VANCOUVER — Australia-based South32 (LON: S32) has been on the lookout for North American base metal opportunities, and its latest move is a new option agreement with Trilogy Metals (TSX: TMQ; NYSE-MKT: TMQ) on the junior’s Upper Kobuk copper assets in Alaska’s Ambler mining district.
South32 must spend a minimum US$150 million — plus any expenses at Trilogy’s Arctic project over the next three years to a maximum of US$5 million annually — to create a fifty-fifty joint venture.
The Ambler district sits in northwestern Alaska and is known for volcanogenic massive sulphide (VMS) and carbonate-replacement mineralization. Trilogy’s 1,430 sq. km land position hosts the Arctic VMS and Bornite carbonate-replacement copper deposits. The properties have no current road access or nearby power infrastructure, and lie 470 km northwest of Fairbanks.
South32 emerged two years ago, through a spin-out transaction, after BHP Billiton (NYSE: BHP; LON: BLT) narrowed its focus to copper, coal, iron ore and oil. South32 also has a smaller option with Northern Shield Resources (TSXV: NRN) on the greenfield Huckleberry copper-nickel prospect in Quebec’s Labrador Trough.
“South32 is a diversified company, but I’d point out they do not have a producing copper asset in the portfolio,” Trilogy Metals president and CEO Rick Van Nieuwenhuyse said during a conference call.
“We can speculate here in terms of why they’re interested in our assets in Alaska. It’s a rich district in terms of metal productivity, and exploration activity has been relatively meagre when you look at that scale, especially when compared to other VMS ore belts around the world.”
The Australian company must contribute at least US$10 million annually over the next three years to keep the agreement in good standing, and it can exercise its joint-venture option at any time.
Trilogy previously announced a $7.1-million annual budget to fund prefeasibility work at Arctic. The project hosts 23.8 million indicated tonnes grading 3.3% copper, 4.5% zinc, 0.8% lead, 0.71 gram gold per tonne and 53.2 grams silver per tonne.
The company released a preliminary economic assessment in 2013 that models a US$718-million development at the deposit that would feature a 10,000-tonne-per-day conventional grinding mill-and-flotation circuit. The mine would produce average annual payable production of 125 million lb. copper, 152 million lb. zinc, 24 million lb. lead, 29,000 oz. gold and 2.5 million oz. silver over a 12-year life.
“Our industry recognizes we don’t see a lot of high-quality copper assets. There are a lot of low-grade porphyries, but Arctic and Bornite are different geological styles that tend to be associated with higher grades,” Van Nieuwenhuyse said.
“All of the South32 funding will focus on Bornite, but we want to continue to advance Arctic to the prefeasibility level. We have committed … and South32 is aligned with the goal. That’s really what the parallel financing structure of the agreement is all about.”
Meanwhile, at Bornite, Trilogy has delineated an indicated in-pit resource of 40.5 million tonnes grading 1% copper at a 0.5% copper cut-off, and an inferred in-pit resource of 84.1 million tonnes averaging 0.95% copper. Bornite’s below-pit inferred resource stands at 57.8 million tonnes of 2.9% copper at a 1.5% cut-off grade.
South32’s initial US$10 million is earmarked for exploration at Bornite to test the extension of promising copper grades, including hole 13-224, which in 2013 cut 236 metres of continuous mineralization averaging 1.9% copper.
“The [funding] will mostly go towards drilling on the down-dip extension of the Bornite deposit,” Van Nieuwenhuyse says. “We’ll look to grow those inferred resources. Right now we have seven deep exploration holes outlined to the north and east along the projection of the mineralization. We also have ground-gravity geophysical surveys and geochemical work planned.”
South32 must decide by January whether it will opt to continue with the arrangement. Trilogy speculates that the deal could fund Arctic and Bornite through feasibility and permitting.
Trilogy has traded in a 52-week range of 47¢ to $1.08 per share, and closed at 85¢ per share at press time. The company has 105.5 million shares outstanding for a $90-million market capitalization, and reported US$7 million in cash during the first quarter.
“We’ll likely look to [raise money] late this year, or early next year,” Van Nieuwenhuyse said. “We want to have the capital to continue to advance the overall project. That will be an appropriate time to look at financing, and if South32 exercises their option, that is a substantial amount of money to get both projects across the finish line.”