Highland Copper buys Copperwood, builds ‘critical mass’ in Michigan

Just three months after Highland Copper (TSXV: HI; US-OTC: HDRSF) worked out a deal to buy the White Pine copper project in northern Michigan from a subsidiary of First Quantum Minerals (TSX: FM; US-OTC: FQVLF), the Quebec-based company is back at it — enlarging its footprint in this prospective northeastern corner of the U.S. with the acquisition of Orvana Minerals’ (TSX: ORV; US-OTC: ORVMF) Copperwood copper project.

The shovel-ready Copperwood project in Michigan’s Upper Peninsula is 30 km southwest of the White Pine project. White Pine lies 100 km northeast of Highland Copper’s Keweenaw project, which encompasses 36.4 sq. km of ground and includes the historic deposits 543S and G-2.

Copperwood has all major permits in place and could be in production by late 2015.

In a statement David Fennell, Highland’s executive chairman, said the acquisition is part of a strategy to consolidate “an emerging copper district in the Upper Peninsula of Michigan,” and that buying both Copperwood and White Pine, along with its existing projects, “establishes the foundation for an emerging intermediate copper producer.”

Mining analysts Mike Carew and Stefan Ioannou of Haywood Securities note that the Copperwood acquisition “adds another significant component to the Highland story” and say they would “not be surprised to see the Upper Peninsula ‘critical mass’ that the company is in the process of assembling garner the attention of mid-tier base-metal producers looking to grow their own production profiles in a stable mining jurisdiction with established infrastructure.”

Under the deal, Highland will pay Orvana up to US$25 million. Of that amount, US$20 million will be paid in cash on closing and US$5 million will be paid in cash or Highland shares, at Orvana’s option.

The definitive agreement has been approved by the boards of both companies.

Orvana said it will use the proceeds of the sale to repay a $2.7-million loan from its major shareholder and invest in organic growth at its existing operations. The funds will also be used for working capital. Orvana’s primary asset is the El Valle-Boinas–Carles gold–copper mine in northern Spain. It also owns and operates the Don Mario Upper Mineralized zone copper–gold–silver mine in Boliva.

In a conference call, Orvana’s president and CEO Michael Winship, dialling in from the mountains of northern Spain, said the company has focused for the last 18 months on repaying debt from operating cash flow, and that the sale is strengthening Orvana’s balance sheet. He added that strategically, the divestiture allows Orvana to focus on organic growth opportunities at its existing operations and in the surrounding areas, as well as consider other growth opportunities that could help the company better leverage its operations.

“We believe that the acquisition of the Copperwood project is a better strategic fit for Highland, together with its previous announced acquisition of the White Pine project and its existing Keweenaw project,” he continued. “Certainly we believe Copperwood will be a good mine . . . however we want to focus our exploration and production growth in and around our mines and within the geographic regions of Europe and South America.”

A feasibility study on Copperwood completed in February 2012 envisioned a 13-year underground operation using conventional drill-and-blast methods and room-and-pillar mining.

Over its mine life Copperwood is expected to produce 1.5 million short tons of copper concentrate. That works out to 28,000 tons of copper a year at a milling capacity of 7,500 tons per day. Copper would be extracted by conventional flotation, and life-of-mine direct operating cash costs were estimated at $1.26 per lb. net of silver credits. The two-year-old study forecasts pre-production capital, including contingencies of US$213.5 million and working and sustaining capital of US$167.1 million.

Based on a copper price of US$2.75 per lb. and a silver price of US$20 per oz., the feasibility study calculated that at a 5% discount rate, Copperwood’s after-tax internal rate of return would be 17.2%; its after-tax net present value US$163.1 million; and its payback of invested capital 5.2 years.

Copperwood is a stratiform copper deposit hosted by shales and siltstones of the lowermost Nonesuch Formation along the shallow-dipping southern limb of the westward-plunging Western Syncline. The copper occurs as fine-grained chalcocite.

Copperwood’s proven reserves stand at 23.1 million short tons grading 1.46% copper and 3.98 grams silver per tonne, and its probable reserves are 7.1 million short tons grading 1.21% copper and 3.63 grams silver per tonne.