Copper Mountain revival aims to take mine past centenary

As a director of an energy company looking to make a coal-fired plant out of the former Copper Mountain mill near Princeton, B.C., in 2006, the thought of mining copper there didn’t cross Jim O’Rourke’s mind.

But O’Rourke, now the CEO of Copper Mountain Mining (CUM-V), was no stranger to the Copper Mountain mine.

As the former CEO of Princeton Mining — the last company to operate Copper Mountain up until the mid-1990s — O’Rourke knew the mine had stopped production just three times over the last 90 years, and that it always had to do with falling copper prices, and not a lack of resources.

“When we shut it down, it had 140 million tonnes of reserves,” O’Rourke recalls.

Copper, which has recently been hovering above US$3 per lb., had fallen below US$1 per lb., rendering the project uneconomic.

O’Rourke thought the future was looking good for Compliance Energy (CEC-V, CPYCF-O), which had signed a 30-year contract with BC Hydro, until the provincial government decided that there would be no new coal-fired power plants allowed in the province.

With the power plant kyboshed, the idea of mining copper became one worth revisiting for O’Rourke.

“It all happened at the same time that copper was becoming strong,” he recalls.

Copper Mountain Mining was formed as a private company in December 2006 with an option agreement for the past-producing copper mines.

“A group of us put private money into it, exercised the option and started drilling immediately,” O’Rourke says.

Copper Mountain drilled 44,000 metres during 2007 and completed a Titan 24 deep target geophysics survey. The company had its initial public offering in June, came out with a resource estimate in August, and completed an economic assessment by November that called for production of 1 million lbs. copper per year by the end of 2010.

Now the junior is working on a feasibility study due at the end of the first quarter.

The company says that recent drilling has shown that it’s difficult to define the limits of mineralization in some areas — a good sign for Copper Mountain’s proposed “super pit.”

“When we bought the property, our focus was to drill in between three pits to see if we could develop them into one major one,” O’Rourke says.

The pit would be 3.5 by 3.5 km, allowing the company to access more mineralization at depth.

Copper Mountain is drilling in and beyond the historically mined areas to upgrade and expand the latest resource, which includes drill data up to July and totals 2.9 billion lbs. copper.

Current measured and indicated resources register at 228 million tonnes grading 0.37% copper for 1.7 billion contained pounds copper. Inferred resources stand at 197 million tonnes grading 0.31% copper totalling 1.2 billion lbs. copper. A cutoff grade of 0.2% copper was used.

Recent drilling done about 150 metres west of Pit 2 returned a 122-metre intersection grading 0.69% copper, 0.29 gram gold per tonne and 1.71 grams silver.

Over in the Saddle zone, located between Pits 1 and 3, drilling intersected relatively shallow zones of mineralization above the known zone in holes QA-3 and 4. This improves mine economics by decreasing the strip ratio.

Hole QA-3 returned a 12-metre intersection grading 0.54% copper, 2.65 grams silver per tonne and 0.31 gram gold, reaching to 24 metres depth.

Hole QA-4 returned a 34-metre intersection grading 0.49% copper, 2.76 grams silver per tonne and 0.12 gram gold.

So far, the company has received results from 130 drill holes for the 2007 season with another 34 holes expected by the end of January.

Those results will be included in the feasibility study, which is being based on the parameters set by the economic assessment report.

In the report, the preliminary pit design was based on processing 35,000 tonnes of ore per day to produce a copper concentrate containing gold and silver.

Much of the infrastructure from the 25,000-tonne-per-day operation, including water and power still exist on the site, but a new milling facility would be needed.

Over the first five years, when the company plans to focus on the higher-grade material, mill feed is expected to have an average grade of 0.43% copper (0.48% copper-equivalent) for production of about 104 million lbs. copper each year, plus silver and gold credits.

Lower-grade material will be stockpiled and processed towards the end of the mine life.

Copper recovery rates are expected to be 87.2%, while gold and silver are estimated at 55%.

The average strip ratio for the mine is 1.5.

Capital costs were estimated at $366 million, using late 2007 Canadian dollars, with sustaining capital of about $24 million.

The project, which has a net present value of $406 million, is expected to have a 15-year mine life, a pre-tax internal rate of return of 25.56% and a payback period of 2.69 years.

Copper Mountain used base case metal prices from the Oct. 16 LME forward prices. For 2011, the copper price was forecast at US$2.81 per lb. and for 2012, at US$1.90 per lb. For the remainder of the project’s life, copper was estimated at US$1.80 per lb.

Using these numbers, the value of metal produced over the 15-year project life is $2.7 billion.

Operating costs were based on late 2007 dollars while labour costs were based on the upper quartile of wages paid at B.C. mines.

Over the first five years, operating costs are estimated at US93 per lb. copper (net of gold and silver credits of 35 per lb. copper) rising to US$1.01 per lb. in years six through 10 and $1 per lb. for the life of mine.

The 15-year project life is a drop in the bucket in comparison to the mine’s history.

Exploration began in 1884, but it wasn’t until 1923 that Granby Consolidated Mining, Smelting and Power Co. started production. Granby operated an underground mine until the 1950s, when metals prices dropped and the cost of transportation increased.

Newmont Mining of Canada ran an open-pit operation from 1972 until 1988, when it sold the project to Cassiar Mining, which later became Princeton Mining. Princeton continued production from Pits 1 and 3 until the mine was put on care and maintenance due to falling copper prices in 1993.

Prices improved by 1994 and mining started up again, focusing on the pit and low-grade stockpiles. It was closed a year later as copper fell to the US70-per-lb. range and the company struggled with an increasing stripping ratio and rising production costs.

As the Copper Mountain mine takes another go at production, Compliance Energy is getting a new chance at life as well.

Compliance, where O’Rourke is now the chairman, still hopes to build a power plant, but instead wants to use wood from dead pine trees killed by the pine beetle that has infested B.C.’s forests in recent years.

The two companies have an agreement to allow Compliance to continue its power plant project. The grounds where the old mill is located is far from the open pits, so there is no chance for interference.

Meanwhile, Copper Mountain has 30,000 metres of drilling planned for 2008 as it develops the pits and goes after targets at depth.