Kutcho Copper eyes feasibility study in mid-2020

Kutcho Copper acquired the project, 200 km east of Dease Lake, from Capstone Mining (TSX: CS) in late 2017 for $28.8 million and a 9.9% share position, after a revised prefeasibility study presented encouraging economics.

“The first thing we did was a desktop exercise of going through the [previous] prefeasibility study,” the company’s chief operating officer, Rob Duncan, said in an interview. “The Capstone prefeasibility study was 2010–2011, we went through it and updated commodity prices, revised capex up a little bit, and [operating expenses] up a little bit as well.”

Kutcho Copper’s revised 2017 PFS, based on probable reserves of 10.4 million tonnes grading 2.0% copper, 3.2% zinc, 34.6 grams silver and 0.37 gram gold, showed an after-tax net present value at an 8% discount rate of $265 million and a 27.6% internal rate of return based on a 12-year mine life.

The study modeled a 2,500-tonne-per-day operation averaging annual production of 33 million lb. copper and 42 million lb. zinc. Capital costs for the mine were pegged at $221 million ($287 million including sustaining capex) and unit operating costs were US$1.60 per lb. copper excluding by-products, and US59¢ per lb. copper net of by-products. Post-tax payback of capital was forecast at 3.5 years.

“That [PFS] is what we went out and financed the acquisition of the project on,” Duncan says, “so we did some equity and Wheaton Precious Metals (TSX: WPM; NYSE: WPM) came in for a big commitment on the project with a streaming component.”

Wheaton provided a $100-million financing package in 2017 linked to a precious metals stream on the project. The stream was structured to fund $7 million towards the feasibility study, US$58 million in development capital, and up to another $20 million of development capital if Kutcho expands to a 4,500-tonne-per-day operation. Additionally, Wheaton completed a $20-million convertible debenture loan and a $4-million equity investment in the company.

Wheaton will also pay Kutcho Copper 20% of the spot price for all delivered precious metal by-products until 5.6 million oz. silver and 51,000 oz. gold are delivered, upon which the stream will drop to 66.67% of silver and gold production.

Management points out that the precious metal by-products represent just 8% of projected metal revenue, with copper and zinc representing 61% and 31%.

In 2019 the company has pushed optimization initiatives to further bolster the project’s economics.

Recent metallurgical test work, designed to feed into a feasibility study in 2020, has shown recovery rates above those projected in the now two-year-old prefeasibility study. Lock-cycle tests on composite samples of the Main deposit lens delivered recoveries of up to 92.3% for copper (to produce a 26.6% copper concentrate) and 84.2% for zinc (to produce a 59.7% zinc concentrate), with gold and silver recoveries coming in at 36% and 71%.

Composite sample testing of the Esso deposit lens returned recoveries of up to 94.5% for copper (to produce a 27.9% copper concentrate) and 89.3% for zinc (to produce a 58.2% zinc concentrate), with gold and silver recoveries coming in at 40.8% and 71.2%.

Improved zinc concentrate grades and the rejection of zinc from the copper concentrate are seen as value adds, and will generate a cleaner, higher-value copper concentrate. Silver recovery also improved in the latest metallurgical testing, the company says.

In its development scenario, Kutcho Copper envisions initial production coming from the Main deposit, then transitioning to a fifty-fifty blended ratio with the Esso deposit during the mid-years of production.

“We have done throughput trade-off studies — mining methods trade-off studies,” Duncan says. “In the PFS it was about 30% stoping and the rest was cut and fill. We relooked at that and it can all be stoped, either by retreat or transverse, and so from our point of view, that can put the throughput up to about 3,000 to 3,500 tonnes per day instead of the 2,500 tonnes per day in the PFS.”

On the permitting front, the company recently received its Section 11 Order from the British Columbia Environmental Assessment Office, which defines the scope of the environmental assessment and the Indigenous Nations both Kutcho Copper and the B.C. Government will engage with through the process. The project is situated within the overlapping territories of the Kaska Dena and Tahltan Nations.

“We have exploration agreements with both of them, they work together in our technical EA working group,” Duncan says. “Our goal there is that if both Nations are involved every step of the way, technically there are a lot of decision-making points that they can be a part of. We can do these things and we can do them right.”

The company also notes that under the recently passed Bill C-69 (Canadian Impact Assessment Act), the Kutcho project is not required to undertake a federal environmental assessment.

Kutcho Copper recently received some breathing space on capital demand with Wheaton agreeing to amend its $20-million convertible debenture that would have seen its interest deferral timeline expire in December 2019. The original two-year interest deferral is now extended for up to another four years. Wheaton also gave Kutcho a new $1.3-million non-revolving term loan maturing at the end of 2020.

Wheaton holds 10.5% of Kutcho Copper and is the second-largest shareholder after Capstone, which holds 12.8%. Management and directors own 7.5%.

Over the last year the company has traded in a range of 13¢ to 46¢. At press time it was trading at 22¢ a share.

The company has 68.2 million common shares outstanding for a $15.4-million market capitalization.

(This article first appeared in The Northern Miner on December 20, 2019)