The Northern Miner, 6/12/2008

Sherwood scales down Kutcho

Vancouver - A simplified approach to the Kutcho copper project in northwest British Columbia has returned a positive preliminary economic assessment for new owner Sherwood Copper (SWC-V).

Sherwood acquired Kutcho through its recent takeover of Western Keltic. The copper-zinc-gold-silver project saw a prefeasibility study last fall but Sherwood signalled from the start that it planned to revamp the development plan towards a smaller, simpler, operation requiring considerably less capital investment. The new study backs up that approach.

The study evaluates developing 63% of the Main deposit into an open pit operation. Over a 7.3-year mine life the pit would produce 10.5 million tonnes averaging 1.73% copper, 2.35% zinc, 0.27 gram gold per tonne, and 26.3 grams silver per tonne. The resources are currently classified as indicated; the mine plan also includes a 1.5% addition to the resource that is to date classified as inferred. Until the inferred resources are upgraded a reserve calculation is not possible.

The study re-designed the open pit from the prefeasibility study to optimize grade and strip ratios over the mine life. The overall strip ratio is now 5.1 to 1, compared to 6.7 to 1 in the previous study.

The scaled-down design calls for a mill to process 4,000 tonnes per day, compared to 6,000 tonnes per day previously assumed. Average annual payable production would be 45 million lbs. copper, 48 million lbs. zinc, 5,600 oz. gold, and 584,000 oz. silver over the life of mine.

The mineralogy at Kutcho is fine grained and therefore requires a relatively fine primary grind followed by a very fine regrind to achieve reasonable recoveries. The ore is soft and so obtaining a fine grain is not considered an obstacle.

Copper recovery followed by zinc flotation would produce separate concentrates, averaging 30.3% copper and 55% zinc. Payable precious metals will report to the copper concentrate, which will carry 4 grams gold and 330 grams silver. Recoveries sit at 84% for copper, 74% for zinc, 50% for gold, and 52% for silver.

The study calculated average unit operating costs to be $52.49 per tonne milled, yielding cash costs between $1.70 and $1.72 per lb. copper, before byproduct credits. Applying the precious metal credits reduces cash costs to between 82¢ and 93¢ per lb. copper.

Pre-production capital came in at $183.3 million, down from $299 million in September's larger-scale study. Using metal prices of $2.24 per lb. copper, 94¢ per lb. zinc, $600 per oz. gold, and $10 per oz. silver the project carries a pretax net present value of $52 million, at a 10% discount, has a 19% pretax internal rate of return, and achieve payback in 3 years. Boosting metal prices to $3.20 per lb. copper, 96¢ per lb. zinc, $850 per oz. gold, and $16 per oz. silver, pretax NPR rises to $300 million, pretax IRR climbs to 54%, and payback occurs after just 1.5 years.

It is important to note that more than 50% of the mineral resources at Kutcho were not included in the study – the deeper portion of the Main deposit, the poorly-drilled Sumac deposit, and the high-grade Esso zone all excluded from consideration.

According to the old study, Esso hosts 2 million indicated tonnes grading 2.24% copper, 3.96% zinc, 37.7 grams silver, and 0.49 gram gold plus 442,506 inferred tonnes grading 2.47% copper, 4.15% zinc, 38.09 grams silver, and 0.53 gram gold. Sumac adds 10.6 million inferred tonnes grading 0.94% copper, 1.45% zinc, 13.96 grams silver, and 0.14 gram gold.

As such the potential for expanding through and extending mine life is considerable.

The Main deposit in its entirety hosts 17.3 million indicated tonnes grading 1.56% copper, 2.12% zinc, 25.1 grams silver, and 0.29 gram gold, plus 367,000 inferred tonnes grading 1.62% copper, 1.77% zinc, 23.6 grams silver, and 0.13 gram gold.

To that end Sherwood is working on an updated preliminary economic assessment, due out in the fall. The new assessment will re-calculate the mineral resource, adding results from extensive infill and expansion drilling currently underway; evaluate increased life-of-mine production through mining additional mineral resources from the Main pit, Esso, and Sumac; consider work underway to improve metallurgical recoveries and steepen pit walls to reduce stripping; and assess methods to reduce energy usage and transportation costs.

Regardless, the simplified approach significantly reduces the project's environmental footprint, compared to the old approach – the aerial disturbance is 50% less with the new plan. The new plan also calls for compacted and encapsulated dry-stack tailings and buffered waste dumps for any potentially acid-generating rock. The dry stack approach would eliminate the need for a conventional tailings dam across Andrea Creek, thereby significantly reducing the project's environmental impact.

In addition, the smaller scale of development may result in an extended mine life, if the other Kutcho deposits can add to mill feed.

Using the preliminary assessment at a platform Sherwood intends to advance Kutcho through the permitting process. Work has started on drafting an environmental assessment, using data collected during two years of environmental and socio-economic baseline studies completed in 2007.

The Kutcho project is in the traditional territories of the Tahltan and Kaska Dena First Nations, with whom consultations have been ongoing since activity restarted at Kutcho four years ago.

Table of Contents