The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
PFS details robust economics for NW Alaska mine project North of 60 Mining News – March 1, 2018
Sitting across the valley from Arctic, Trilogy Metals President and CEO Rick Van Nieuwenhuyse and Bob Jacko, manager of the Arctic pre-feasibility study, discus the layout for an open-pit mine at this high-grade copper deposit in Alaska.
Abraham Adams, from Kivalina, is one of the many Northwest Alaska residents that worked at the Upper Kobuk Mineral Projects in 2017.
The prefeasibility study for the Arctic deposit in Northwest Alaska details plans for a financially robust mine that is expected to produce 1.9 billion pounds of copper, 2.4 billion lb of zinc, 405 million lb of lead, 367,531 ounces of gold and 40.2 million oz of silver over an initial 12-year mine life.
The mine outlined in the PFS is based on 43.04 million metric tons of probable reserves averaging 2.32 percent copper, 3.24 percent zinc, 0.57 percent lead, 0.49 grams per metric ton gold and 36 g/t silver.
"(W)e are blessed with a truly high-grade copper project in Arctic with grades of 5 percent copper-equivalent," said Trilogy Metals President and CEO Rick Van Nieuwenhuyse. "Based on the foregoing, I expect Arctic could be among the highest grade open pit copper mines in the world if and when it is placed into production."
This supply of copper comes at a time when most analysts are predicting a substantial increase in demand for this important electrical conductive metal.
"With the long-term demand fundamentals for copper driven by increased use of alternative forms of energy and a transition from internal combustion engines to non-polluting electric vehicles, both of which require five times the amount of copper than carbon-based fuels, we expect the price of copper to remain strong over the long term – especially when we consider the impending supply crunch expected by analysts," the Trilogy CEO added.
Robust economics
The PFS envisions an open-pit mine to extract the volcanogenic massive sulfide mineralization at Arctic and a 10,000-metric-ton-per-day mill to produce the metals-rich concentrates to deliver to markets.
The initial capital to build such a mine is expected to be US$779.6 million and the sustaining capital is forecast to be US$65.9 million per year.
Another US$65.3 million is calculated for the closure and reclamation costs at Arctic.
At base case metals prices – US$3 per lb copper, US$1.10/lb zinc, US$1/lb lead, US$18 per oz silver and US$1,300/oz gold – the mine outlined in the PFS is expected to pay back the initial capital expenditures during the second year of operation.
At US$2/lb copper, this operation would still pay back capital costs in the third year of operation.
The pre-tax net present value (8 percent discount) of this operation, from the beginning of the three-year construction period, is calculated to be US$1.94 billion and the pre-tax rate of return is 38 percent.
The after-tax NPV (8 percent discount) is estimated to be US$1.4 billion and the after-tax IRR is 33.4 percent.
"The results of the PFS show that Arctic is a robust, high quality project," said Van Nieuwenhuyse. "We are very pleased with the improvements in the economics in this pre-feasibility study compared with the preliminary economic assessment performed on the Arctic project in 2013."
Given the robust financial returns detailed in the PFS, Trilogy is ready to advance the Arctic Mine project to the next phase – feasibility and permitting.
Key partners
Thanks to the strong partnerships built, Trilogy Metals will not be alone in advancing Arctic towards development.
South32 Ltd., a coal and base metals miner spun out of BHP Billiton, brings strong mining expertise and the financial wherewithal of a global miner to Arctic.
Last year, South32 cut a US$150 million deal with Trilogy to earn up to a 50 percent joint venture interest in the Upper Kobuk Mineral Projects, a vast land package that blankets most of the renowned Ambler Mining District, including Arctic.
UKMP includes a block of state mining claims held by Trilogy that stretches 70 miles (110 kilometers) along the southern slopes of the Brooks Range and a land package immediately to the south that is owned by NANA, the Alaska Native Regional Corporation that represents the Inupiat people of Northwest Alaska.
