Wily junior advances promising porphyry

Copper Fox Metals Corp. recently completed a positive feasibility study of its Schaft Creek porphyry copper, gold, molybdenum and silver project in northwestern British Columbia that could mark an important turning point for the project.

The Calgary, Alberta-based company holds title and a 100 percent working interest in Schaft Creek, which is located due east-northeast of Petersburg, Alaska, about 61 kilometers (38 miles) south of the village of Telegraph Creek.

The feasibility study prepared by Tetra Tech in late December outlines plans for a conventional open pit mine at Schaft Creek with a mill rate of 130,000 metric tons per day for a minimum 21-year mine life based the deposit's proven and probable mineral reserves of 940.8 million tons containing 5.6 billion pounds of copper, 5.7 million ounces of gold, 363.5 million lbs of molybdenum and 51.7 million oz of silver as of May 23, 2012.

Ore will be processed in a conventional flotation plant, producing a 28 percent copper concentrate containing gold and silver, and a separate 50 percent molybdenum concentrate.

The project will require a permitting and construction period of just under five years, initial capital costs of C$3.257 billion including 11.5 percent contingencies, and sustaining capital of C$1.24 billion, including a C$200 million provision for construction of BC Hydro's Northwest Transmission Line.

(Access to cheap electrical power provided by the line is viewed as a critical factor to the development of Schaft Creek along with many other large mineral deposits in the region.) The project also carries a pre-tax internal rate of return of 10.1 percent and a pre-tax net present value at an 8 percent discount of C$513 million with a payback period of 6.5 years.

Deposit with growth potential

Located within the Tahltan First Nation's traditional territory, the 56,267.54-hectare (139,040 acres) Schaft Creek property encompasses portions of the Schaft Creek and Mess Creek Valleys, and Mount LaCasse situated in the Cassiar/Liard Mining Division.

Described as a calc-alkalic copper-molybdenum porphyry system related to an elongate, high-energy, structurally controlled breccia system, the Schaft Creek deposit was discovered in the late 1950s, and since has been the subject of extensive exploration, including the completion of 410 drill holes totaling 98,445.82 meters.

The deposit has historically been divided into three zones; the Liard (Main) Zone, the Paramount Zone, and the West Breccia Zone.

For estimation purposes, and due to the geometry of the mineralization, the West Breccia zone has been included within the Paramount Zone.

The Liard zone is related to the intrusion of feldspar quartz-porphyry dikes, while the Paramount zone is closely related to a north-south trending breccia zone.

A May 2012 mineral resource estimate, calculated at a 0.15 percent copper-equivalent cut-off, pegged the size of the deposit at 146.6 million metric tons in the measured category grading 0.31 percent copper, 0.017 percent molybdenum, 0.24 grams per metric ton gold and 1.78 g/t silver (containing 1.0 billion pounds copper, 55.6 million pounds molybdenum, 1.15 million ounces gold and 8.40 million ounces silver; 1.08 billion metric tons in indicated resource grading 0.26 percent copper, 0.017 percent molybdenum, 0.18 g/t gold and 1.68 g/t silver (containing 6.1 billion pounds copper, 399.7 million pounds molybdenum, 6.22 million ounces gold and 58.34 million ounces silver); and 597.2 million metric tons in inferred resource grading 0.22 percent copper, 0.016 percent molybdenum, 0.17 g/t gold and 1.65 g/t silver (containing 2.87 billion pounds copper, 206.3 million pounds molybdenum, 3.36 million ounces gold and 31.60 million ounces silver).

In addition, the mineralization remains open in several directions (along strike), which adds an extra dimension to the potential size of the deposit, according to Copper Fox President and CEO Elmer B. Stewart.

"We feel the Schaft Creek area is a district, and we think Schaft Creek is a much larger deposit than what is reflected in the May 2012 resource estimate," Stewart told analysts on a recent conference call. "My guess is somebody is going to be at Schaft Creek a long time.

