Copper Fox Metals Inc.Advances Multi-billion $ Deposit in B.C.
By Zig Lambo,contributing writer resourceINTELLIGENCE TV
With measured and indicatedresources of nearly 1.4 billion tonnes containing copper, moly, gold, silver andrhenium, mineralization, Copper Fox Metals is sitting on a world-class depositin its Schaft Creek Project in northwestern British Columbia. It holds therights to acquire up to a 93.4% interest in Schaft Creek, under an optionagreement with Teck Cominco, which assures that there is already a major partnerin place to help put it into production.
In reviewing the extensivedatabase of resource
companies and projects in our shareKNOW Global ResourceReference, we couldn’t help but be impressed with the potential we found therefor Copper Fox at shareKNOW.net.
Our subsequent conversation last weekwith Elmer Stewart, Copper Fox’s president and CEO, reinforced our belief thatthis appears to be a truly undervalued situation which our readers shoulddefinitely know more about.
To start with, Schaft Creek is one of thelargest copper/gold deposits in Canada, with 1,393 billion tonnes of measured& indicated resources at a 0.20% copper equivalent cutoff. According to itslatest 43-101 report, this includes 4.76 billion pounds copper at 0.25%, 4.5million ounces gold at 0.18 gpt, 255.2 million pounds molybdenum at 0.019%, and32.5 million troy ounces silver at 1.55 gpt. Copper Fox is in the process ofpreparing a bankable feasibility study to evaluate the development of an openpit mine with a minimum capacity of 100,000 tonnes per day (tpd) over a minelife of 22+ years. Mr. Stewart told us that if the current resource base isexpanded, as expected, there is a strong likelihood that a larger operation inthe 150,000 tpd range would be more economical to implement and would provide abetter ROI.
Property History
The history of theSchaft Creek deposit, 120 km southwest of Dease Lake, goes back to its discoveryin 1957. Since then it has had extensive work done on it by a number ofcompanies including ASARCO between 1966 and 1968 and then Hecla, in the periodbetween 1968 through 1977, which completed 34,500 metres of diamond drilling,6,500 metres of percussion drilling, induced polarization and resistivitysurveys, geological mapping, air photography, and engineering studies related tothe development of a large open pit copper-gold-molybdenum mine. In 1978 Heclasold its interest to Teck Corporation (now just “Teck”).
Beginning in1980, Teck began an exploration and drilling program designed to confirm andexpand Hecla’s work. They completed a total of 26,000 metres of diamond drillingby 1981. This was followed up by an engineering study to determine thefeasibility of mine development. Further data reviews were completed by WesternCopper Holdings in 1988 and Teck in 1993. Prior to Copper Fox acquiring anoption on the property in 2002, a total of 230 core holes with total length60,200 metres, and percussion holes with totaling 6,500 metres had beencompleted.
In 2002 Copper Fox secured rights to acquire up to a 93.4%interest in the project under an Option Agreement with Teck and relatedunderlying agreements. After making required expenditures of $15 million, CopperFox 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 toparticipate in mine development with Copper Fox. Teck has the right to earn a20% interest by matching Copper Fox’s prior incurred expenditures, or a 40%interest by matching three times prior incurred expenditures, or a 75% interestby incurring four times prior expenditures and arranging all productionfinancing.
The Development Plan
On September 15, 2008Copper Fox Metals announced a NI 43-101 compliant Preliminary Feasibility Studyon the Shaft Creek deposit by Samuel Engineering, Inc of Denver, Colorado. ThePFS recommends that Schaft Creek be developed as a conventional open pit,electrified, diesel truck and shovel operation with the sulphide depositexpected to be processed using a conventional concentrator producing separatecopper-gold-silver and molybdenum concentrates. The mill is designed to have anominal capacity of 100,000 tonnes of sulphide ore per day. The annual strippingratio is estimated at 1.88 to 1, including low grade and stockpile ore. ThePreliminary Feasibility Study anticipates start of production to be late2013.