Arctic is one of more than a dozen VMS deposits and prospects rich in copper, zinc, lead, gold and silver that have been discovered across the Trilogy claims. Bornite and other copper-rich prospects are located on the lands NANA contributed to UKMP under an agreement signed in 2011.
Following a construction decision, NANA has the option to acquire a 16 to 25 percent direct interest in UKMP. If the Native corporations decides not to invest, it would receive a 15 percent net proceeds royalty from any mines developed on the 353,000-acre land package.
NANA, a 35 percent partner in the Red Dog Mine on lands it owns about 180 miles northwest of UKMP, is an experienced mining partner that appreciates the value of resource development.
"Our region has benefited from responsible resource development, and we value working with companies that advance our land's mineral potential and create shareholder value while respecting our traditional subsistence lifestyle," said NANA President and CEO Wayne Westlake.
This value includes more high-paying mining jobs for NANA shareholders that live in this remote region of Northwest Alaska.
"We are also very excited with the potential for job opportunities for the Upper Kobuk region," said Van Nieuwenhuyse. "The PFS estimates approximately 400 year-round jobs during mine operations. This is important for our local communities in the Kobuk and Koyukuk regions that currently have limited opportunities for long-term employment."
Trilogy Metals has earned a reputation for local hire and in 2017 roughly 60 percent of the workforce at UKMP were NANA shareholders.
Ambler access
The mill at Arctic would produce three separate concentrates – copper, zinc and precious metals-rich lead – that will need to be shipped to refineries for further processing. This project, however, is located about 200 miles from the nearest road, at least for now.
Understanding the exceptional potential of Arctic and the other deposits and prospects in the Ambler district, the state of Alaska began studies on the potential of building a road to the metals-rich region in 2009.
Alaska Industrial Development and Export Authority, a quasi-state-owned entity established by the Alaska Legislature to provide financing for Alaska businesses that will expand the state's economy, took the lead on the potential development of a road to the Ambler district in 2013.
The Ambler Mining District Industrial Access Road, the official name of the proposed 211-mile transportation corridor, would run west from the Dalton Highway along the southern foothills of the Brooks Range to the Ambler Mining District near the Arctic deposit.
Trilogy and AIDEA entered into a memorandum of understanding in 2015 that paves the way for the development authority to investigate various ways to fund the construction and maintenance of the Ambler Road and create the framework by which this investment would be paid back from mines developed at the road's terminus.
A similar arrangement for the Delong Mountain Transportation System, a road and port facility linking the Red Dog zinc-lead mine to world markets, has proven to be a good investment for AIDEA and the state.
Though the exact cost of building the Ambler Road has not been finalized, the PFS estimates US$300 million.
Given this estimate, along with AIDEA ability to procure low interest bonds, it is calculated that the Arctic Mine would pay roughly US$9.7 million per year in tolls. In addition, the study assumes a road maintenance fee of US$2/metric ton of processed ore.
It is expected that the high-grade Bornite copper deposit and likely several other deposits and prospects in the Ambler Mining District would also be economically feasible to mine with road access and would contribute towards paying the costs of its construction.
Ideally, the Ambler road and Arctic Mine would be completed about the same time. To keep the road side of this development on schedule, AIDEA submitted applications in 2016 for rights-of-way, permits and related authorizations needed.
The public scoping phase of the Ambler Road wrapped up in January and a draft environmental impact statement for the industrial access is now underway.
In his fiscal year 2019 budget proposal, Alaska Gov. Bill Walker has earmarked funds for Ambler Road permitting.
"Our commitment to the Ambler Road was to get it up through the EIS process," Walker told Fairbanks Daily News-Miner.
With a road and a mine to support it, the potential of one of the richest undeveloped mining districts on Earth may finally be realized.
"(W)e are starting to see all the pieces come together to realize the value inherent in developing the Ambler Mining District – one of the highest grade volcanogenic massive sulfide districts known in the world," said Van Nieuwenhuyse.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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