If anyone else is interested in copper, here is a good article: Copper Fox Metals Inc. Advances Multi-billion $ Deposit in B.C.
By Zig Lambo, contributing writer resourceINTELLIGENCE TV
With measured and indicated resources of nearly 1.4 billion tonnes containing copper, moly, gold, silver and rhenium, mineralization, Copper Fox Metals is sitting on a world-class deposit in its Schaft Creek Project in northwestern British Columbia. It holds the rights to acquire up to a 93.4% interest in Schaft Creek, under an option agreement with Teck Cominco, which assures that there is already a major partner in place to help put it into production.
In reviewing the extensive database of resource companies and projects in our shareKNOW Global Resource Reference, we couldn’t help but be impressed with the potential we found there for Copper Fox at shareKNOW.net.
Our subsequent conversation last week with Elmer Stewart, Copper Fox’s president and CEO, reinforced our belief that this appears to be a truly undervalued situation which our readers should definitely know more about.
To start with, Schaft Creek is one of the largest copper/gold deposits in Canada, with 1,393 billion tonnes of measured & indicated resources at a 0.20% copper equivalent cutoff. According to its latest 43-101 report, this includes 4.76 billion pounds copper at 0.25%, 4.5 million ounces gold at 0.18 gpt, 255.2 million pounds molybdenum at 0.019%, and 32.5 million troy ounces silver at 1.55 gpt. Copper Fox is in the process of preparing a bankable feasibility study to evaluate the development of an open pit mine with a minimum capacity of 100,000 tonnes per day (tpd) over a mine life of 22+ years. Mr. Stewart told us that if the current resource base is expanded, as expected, there is a strong likelihood that a larger operation in the 150,000 tpd range would be more economical to implement and would provide a better ROI.
The history of the Schaft Creek deposit, 120 km southwest of Dease Lake, goes back to its discovery in 1957. Since then it has had extensive work done on it by a number of companies including ASARCO between 1966 and 1968 and then Hecla, in the period between 1968 through 1977, which completed 34,500 metres of diamond drilling, 6,500 metres of percussion drilling, induced polarization and resistivity surveys, geological mapping, air photography, and engineering studies related to the development of a large open pit copper-gold-molybdenum mine. In 1978 Hecla sold its interest to Teck Corporation (now just “Teck”).
Beginning in 1980, Teck began an exploration and drilling program designed to confirm and expand Hecla’s work. They completed a total of 26,000 metres of diamond drilling by 1981. This was followed up by an engineering study to determine the feasibility of mine development. Further data reviews were completed by Western Copper Holdings in 1988 and Teck in 1993. Prior to Copper Fox acquiring an option on the property in 2002, a total of 230 core holes with total length 60,200 metres, and percussion holes with totaling 6,500 metres had been completed.
In 2002 Copper Fox secured rights to acquire up to a 93.4% interest in the project under an Option Agreement with Teck and related underlying agreements. After making required expenditures of $15 million, Copper Fox has now earned a 70% direct interest in the project and can acquire a 23.4% indirect interest on delivery of a positive feasibility study. At this stage, Teck may exercise back-in rights to acquire interests in the project in order to participate in mine development with Copper Fox. Teck has the right to earn a 20% interest by matching Copper Fox’s prior incurred expenditures, or a 40% interest by matching three times prior incurred expenditures, or a 75% interest by incurring four times prior expenditures and arranging all production financing.
The Development Plan
On September 15, 2008 Copper Fox Metals announced a NI 43-101 compliant Preliminary Feasibility Study on the Shaft Creek deposit by Samuel Engineering, Inc of Denver, Colorado. The PFS recommends that Schaft Creek be developed as a conventional open pit, electrified, diesel truck and shovel operation with the sulphide deposit expected to be processed using a conventional concentrator producing separate copper-gold-silver and molybdenum concentrates. The mill is designed to have a nominal capacity of 100,000 tonnes of sulphide ore per day. The annual stripping ratio is estimated at 1.88 to 1, including low grade and stockpile ore. The Preliminary Feasibility Study anticipates start of production to be late 2013.
The Study projects a mine life of 22.6 years with the mill expected to produce 4.76 billion pounds of copper, 255.2 million pounds of molybdenum, 4.5 million troy ounces of gold and 32.5 million troy ounces of silver. An NI 43-101 report by Associated Geoscientists Ltd. dated June 22, 2007 projects mine and mill recoveries of 91% for copper, 63% for molybdenum, 76% for gold and 80% for silver. Rhenium is also recovered as a byproduct in the molybdenum concentrate in significant quantities. At a present price of $3.75 per gram of pure rhenium this may represent a significant additional contribution to income. Further possible recovery results for rhenium are expected during the feasibility phase of the project.
