Sherwood aims for 2007 production at Minto

Vancouver — The positive findings of an independent feasibility study have prompted Sherwood Copper (SWC-V) to fast-track construction of an open-pit copper-gold mine at its wholly owned Minto project in Canada’s Yukon Territory.

Sherwood president Stephen Quin says the accelerated mine plan for Minto should increase pre- production stripping and access higher-grade reserves as quickly as possible in order to take advantage of high metal prices.

“The goal is to get more copper production sooner,” Quinn told analysts during a recent conference call. “Essentially we’re up-fronting the project, which significantly improves the economics.”

Development is already under way at the site, with more than 1 million tonnes of pre-strip completed by the end of June. The camp expansion is also complete, as the project was partially developed by a previous operator in the late 1990s, with about $10 million spent on camp facilities, mill foundations, milling equipment, and related infrastructure, including access roads to the Yukon River crossing.

The independent feasibility study prepared by Hatch and other technical consultants envisages average annual production of 40.7 million lbs. copper, 17,150 oz. gold and 250,000 oz. silver during the first six years of operation, starting in mid-2007, or earlier if the fast-track construction program is successful. This production rate is based on exploiting existing proven and probable reserves of 8.85 million tonnes averaging 1.68% copper, 0.6 gram gold and 6.9 grams silver per tonne within the first six years.

Head grades would be highest in the first year of operation, at 3.3% copper and 0.94 gram gold, and would average 2.4% copper and 0.88 gram gold over the first six years of production.

The mine would continue to process stockpiled material grading lower than 1% copper for at least another five years, which would boost life-of-mine production to more than 300 million lbs. copper, 122,000 oz. gold and 1.8 million oz. silver in concentrates.

The life-of-mine strip ratio (including capitalized pre-strip) is estimated at 4.4:1 waste-to-ore and 3.5:1 during operations, an improvement over previous estimates.

Sherwood sees potential to expand high-grade reserves and resources through ongoing exploration programs at Minto.

Capital costs for the modest-sized operation are estimated at $86.7 million, plus a contingency of $8.2 million and owner’s costs of $3.3 million. Financing will come from Australia’s Macquarie Bank in the form of a $65-million loan, plus an additional loan of up to $25 million. The company is also evaluating offers from concentrate off-take companies for another US$20 million in working capital.

Cash costs are projected to average US60 per lb. copper, net of by-product credits, over the first six years, and US73 per lb. over the life of the proposed mine. The study used a 5-year average for metal price assumptions, comprised of 3-year historic and 2-year forward prices, that average US$2 per lb. copper, US$550 per oz. gold and US$9 per oz. silver.

The rate of return is estimated at 34.6%, pretax, assuming 100% equity financing, giving a pre-tax net present value of $119.1 million at a 7.5% discount rate, or $144.6 million at a 5% discount rate, assuming 100% equity financing.

To ensure a robust return, the company plans to launch a price protection program “that could allow returns to significantly exceed those set out in the feasibility study.”

The planned price protection program would cover 75% of the first four years of planned payable copper production, and 75% of the first six years of payable gold and silver protection. The company sees room for “significant retained upside” through uncommitted reserves, short-term reserve expansion opportunities, exploration upside and potential purchase of calls. Such measures could increase the internal rate of return to 60.6%, while reducing the payback period to 1.5 years.

Sherwood adds that it could improve the project’s overall economics through an optimization process focused on capital cost reductions. That process is already under way, including efforts to seek improvements from measures such as converting to grid electric power from diesel, seeking a more cost-efficient method of tailings disposal, and process improvements related to an expansion of the mill by more than 50% during the first year of operation.

Concentrates from Minto are expected to be exported to offshore markets through the port of Skagway, Alaska, about 420 km from Minto. The company has inked a preliminary agreement with port authorities, and has the makings of another agreement with Yukon Energy to provide power to the site. If approved, power would come from the Whitehorse transmission grid, which terminates north of Carmacks, Yukon, and be extended to the Minto site along the Yukon Highway and then would likely follow the existing 29-km-long mine access road from Minto Landing on the Yukon River.

Sherwood expects to reach commercial production in mid-2007, or earlier. In the meantime, the company is conducting a 16,500-metre drilling program aimed at testing targets within 1 km of the proposed open pit to boost reserves and resources. Measured and indicated resources stand at 9.06 million tonnes grading 1.78% copper, 0.62 gram gold and 7.3 grams silver (including existing reserves).