NovaCopper buying Sunward to advance Alaska project

NovaCopper (TSX: NCQ; NYSE-MKT: NCQ) is acquiring Sunward Resources (TSX: SWD; US-OTC: SNWRF) for the cash it has in its vault — not just its gold project in Colombia.

“We view it as a financing,” NovaCopper’s president and CEO, Rick Van Nieuwenhuyse, says of the transaction, explaining that the US$23 million Sunward brings to the table will fund work on its flagship Arctic and Bornite copper-rich polymetallic projects in Alaska.

“It certainly could be described as an ‘out of the box way to finance’ in this market, and that is exactly how we saw it.”

Under the agreement, Sunward shareholders will receive 0.3 of a NovaCopper share for each Sunward share they hold. If the transaction is completed, NovaCopper’s shareholders would own 58% of the combined entity, and Sunward shareholders, 42%.

Van Nieuwenhuyse says the company could spend US$10 million of Sunward’s cash on its Alaskan projects this year, and the same amount next year.

The next step is to decide whether to focus all of the mid-year field program on the Arctic project, or split the money, because the company believes there are synergies between the deposits that need to be evaluated. One of the priorities, however, will be more infill drilling at both projects.

Sunward’s cash should at least push Arctic past the prefeasibility stage, and help NovaCopper complete a feasibility study within the next two to three years, Van Nieuwenhuyse estimates.

Most of the resources at Arctic are already in the measured and indicated category, he says, so the company only needs to drill another 4,000 metres to turn the lion’s share of the open-pittable resource into the measured and indicated category.

The Arctic deposit is NovaCopper’s most advanced project on its 1,430 sq. km land package in Alaska. A preliminary economic assessment completed in July 2013 outlined a 10,000-tonne-per-day conventional grinding mill and flotation circuit that would make copper, zinc and lead concentrates with significant gold and silver by-products.

The mine, which would be built at an initial cost of US$717.7 million, would produce 125 million lb. copper, 152 million lb. zinc, 24 million lb. lead, 29,000 oz. gold and 2.5 million oz. silver a year over a 12-year mine life.

The PEA estimated an after-tax net present value at an 8% discount rate of US$537.2 million and a 17.9% after-tax internal rate of return.

Arctic’s indicated resource stands at 23.8 million tonnes grading 3.3% copper, 4.5% zinc, 0.8% lead, 0.71 gram gold per tonne and 53.2 grams silver per tonne. Inferred resources add another 3.4 million tonnes averaging 3.2% copper, 3.8% zinc, 0.6% lead, 0.59 gram gold and 41.5 grams silver.

“We’re approaching 10 billion lb. copper, but Arctic is interesting because there’s actually more zinc than copper there, and zinc is a metal that some are more infatuated with, given the shrinking supply of zinc, with all the big mines shutting down,” Van Nieuwenhuyse says. “And with zinc hovering at about US$1 per lb., it will add a lot of value.”

In addition, Arctic contains 60 million oz. silver and a little over half a million ounces of gold, so “there could be royalty or streaming deals on those as a possible financing tool.”

Meanwhile, at Bornite, the company has delineated an indicated in-pit resource of 14.1 million tonnes grading 1.1% copper at a 0.5% copper cut-off, and an inferred in-pit resource of 109.6 million tonnes averaging 0.9% copper. Bornite’s below-pit inferred resource stands at 55.6 million tonnes of 2.8% copper at a 1.5% cut-off grade.

“Bornite is significantly larger as an open pit, albeit lower grade, but it could also be a combined open-pit and underground operation,” Van Nieuwenhuyse says. “We want to be prudent and not try to develop too big a mine right off the bat, so it would be a staged development, like an open pit at Arctic, followed by an open pit at Bornite, followed by an underground operation at Bornite.”

He argues there’s a lot of exploration upside at its two projects, as well as at other targets on its property in the Ambler district. “Arctic is a VMS deposit containing sulphide minerals of copper and zinc hosted by a specific set of favourable stratigraphy,” he explains. “We have demonstrated that this stratigraphy rolls over in a large recumbent fold that underlies the open-pit section, so that represents an excellent deeper drill target and further upside as a potential underground deposit. It certainly represents significant upside right at Arctic.”

There is also another 100 km of favourable VMS stratigraphy along the entire Ambler belt. Van Nieuwenhuyse estimates there are two dozen massive sulphide occurrences along that same stratigraphic horizon, and many of them have historic resources.

“Back in the 1970s and 1980s, Noranda, Cominco, Anaconda — the big mining companies of yesteryear — worked in the district extensively and developed historic resources,” he says. “So there’s lots of other things to look at in the VMS belt.”

As for upside at Bornite, the underground resource is wide open along a kilometre-wide front at the north end of the deposit.

The company also wants to evaluate its Partner Hill target, 2 km west of Bornite. “It’s a great geo-chem target,” he says. “There was some work done in the 1960s, but it hasn’t been looked at since.”

While Van Nieuwenhuyse says Sunward’s wholly owned, low-grade Titiribi project, 70 km southwest of Medellin in Colombia’s Department of Antioquia, is not a priority, he doesn’t rule out advancing it one day.

While it would have to wait for a better gold price environment before it would be economic, Titiribi nevertheless provides the company with an “option” on gold, as well as significant exposure and leverage to additional gold and copper in Colombia.

“It’s a relatively large asset and relatively low grade, and has some copper too, so in a different price environment it might be something to dust off and take a look at,” he says. “So we’ll maintain it for the time being … it’s been well drilled and defined.”

Titiribi has been drilled to a depth of between 200 and 300 metres. “There’s been a substantial amount of money spent at Titiribi over the years, and it represents a good option on gold,” he says. “We think there are other untested exploration targets that are near-surface gold targets, but we also like its potential for a deep porphyry system.”

Titiribi has a measured and indicated resource of 285.8 million tonnes grading 0.50 gram gold per tonne for 4.6 million oz. gold, and an inferred resource of 349.4 million tonnes grading 0.53 gram gold for 6 million oz. gold. Both resource calculations used a cut-off grade of 0.3 gram gold per tonne.

All of the mineralization is hosted in near-surface or paleo-surface breccias that could be related to a porphyry, Van Nieuwenhuyse says. “There’s a lot of evidence to suggest that it’s part of a deep porphyry system, given the district-scale alteration … the breccias outcrop on the top of the mountain, and that’s the only thing that has been drilled.

“The porphyry, no doubt, is at depth, and hasn’t been targeted at all, so it would require deeper holes,” he adds. “But it’s something that we will develop as a target, and look at potential j
oint-venturing on.”

Over the last year, NovaCopper has traded in a range of 52¢ to $1.35 per share. At press time it traded at 67¢. The junior has 61 million shares outstanding.