In the event that Teck elects to exercise its back-in right to acquire 75% of the ultimate 93.4% Copper Fox interest in the Schaft Creek Project, it is expected to be responsible for securing financing for Copper Fox’s portion as well as its own portion. Copper Fox would then pay back its portion of the project debt out of project revenues. Under this scenario, Copper Fox is expected to own 23.35 % of the revenues generated by the project and is expected to pay its portion of the debt financing from revenue generated by production income from its 23.35 % equity of Schaft Creek.
Copper Fox’s share of production would then be a projected 1.11 billion pounds of copper (22,400 tonnes per year), 1.05 million ounces of gold (46,500 ounces per year), 59.6 million pounds of molybdenum (2.64 million pounds per year), and 7.6 million ounces of silver (336,000 ounces per year) over the 22.6 year mine life.
Finances are always a concern for companies at this stage of development and in that regard Copper Fox is adequately cashed up for the near term. Just two weeks ago it raised $2,000,000 through a units offering which consisted of 23,188,406 units at a purchase price of
.08625 per unit. Mr. Ernesto Echavarria a director, insider and a control person of Copper Fox, participated in 55% (or $1,100,000) of the offering, which indicates that there is a considerable level of commitment from the team.
Our Value Calculations
Utilizing the GRR calculators at shareKNOW.net to analyze Copper Fox produces remarkable numbers. We first come up with a gross recoverable value of metals in the ground at current metal prices, and it’s a tough number to get one’s head around. The metal from all categories (at today’s metal prices) prior to costs, royalties, debt, etc. is greater than $123 billion.
Of course, that number means nothing until we take off the costs of building the mine and operating it, to extract the metals over the mine life, so let’s do that. We’ll also take off ALL the ore in the inferred category, since it’s the least certain portion of the ore body. (For example, in the US, the term inferred doesn’t exist. And in both the US and Canada, regulations prohibit including inferred resources in any economic assessments.) That leaves us with $114 billion in ore — still in the ground.
Before we take off costs involved in mining this ore, we also need to consider the actual recovery rate: Not all metal is recovered from the ore. The pre-feasibility study from 2008 suggests the numbers, and we’ve got them in the calculators at shareKNOW, so have a look for yourself. They bring our value down to $79 billion.
Now costs. Click on the Operating Calculator at shareKNOW.net to subtract out the operating and capital costs projected by the pre-feasibility study authors. The costs will dramatically affect any mine. In many cases costs will bury a mine before it’s built, because if you can’t afford to take low grade ore out of the ground at the top of a mountain or the bottom of a valley in a remote area, then the ore is just rock in the ground. As Novagold Resources (NG-T, NG-X) and Teck (TCK.B-T, TCK-N) began to develop the Galore Creek project, construction costs ballooned, more than doubling the capital cost of Galore to $5 billion. In the end the project was mothballed.
Updated capital costs for Schaft Creek deposit foresee $2.95 billion in direct and indirect capital costs. They then add $12.49 per tonne of ore milled to that. Using our data for indicated and measured resources, that would cost the company $20.4 billion for a Net Project Value of $59 billion.
Copper Fox presently has 242 million shares outstanding, so that leaves the company with a net per share valuation for the project of $244/share. Compared to a good many companies on the TSX that is outstanding, not because it’s a lot of money for a share but because it’s 1,481 times greater than the company’s actual share price which today is
.16 per share, which suggests a great deal of potential for upside.
Now, if you’d prefer and are comfortable reading pre-feasibility studies, you should do so. One of the main differences between our numbers and the numbers used in the pre-feasibility study is the size of the mine reserve, which in the latter case is limited to 760 million tonnes over the course of 23 years (we included all the ore in both measured and indicated categories). As a result, the PEA states, “the project could generate a cumulative before tax profit of $11,735 million, with a payback period of 4.7 years, a 18.6% IRR, and a net present value discounted at 10% of $1,868 million, over the 23 year mine life.” In both cases, the numbers are outstanding.
It is important to bear in mind that the numbers our calculators produce are for your own use in evaluating the relative value of this stock in comparison to other similar resource opportunities. Other than data from NI 43-101 reports, the figures and ratios we obtain can be obtained by anyone using our GRR calculators. These are not provided or endorsed by Copper Fox’s management or its consultants. Our values will normally be higher than net present values developed and used in actual feasibility studies and operating plans since we do not provide for interest rate discount factors which make revenues received further in the future to be worth correspondingly less in present value terms.
Readers can manipulate these variables — tonnages, grades, recovery rates, metals prices, etc. — at shareKNOW.net and come up with their own valuations.
Whatever assumptions you may make, however, and even if the end result comes out to only a fraction of $244 per share, should Copper Fox continue toward (and beyond) the Feasibility Study stage, it will eventually slough off its current trading range of C
.14 per share.
Zig Lambo is a contributing writer to resourceINTELLIGENCE TV, a multimedia website for investors."
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