to the scenario where we build our own acid plant, because this dramatically improves our overall economics,” JJ Jennex, the company’s vice-president of corporate affairs, writes in an email.
“The Union Pacific Railway runs through our property. Our plan is to bring in elemental sulphur from the West Coast and create our own acid on-site,” Jennex says. The company will review building the acid plant (planned for year six) once commercial production begins.
According to its development timeline, Excelsior anticipates receiving the final operating permits by mid-2017. It aims to start first-stage construction in the third quarter of 2017, with commercial production anticipated in the second quarter of 2018.
With its latest financing, Excelsior says it has enough funds to take Gunnison to a construction decision.
In November, Excelsior closed a US$14-million financing with private equity fund Greenstone Resources. It issued 28.8 million shares at US77¢ for US$10 million and a 1% gross revenue royalty on the Gunnison project and Johnson camp mine for proceeds of US$4 million. Greenstone now owns 84.4 million Excelsior shares, or 50.4% of the company, with a 3% gross revenue royalty on Gunnison and the Johnson camp mine.
“The team at Greenstone is the epitome of smart money,” Jennex says. “They have done extensive due diligence on our project, and this has resulted in a total investment into Excelsior of US$36 million to date. This is a major endorsement for the quality of the Gunnison copper project and the ability of our management team to execute.”
Excelsior’s next financing milestone would include arranging the project’s initial capital, which it has been working on for some time, Jennex says.
The North Star deposit contains a measured and indicated resource of 792 million tonnes grading 0.3% copper for 4.9 billion lb. copper. This includes probable reserves of 709 million tonnes million at 0.3% copper for 4.5 billion lb. copper.
On Dec. 6, Excelsior shares gained 17% over two trading sessions to close at 62¢.