Teck's earn-back option

The Schaft Creek area has been explored for more than 50 years. Asarco worked the property for most of the 1960s, and was followed by Hecla, Paramount and Phelps Dodge in various programs in the late '60s and early '70s. In 1978, Hecla sold its interest in Schaft Creek to Teck, which explored the area for the next 24 years.

In 2002, Copper Fox acquired the Schaft Creek claims held by Teck Resources Ltd. Included in this total are the "Schedule A" mineral tenures originally conveyed to Copper Fox pursuant to the Teck Option Agreement, which consist of 8,334.34 hectares (20,594 acres). The "Schedule A" mineral tenures are subject to a 3.5 percent net profits interest held by Royal Gold, Inc., a 30 percent carried net proceeds interest held by Liard and, together with the additional mineral tenures obtained by Copper Fox within the "Area of Interest" provided for in the Teck Option Agreement, an earn-back option held by Teck.

The remainder of Copper Fox's registered interests in mineral tenures in British Columbia total 47,933.19 hectares (118,445 acres). These interests were acquired by Copper Fox through mineral tenure acquisitions and mineral tenure purchase agreements subsequent to the company entering into the Teck Option Agreement. Certain portions of the registered mineral tenures are subject to inclusion within the Schaft Creek project pursuant to the terms of the "Area of Interest" provisions of the Teck Option Agreement.

In completing the feasibility study, Copper Fox earned Teck's 78 percent interest in Liard. The earn-back option for Teck to acquire either, 20 percent, 40 percent or 75 percent, of Copper Fox's interest in the Schaft Creek property also was triggered when the junior delivered the feasibility study to the miner in late December. Teck has 120 days or until the end of April to exercise the earn-back option, according to Stewart.

If the major elects to earn back 75 percent interest, Copper Fox will effectively retain a 23.6 percent ownership interest in the project.

If Teck elects to earn back any stake in the project, the two companies will have 60 days to form a joint venture for developing the Schaft Creek project.

Plan to overcome challenges

"Like all large-scale projects located in alpine-type terrain, this project did come with its own unique technical challenges," said Stewart, in announcing the feasibility study.

The project also has significant advantages. In addition to a favorable political and geographical climate of British Columbia, it is situated in an area of the province with very low average rainfall (one meter per year), low environmental impact, minimal impact on wildlife and zero fish habitat near the mine site.

Its location is another plus, some 45 kilometers (28 miles) due west of Highway 37 and the route of the NTL now under construction and due to be completed in May 2014.

Access to electrical power from the NTL, the potential to significantly expand its tailings storage facility and a concentrate storage and shipping agreement with Stewart Bulk Terminals are among other positive features that support possible future expansion of the Schaft Creek Project.

Power for the Schaft Creek project would be provided from the 344-kilometer (213 miles), 287 kV Northwest Transmission Line currently under construction by the British Columbia Hydro and Power Authority between Skeena Substation (near Terrace, B.C.) and a new substation to be built near Bob Quinn Lake. Estimated to cost between C$561 million and C$617 million, the power line is scheduled for completion in the spring of 2014.

Copper Fox has requested transmission voltage service (69,000 kV and above) at the Schaft Creek project via an 81-kilometer- (50.2 miles) long connection line from project to the Bob Quinn electrical substation. In March the company entered into a facilities study agreement with BC Hydro in connection with proposed electrical power supply for Schaft Creek. The agreement sets forth the terms and conditions for BC Hydro to perform a facilities study to assess the electrical and equipment requirements to connect the project to the substation.

Copper Fox will pay a required deposit to BC Hydro. The junior previously submitted a system impact study request to BC Hydro; an interconnection queue position was assigned to the Schaft Creek project and the system impact study was undertaken. The queue position is used to prioritize study work and allocate interconnection costs. The study is expected to be completed on or before May 31, 2014 and is estimated to cost more than C$1 million.

The project will require other major infrastructure, including a single-lane access road with double-lane sections to support construction and ongoing operations. Copper Fox's plan is to reach agreement with Galore Creek Mining Corp., owner of the nearby Galore Creek copper-gold project, regarding joint use of the access road from Highway 37 (Kilometer 0) to about Kilometer 65, including construction of the More Creek Canyon Bridge, and to complete of an additional 25.2 kilometers (16 miles) of the Galore Creek road for a total distance of 65.2 kilometers (40.4 miles).

