MAUN, BOTSWANA — When an all-star mining team with an ample exploration budget arrives in a supportive, mineral-rich jurisdiction, exciting transformations are bound to happen. Cupric Canyon Capital’s Khoemacau copper-silver project in the Kalahari copper belt in northwestern Botswana is an example of just that.
The Scottsdale, Arizona-based private firm is set to develop a high-grade, underground copper mine at Khoemacau’s Zone 5 in late 2016, with production starting in 2018.
During the first decade of operation, annual production should average 52,000 tonnes copper and 1.4 million oz. silver, at C1 cash costs of US$1.15 per lb., net of silver credits.
Initial costs are US$350 million for the 20-year-plus mine.
Cupric, majority owned by Barclays’ Natural Resource Investments and the rest by management, points out that this is just the starter project. Prefeasibility work on an expansion project estimates annual production of more than 80,000 tonnes copper and 2.4 million oz. silver a year.
“Until we discovered how good Zone 5 is, the perception in the geological community was that the Kalahari copper belt didn’t have the potential of what we see in Zambia or the Democratic Republic of the Congo (DRC). It had small, lower-grade deposits and small-scale mines. Zone 5 changes the paradigm entirely of what the Kalahari copper belt can produce,” Cupric’s director Stephen Enders tells The Northern Miner on a September site visit. The 1,000 km long belt runs from northern Botswana into Namibia.
Enders, previously the head of Newmont Mining’s (NYSE: NEM) exploration division and president of Phelps Dodge Exploration, is among the first five Phelps Dodge alumni at Cupric, along with founding chairman Tim Snider. Snider served as president and chief operating officer at both Freeport-McMoRan (NYSE: FCX) and Phelps Dodge. (Freeport acquired the storied copper major for US$25.9 billion in 2007.)
Getting to Cupric’s crown jewel in the central Kalahari copper belt is relatively easy from its newly acquired camp in Toteng. The 800-person village is 65 km southwest of Maun, one of the largest towns in Botswana and the gateway to the Okavango Delta. The inland delta attracts a variety of wildlife, and tourists.
While cruising down the two-lane A3 highway from Maun’s international airport to Toteng, Sam Rasmussen, Cupric’s CEO of Africa, notes tourism, one of Botswana’s top industries, has taken a hit since the Ebola outbreak last year, while the slowed global economy and the risk of malaria have pushed up the unemployment rate.
Along with tourism, other industries include agriculture and mining. The latter makes up more than a third of the country’s gross domestic product.
“It’s quite amazing that brush,” Rasmussen says, looking at the sparse and dry vegetation. “In four months it’s going to be so green and full of straw grass et cetera, that you can’t see through there. It will be a metre high.”
The number of cattle and donkeys grow as we near Toteng. The tires of the truck kick up dust as we turn onto a calcrete road. With no breeze in the air, a small cloud of dust trails behind.
Enders recalls how Cupric was formed in 2010. Around that time he and Snider were both retired and doing pro-bono work for the Institute of Mineral Resources at the University of Arizona. “Tim had just left Freeport and I’d just left Newmont. And we were crying in our beer one day and saying: ‘What are we going to do next?’”
Shortly after, Snider called Enders to tell him Barclays executive David Ellis contacted him looking for a copper team to fund through the U.K.-based bank’s Natural Resource Investments fund. The two brought on former Phelps Dodge executives Dennis Bartlett as Cupric’s CEO, David Naccarati as a director and Lowell Shonk as vice-chairman and director.
“Did you ever see the movie Space Cowboys?” Enders asks. “They are retired astronauts, and they are asked to go into space to fix a satellite. Well, it was kind of like us. All of us — the original five — have all left Phelps Dodge or Freeport, and were doing different things.”
That was until they were granted another opportunity to reunite and do what they love: explore, build and run successful copper mines.
The initial Cupric team, backed with a commitment from Barclays to fund up to US$100 million, examined more than 200 copper projects worldwide in mining friendly jurisdictions.
They narrowed that down to a handful of options, which included Vancouver-based Hana Mining’s Ghanzi copper-silver project in Botswana — after Shonk read a 2009–10 Northern Miner site visit on Ghanzi — and Australian-based Discovery Metals’ nearby Boseto copper project.
Cupric made an initial investment through an open market purchase and a subsequent private placement in Hana in 2012, months before the junior published a preliminary economic assessment (PEA) on Ghanzi’s Banana zone and Zone 5. The PEA had envisioned a 10,000-tonne-per-day conventional open-pit copper-silver mine, with a 13-year life.
In February 2013, Cupric took over Hana and consolidated a 100% interest in the project, renamed Khoemacau, meaning “hills of the people.”
