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Copper Fox shares sink after feasibility study on Schaft Creek

Mon 10:58 am by Deborah Bacal

The feasibility study, prepared by Tetra Tech, estimated a base case net present value of C$513 million using an 8% discount rate, and an internal rate of return (IRR) of 10.13%, with a payback period of six and a half years.

Copper Fox Metals (CVE:CUU) saw its shares plummet more than 20% Monday, after announcing a feasibility study for its Schaft Creek project in British Columbia, which pointed to a net present value of C$513 million, compared to a capex estimate of over $3.2 billion.

Shares were lately lower by over 21% this morning, to 83 cents on the TSX Venture Exchange.

The feasibility study, prepared by Tetra Tech, estimated a base case net present value of C$513 million using an 8% discount rate, and an internal rate of return (IRR) of 10.13%, with a payback period of six and a half years.

The initial capital cost estimate of $3.26 billion includes contingencies of $374 million, while sustaining capital was pegged at $1.24 billion over the proposed mine life of 21 years.

Life-of-mine production for the project, contained in concentrates, is seen at 4.88 billion pounds of copper, 4.21 million ounces of gold, 214.92 million pounds of molybdenum and 25.10 million ounces of silver.

The project has a nominal 130,000 tonne per day milling capacity over a 21 year mine life representing a 30 per cent increase from that proposed in the preliminary feasibility study from September 2008, Copper Fox said, "with only a 20% increase in the estimated capex".

Copper Fox holds title and a 100 per cent working interest in the Schaft Creek project, with some mineral tenures subject to a 3.5% net profits interest held by Royal Gold, a 30% carried net proceeds interest held by Liard Copper Mines and an earn-back option held by Teck Resources.

Teck's earn back option to acquire either, 20%, 40% or 75%, of Copper Fox's interest in the Schaft Creek project is triggered on the delivery of a "positive bankable feasibility study" to Teck, after which it has 120 days to make a decision.

Should Teck choose to exercise its back-in option for 75%, the company is required to fund subsequent property expenses up to a total of 400% of those incurred by Copper Fox and try to arrange for project financing.

Copper Fox said that using spot metal prices, the project is estimated to have a $1.02 billion net present value at an 8% discount rate, with a 12.14% IRR.

The company also calculated higher economics using a "real option valuation" scenario, which is a discounted cash flow technique that incorporates the uncertainty of future metal prices and exchange rates, as well as management flexibility to adjust the operating status of the mining operations in the future based on market conditions.

The explorer also said that opportunities to lower operating and capital costs and increase revenue could be found during the detailed engineering phase of project development.

"Like all large scale projects located in alpine type terrain, this project did come with its own unique technical challenges. At an 8% discount rate as required in the Teck Option Agreement, the Feasibility Study confirms the technical and financial viability of a nominal 130,000 tonne-per-day ('tpd') copper mining and processing operation at Schaft Creek," said president and CEO, Elmer Stewart, in a statement on Friday.

The Schaft Creek project is estimated to have proven and probable mineral reserves of 940.8 million tonnes, containing 5.6 billion pounds of copper, 5.7 million ounces of gold, 365.5 million pounds of molybdenum, and 51.7 million ounces of silver.

The company is currently preparing the federal environmental impact statement for the project, and anticipates submitting the document as early as the third quarter of next year. It is also working on applications for permits required to construct access roads to the mine site.

Permitting is expected to wrap up by June 2014, Copper Fox said, with commercial production slated to start in December 2019 after a five-year project development period.

The Schaft Creek deposit is located approximately 60 kilometres south of Telegraph Creek, 375 kilometres northwest of Smithers and 340 kilometres northwest of Terrace on the east side of the Coast Mountain Range.