The access road would then turn north and Copper Fox will construct about 40 kilometers (25 miles) of new road through the Mess Creek Valley to the mine site. The access road will be used to transport material and consumables to and from the mine site, and to deliver mine capital equipment and would have controlled access to ensure the health and safety of company personnel and the public, as well as to protect the environment.

Other infrastructure envisioned for the project includes a new on-site airport, capable of receiving aircraft with a capacity of up to 78 passengers; and water supply, distribution and reclamation systems. Mine personnel would be transported to and from the Schaft Creek site via aircraft.

More work lies ahead

Copper Fox is currently preparing the Province of British Columbia Environmental Assessment Application and a federal environmental impact statement, both of which are required for the company to obtain a BC EA Certificate and federal approval. Copper Fox anticipates submitting the EA application and EIS as early as Q3 2013.

Copper Fox is working with Stantec Consulting Ltd. and other environmental consultants to complete various studies and reports required for the EA application. The junior is also developing permit applications required to construct the access road to the mine site. Access road permits have been prioritized based on the construction schedule presented in the feasibility study. Other permit applications required for mine site construction will follow completion of the EA application and EIS.

At Jan. 31, the company had working capital of slightly more than C$5.04 million. It also raised another C$2.65 million in a private financing that closed in early April. These funds will cover costs associated with the EA application and development expenses at Schaft Creek as well as the company's copper projects in Arizona and general operating expenses.

From completion of the feasibility study in December, the time period estimated to allow for permitting, detailed engineering, equipment procurement, construction and production startup at Schaft Creek is about seven-years, with phase 1 of commercial production envisioned in December 2019 followed by phase 2 in August 2020.

However, Copper Fox's management believes this period could be significantly shortened during the detailed engineering phase by running concurrent activities.

Hurdles yet to clear

Though the company has made considerable progress in advancing the Schaft Creek project, the venture still is a ways from overcoming all of its challenges. This was reflected in the reaction of investors to the feasibility study in December. Copper Fox shares fell more than 21 percent after the study was released, down to about 83 cents on the TSX Venture Exchange. The stock is currently trading at about 60 cents per share.

Project costs remain critical. For example, life-of-mine copper production costs net of gold, silver and molybdenum credits jumped in the feasibility study to C$1.15 per pound from a previous estimate of negative C32 cents/lb.

Stewart said estimates for production costs soared on the significant increase in operating costs and lower metal recoveries identified in the feasibility study.

However, additional work in a number of different areas, such as improving metal recovery costs, upgrading inferred resources and boosting mill throughput, not to mention the impact of higher copper prices, could improve the project's economics dramatically, he explained.

"If this project goes into production, it will be a fairly dynamic operation. That's why the feasibility study has a built-in flexibility at the mine site to continue enhancing the economics of the project going forward," Stewart told the analysts. "There is a lot of work to be done, all of which could have a significant impact on the project. Copper is trading at about US$3.50 a pound and given what's been happening in China, my guess is the price is going up."

Options for the future

Copper Fox has made no secret of its desire to sell the Schaft Creek project at the right time.

"We've always groomed this project for a potential buyer," said Stewart.

Once Teck acts on its option, the Copper Fox CEO said the junior can approach other parties about selling its remaining interest in the project. If the major chooses not to exercise its earn-back option, then Copper Fox will have 100 percent ownership of the project and can pursue a number of different avenues, including mounting a 2013 work program at Schaft Creek.

Stewart, who also chairs Copper Fox's board of directors, said he will recommend to the board that the company do more drilling and metallurgical work this year and a "little bit of engineering work" to determine whether the time to production can be shortened and possibly look at the possibility of expanding the size of the project.

If Teck elects to earn-back a controlling interest in the project, it will have four years to develop Schaft Creek under terms of the original option agreement. But Stewart said that he does not know whether this deadline, drafted in the 1960s version of the agreement, would stand up in the courts today.