Update: Copper Fox Announces Update On Schaft Creek

Copper Fox Metals (OTCPK:CPFXF) recently released an update on its Schaft Creek project. Its joint venture with Teck (NYSE:TCK) has been doing high-level reviews of items such as capital expenditures, resource modeling, and potential new mineralization zones. I had previously written in 2013 about how there was a limited chance that Schaft Creek would proceed in earnest in the near-to-intermediate future due to issues such as high capital costs and declining base metal prices, and subsequent events have validated that opinion. While Copper Fox does have other projects like its investment in Carmax Mining and its Van Dyke deposit, Schaft Creek remains its prize property and Copper Fox's fortunes will largely be determined by Schaft Creek's progression. Schaft Creek will likely remain in the exploration phase until there is either a significant improvement in metal prices or the exploration and optimization work allows for a major improvement in the economics of the project.

The high level of initial capital costs were a major concern of mine before since there isn't the appetite to start moving on $3 billion mine projects in this mining climate. In addition to the feasibility of projects at spot prices being severely impaired with the downturn in metal prices, cash flow at companies like Teck have been reduced, and they are attempting to keep capital expenditures under control. For example, Teck's 2014 capital spending guidance has been reduced to $1.5 billion (excluding capitalized stripping) from approximately $1.875 billion originally. Much of this reduction is due to spending on its Fort Hills project being deferred into later years, but it is apparent that Teck is currently committing the majority of its non-maintenance capital expenditures over the next couple years to Fort Hills. It appears that the joint venture is looking for opportunities to reduce the initial costs, which is a good move and would help the economics of the project. However, the type of cost opportunities it is looking at (review of the location and size of the milling facility, tailing storage facility and camp facilities), probably isn't enough to push Schaft Creek into a much lower cost category.

Metal prices have also declined significantly since I last wrote about Copper Fox. Copper prices have declined around 8%, gold prices have declined around 15% and silver prices have declined around 32%. This is partially offset by an 9% decline in the Canadian dollar versus the U.S. dollar and a 4% improvement in molybdenum prices. However, Schaft Creek's economics at spot prices is likely showing a negative NPV at an 8% discount rate now. Unless the mine review can result in a significant reduction in capital costs, it seems likely that a positive production decision will be put off until there is more certainty about strong metal prices. If a positive production decision is delayed for a significant amount of time, Copper Fox may need to raise additional capital.