The project’s name came from a student competition that Cupric’s subsidiary in Botswana, now called “Khoemacau Copper Mining,” had organized at the Kuke Primary school, says Rob Dey, Khoemacau’s project director, who’s spent most of his career in the South African platinum industry. A similar contest is underway to rename the mine at Zone 5.
In March 2013, Cupric appointed Rasmussen to oversee its African development projects. Rasmussen, formerly the general manager for the Los Bronces copper mine in Chile and the Tenke Fungurume mine in the DRC, is the sixth Phelps Dodge member to join Cupric.
We pull into the gated Toteng camp, which can hold 300 people. The camp’s housings and offices are all equipped with modern amenities, making one forget the rural backdrop of northwestern Botswana.
Zeroing in on Zone 5
Since arriving at the Khoemacau property, Cupric has shifted its exploration and development focus from the open-pittable resource at the Banana zone, 60 km northeast to Zone 5’s underground potential.
Cupric describes Zone 5 as a sedimentary rock-hosted stratiform copper deposit. The zone dips 60 degrees, averages 10 metres thick and is bounded by highly competent sandstones. Most of the sulphide copper mineralization occurs as bornite, chalcocite and chalcopyrite.
The sulphide ore occurs below the transitional contact at 65 to 70 metres deep, at its shallowest, and extends 1.2 km below surface.
Cupric has drilled 4.2 km of the deposit’s potential strike, noting the mineralization remains open along strike and at depth.
“When we acquired the property from Hana, we actually liked what we bought and we liked what they had,” Enders says in the spacious office. “We didn’t disprove anything that Hana had. We just found stuff that is so much better.”
Cupric defined a high-grade copper-silver sulphide resource at Zone 5, which as of July 20
15 stood at 76.3 million tonnes grading 1.96% copper and 19.8 grams silver per tonne, at a 1% copper cut-off grade. Of that, 53% tonnes and contained metal are in the measured and indicated category.
The zone also hosts a potential 24 million tonnes at 1.94% copper and 19.5 grams silver. Cupric says it can upgrade that into inferred in its resource update in November 2015, which will include assays from this year’s 27-rig program. The company notes its target to conversion rate has been close to 100%.
Once it does that, Zone 5’s total resource could be 100 million tonnes at 1.96% copper and 19.7 grams silver. (All estimates are Joint Ore Reserves Committee-compliant.)
Cupric and its predecessor Hana have completed 377,500 metres on the Khoemacau property. More than 199,500 metres were drilled on Zone 5 after Hana discovered it in 2008. Of that total, Cupric drilled 174,112 metres between 2013 and September 2015.
“Drilling during the 2014 and 2015 programs intersected mineralization at pretty much high-grade copper. Every intersection has been over 1% copper, which is pretty good,” Cupric’s resource geologist Cathy Knight said, who previously worked for Hana.
Recent highlights include 2.3% copper and 27.2 grams silver per tonne over 12.6 metres; 2.6% copper and 23.3 grams silver over 19.8 metres; and 3.4% copper and 30 grams silver over 22.6 metres.
Cupric has one drill turning on the nearby Zeta NE and NE Mango zones. Both host similar mineralogy to Zone 5.
Growing with Boseto
Cupric is putting the final touches on an updated feasibility study that combines Zone 5 with the recently acquired Boseto plant and infrastructure from Discovery Metals. The study should be complete in the fourth quarter.
Enders shares that the firm had an eye on the Boseto assets since acquiring Khoemacau, as the Zone 5 resource extends onto the adjacent Boseto claims. Discovery, however, held onto its assets, despite running into mining and financial troubles. It was forced to liquidate in February 2015.
Five months later, Cupric bought the Boseto pits, operational 8,000-tonne-per-day plant, tailings dam, 18-megawatt power plant, workshops and offices, as well as the camp in Toteng, for US$35 million. This has boosted the firm’s land package in Botswana to 3,995 sq. km.
“There has been really a constant evolution of the project to basically better and better outcomes as a result of the things that have happened,” Enders says.
The Boseto mine opened in September 2012, but failed to meet its targeted annual copper production levels of 30,000 tonnes a year.
Over its short operating life, Boseto’s three main pits — Zeta, Plutus Stage 1 and Plutus Stage 2 — cranked out 118,906 tonnes of copper-silver concentrate, grading 39.6% copper (47,864 tonnes copper) and 640 grams silver.
“We were struggling on the mining side,” Boseto’s operations manager Stewart Wallace says, while leading a tour of the plant. Wallace is one of the 30 Discovery employees retained by Cupric.