The Study projects a mine life of 22.6 years with the mill expectedto 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 NI43-101 report by Associated Geoscientists Ltd. dated June 22, 2007 projects mineand 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 molybdenumconcentrate in significant quantities. At a present price of $3.75 per gram ofpure rhenium this may represent a significant additional contribution to income.Further possible recovery results for rhenium are expected during thefeasibility phase of the project.
In the event that Teck elects toexercise its back-in right to acquire 75% of the ultimate 93.4% Copper Foxinterest in the Schaft Creek Project, it is expected to be responsible forsecuring financing for Copper Fox’s portion as well as its own portion. CopperFox 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 revenuesgenerated by the project and is expected to pay its portion of the debtfinancing from revenue generated by production income from its 23.35 % equity ofSchaft Creek.
Copper Fox’s share of production would then be a projected1.11 billion pounds of copper (22,400 tonnes per year), 1.05 million ounces ofgold (46,500 ounces per year), 59.6 million pounds of molybdenum (2.64 millionpounds per year), and 7.6 million ounces of silver (336,000 ounces per year)over the 22.6 year mine life.
Finances
Finances are always a concern for companies at this stage ofdevelopment and in that regard Copper Fox is adequately cashed up for the nearterm. Just two weeks ago it raised $2,000,000 through a units offering whichconsisted 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 thereis a considerable level of commitment from the team.
Our ValueCalculations
Utilizing the GRR calculators at shareKNOW.net toanalyze Copper Fox produces remarkable numbers. We first come up with a grossrecoverable value of metals in the ground at current metal prices, and it’s atough number to get one’s head around. The metal from all categories (at today’smetal prices) prior to costs, royalties, debt, etc. is greater than $123billion.
Of course, that number means nothing until we take off the costsof 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, regulationsprohibit including inferred resources in any economic assessments.) That leavesus with $114 billion in ore — still in the ground.
Before we take offcosts involved in mining this ore, we also need to consider the actual recoveryrate: Not all metal is recovered from the ore. The pre-feasibility study from2008 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 $79billion.
Now costs. Click on the Operating Calculator at shareKNOW.net tosubtract out the operating and capital costs projected by the pre-feasibilitystudy authors. The costs will dramatically affect any mine. In many cases costswill bury a mine before it’s built, because if you can’t afford to take lowgrade ore out of the ground at the top of a mountain or the bottom of a valleyin 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 Creekproject, construction costs ballooned, more than doubling the capital cost ofGalore to $5 billion. In the end the project was mothballed.
Updatedcapital costs for Schaft Creek deposit foresee $2.95 billion in direct andindirect 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 $59billion.
Copper Fox presently has 242 million shares outstanding, so thatleaves 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 becauseit’s a lot of money for a share but because it’s 1,481 times greater than thecompany’s actual share price which today is
.16 per share, which suggests a
great deal of potential for upside.
Now, if you’dprefer and are comfortable reading pre-feasibility studies, you should do so.One of the main differences between our numbers and the numbers used in thepre-feasibility study is the size of the mine reserve, which in the latter caseis limited to 760 million tonnes over the course of 23 years (we included allthe 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 valuediscounted 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 thenumbers our calculators produce are for your own use in evaluating the relativevalue of this stock in comparison to other similar resource opportunities. Otherthan data from NI 43-101 reports, the figures and ratios we obtain can beobtained by anyone using our GRR calculators. These are not provided or endorsedby Copper Fox’s management or its consultants. Our values will normally behigher than net present values developed and used in actual feasibility studiesand operating plans since we do not provide for interest rate discount factorswhich make revenues received further in the future to be worth correspondinglyless in present value terms.
Readers can manipulate these variables —tonnages, grades, recovery rates, metals prices, etc. — at shareKNOW.net andcome up with their own valuations.
Whateverassumptions you may make, however, and even if the end result comes out to onlya fraction of
$244 pershare