In return for taking down a $2.2-million financing of
The El Salvador project is a 55-45 joint venture between Teck and Western Copper, covering a 225-sq.-km area of interest, 65 km southeast of the city of Zacatecas. The San Nicolas copper-zinc deposit lies in the western portion of the project on claims optioned from Luismin, a Mexican mining company. Luismin is carried through to the completion of a feasibility study, at which point it has the option of participating at 25% by arranging its share of production, or diluting to a 15% carried interest, thereby reducing Teck and Western Copper’s interests proportionately.
Teck can earn an additional 10% interest in the San Nicolas deposit if it chooses to arrange Western Copper’s share of production financing. Teck also has the right to buy a further 5% interest from Western Copper for a cash payment based on the project’s net present value at feasibility, using a 15% discount. As part of the recent $2.2-million financing agreement, Teck can now elect to buy an additional 5% interest on the same basis.
If Teck completes all its obligations, Western Copper’s interest could be reduced to either 18.75% or 21.25%, depending on whether Luismin elects to be carried.
The arranged financing calls for Teck to buy 1.1 million units of Western Copper at $1.93 each. A unit consists of one share and one non-transferable warrant entitling the purchase of an additional share at $1.93. The warrants are exercisable at any time up to three months from the date of closing. Western Copper has 14.6 million shares outstanding, or 16.8 million fully diluted.
Western Copper intends to use the proceeds for working capital and to fund its share of exploration at San Nicolas and at other projects, including Penasquito and San Jeronimo, which were acquired under a strategic alliance with Kennecott, a subsidiary of
Western Copper must spend a minimum US$1 million per year on exploration over a 5-year period in order to acquire a 100% interest in the properties from Kennecott, which retains a 51% back-in right or a royalty on any individual property.
In the 15 months since the discovery hole at San Nicolas, Teck has advanced the massive sulphide deposit through to the prefeasibility study stage. Grid drilling in early 1998 outlined a resource, minable by open-pit methods, of 72 million tonnes grading 1.35% copper and 2.27% zinc, plus 0.53 gram gold and 30 grams silver per tonne. An upper zone enriched in zinc contains 19 million tonnes grading 6.15% zinc and 0.79% copper, whereas a lower copper-rich zone is estimated to host 37.9 million tonnes grading 1.89% copper and 0.46% zinc.
Teck says preliminary metallurgical testwork indicates normal recoveries for the copper and zinc, with suggested recoveries in the order of 86% for zinc and 63% for copper in the high-grade zinc zone. Recoveries in the mixed zone are 73% for zinc and 60% for copper, while the high-grade copper zone has yielded recoveries of 84%.
The preliminary testwork has shown disappointingly low recoveries (less than 20%) for the precious metals in all three zones.
Since the San Nicolas deposit lies beneath 160 metres of volcanics and conglomerates, it is estimated that as much as 100 million tonnes of prestripping will be required. Teck initially assumed a pit wall slope of 41 degrees, leading to an overall waste-to-ore stripping ratio of 7.8-to-1. Subsequent geotechnical studies suggest the pit walls could be steepened to 54 degrees, thereby reducing the stripping to about 5-to-1 and saving about US$2 per tonne in operating costs.
Teck will spend the next 3-6 months assessing the metallurgical and geotechnical data before deciding whether to proceed with a feasibility study. Western Copper reports that the joint venture has budgeted $900,000 for engineering studies and $1.7 million for further exploration in 1999.
The two partners have agreed to expand the El Salvador joint venture to include their respective land holdings in the immediate area. Teck will contribute its lands to the south, east and west of El Salvador, and Western Copper will contribute its interest in the Villa de Ramos ground to the north.
The resulting land position, including the El Salvador joint-venture area, will cover a 3,000-sq.-km block of ground, extending 75 km in a north-south direction and up to 40 km in an east-west direction. Teck will fund the first US$500,000 in exploration on the merged block. Funding thereafter will be on a 55-45 basis.
Western Copper acquired Villa de Ramos as part its strategic alliance with Kennecott, which currently retains a back-in right to a 51% interest. Initial exploration by Western Copper has revealed several gravity anomalies, and these are targeted for follow-up work.
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