Some of the problems Discovery ran into included higher-than-expected dilution, mining costs and a waste-to-ore strip ratio of 13-to-1. As a result, copper tonnes, grade and recoveries were lower than planned.
The original plant was designed to treat 3 million tonnes a year of 20% oxides and 80% sulphides. Cupric is now tweaking the plant so it can treat 3.65 million tonnes a year of 100% sulphide ore. (That works out to 10,000 tonnes per day, up from the previous 8,000 tonnes a day.)
Along with the upgrades, the firm will boost the plant’s existing power capacity of 18 megawatts to 22 megawatts.
Cupric estimates it will save US$120 million to US$150 million by incorporating the existing Boseto plant. It anticipates more savings when the Botswana government connects Toteng to the power grid in mid-2018. When that happens, electricity could cost US7¢ per kilowatt-hour, compared to the diesel-generated US30¢ per kilowatt-hour.
Grid power makes up 9% of Zone 5’s projected mining costs of US$15 per tonne, and 29% of its processing operating costs, Enders says.
Charms of mining in Botswana
Back at the Toteng office, mining engineer Logic Sebopeng displays a diagram of how Cupric plans to mine Zone 5 via sub level open stoping. The starter project will include four interconnected declines with three independent portals to access the underground ore, starting at 150 metres below surface. (In the expansion case, Cupric will add more declines to Zone 5 to boost the production rate to over 6 million tonnes a year.)
Given the ore zone is bounded by competent sandstones, Cupric will not need to backfill the stopes. However, it will leave a small part of the ore underground for ground support. The overall mining recovery rate is estimated at 84.6%.
Once extracted, Cupric will process the Zone 5 ore at the upgraded Boseto plant, which is 35 km away. The company is permitting a haul route between Zone 5 and the plant, with completion expected in early 2016.
Metallurgical test work indicates a 85.4% recovery rate for copper and 76% for silver. Concentrate grades should average 42% copper and 360 grams silver per tonne.
Cupric plans to use an underground mining contractor to mine the deposit, before transitioning to an owner-operated arrangment. Part of the reason is because there’s a slight shortage of skilled underground miners in Botswana, given the country has only two operating underground mines.
But what Botswana lacks in that department, it more than makes up for with an attractive and straightforward mining policy.
The Fraser Institute’s 2014–15 annual survey of mining companies ranks Botswana as the second most attractive African country to work in after Namibia. It ranked 26 out of the 122 jurisdictions in the survey. Ontario came in at 23. Based on the survey’s Policy Perception Index, the country has the best mining regime in Africa, and overall ranks in the top 15.
On the 2014 Corruption Perceptions Index, Botswana came in the top quartile (31 out of 175), ahead of Peru and Mexico.
“I have never ever — not once, not in the airports, not in the government — have I ever seen corruption in this country,” Rasmussen insists.
On the environmental front, Botswana’s Department of Environmental Affairs authorized the company’s environmental and social impact assessment (ESIA) for the Zone 5 project area last October, following a lengthy review and community consultations.
The ESIA findings indicate Zone 5 contains no archaeological sites and isn’t “ecologically sensitive.” The noise impact of the operation should be negligible on the nearest settlements, as they are quite a distance away. The potential national income losses due to the proposed mine are 1% of its anticipated gains.
While the previous operator had conducted an ESIA report on Boseto, Cupric is finishing more environmental assessment work to connect the Boseto project to Zone 5.
Cupric takes pride in its social work, and has helped local authorities re-establish a permanent water supply to Somelo village. The settlement, 30 km away, is the closest to the Zone 5.
To date, the firm has spent about US$250 million on the Khoemacau project, which includes the Boseto acquisition costs. In return, it has d
elineated a high-grade, low-cost copper deposit at Zone 5. The deposit has strong economics, using a US$3 per lb. copper and US$20 per oz. silver price.
“We know from recent transactions in the copper space that people are still using US$3 per lb. copper as sort of a long-term price benchmark. We have a robust project, even at today’s copper prices of US$2.40. And at US$3 and above, it is just a great project,” Enders says.
Cupric will work with a large international bank to engage the market and explore its financing options to develop the estimated US$350-million starter project. The financial process should start by year-end and continue through the first half of 2016, with construction expected by the second half of 2016.
Meanwhile, the firm has a mining licence and other necessary permits in hand to develop Zone 5. The Botswana government is discussing its option to acquire up to a 15% working interest in the Zone 5 mine.
“Zone 5 on its own is the best mid-sized high-grade copper deposit discovered in the last several years,” Enders says, explaining that its multiple mineralized zones could become a major copper-producing district.
“There’s fantastic opportunity long-term here to build this project, either at a bigger scale or longer life. And the intention is to make that happen.”