Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Western Copper and Gold (TSX: WRN; NYSE: WRN) released a positive preliminary economic assessment for its Casino copper-gold-molybdenum project in Canada’s Yukon territory on Tuesday, but investors took the share down a notch despite a rally in the copper price.
Western lost as much as 2.4% on Tuesday in New York amid a generally positive day on copper markets, affording the company a market value of $306 million. Rio Tinto Canada in May invested C$25.6 million in Western for an 8% stake – the counter is up 16% since that announcement.
The PEA considered an open pit mine, 120,000 tonne per day concentrator, and a 25,000 tonne per day gold heap leach facility for an initial capital outlay of $3.25 billion and a 25-year mine life. Mineralized material totalling 1.3 billion tonnes will be processed.
Paul West-Sells, president and CEO, said the study “reaffirms Casino as one of the very few long-life copper-gold projects with robust economics in a top mining district, the Yukon.”
Western has been developing Casino since 2006 and already spent $75 million on the project in west central Yukon, 200km upstream of Dawson City along the Yukon river.
The study, based on an updated resource estimate from July last year, outlines an after-tax net present value (8% discount) of $2.3 billion and an after-tax internal rate of return of 19.5%. Cash flow over the first four years of operation would be $965 million per year at metal prices of $3.35/lb copper, $1,600/oz. gold, $24/oz silver, and $12/lb molybdenum.
The PEA also examined a second phase of development that would extend the mine life to a total of 47 years using the original concentrator and a secondary tailings facility. A combined phase one and two construction adds little to pre-production capital costs and only $1.1 billion to overall sustaining capital.
3 Comments
Dark Helmet
Please read the PEA news release again – the last paragraph in the article is entirely wrong. Extending the mine life an additional 25 years does not add 3.3 billion in CAPEX. Per the NR, it adds almost no capital costs, just OPEX. Total CAPEX, for life of mine, is 3.3b CAD.
Frik Els
Thanks for keeping us on our toes Dark Helmet. Indeed, upfront costs are virtually the same for phase 1 vs combined phase 1 and 2. Total life of mine capex goes from just under $4 billion (phase 1) to $5.06 billion (1 and 2). Story is fixed now.
Dark Helmet
Appreciate it – 3.25b is big enough!