Copper Fox adds tonnes to Schaft Creek while waiting for economics

VANCOUVER — Copper Fox Metals’ (CUU-V) 70%-owned Schaft Creek deposit is even bigger now thanks to a resource update, but it will still be months before its known how feasible the project actually is.

The measured and indicated resource now stands at 1.23 billion tonnes grading 0.26% copper, 0.017% molybdenum, 0.19 gram gold per tonne and 1.69 grams silver per tonne for 7.1 billion lbs. copper, 455 million lbs. moly, 7.4 million oz. gold, and 66.7 million oz. silver. Inferred resources add 597 million tonnes grading 0.22% copper, 0.016% moly, 0.17 gram gold, 1.65 grams silver.

The updated resource adds roughly 22% in terms of tonnage compared with the July 2011 resource, which totalled 1.01 billion tonnes grading 0.27% copper, 0.017% molybdenum, and 0.18 gram gold, while silver was not included in the earlier resource.The added tonnes and silver component were enough to prop up Copper Fox’s share price by 17¢ to $1.18 with 1.2 million shares traded.

The new resource uses a 0.15% copper equivalent cut-off, which is the minimum estimated grade required to break-even on an operating cost per tonne basis. The previous resource estimate had a calculated break-even point of 0.12% copper equivalent, but Copper Fox used a more conservative 0.2% cut-off to “optimize the economics”.

With the previous resource already counting total tonnes into the billions, there’s no question Schaft Creek is a monster deposit. But overhanging the story is the question of when investors will know how economic the project really is.

The company put out a preliminary economic assessment in late 2007 that outlined total capital costs of $1.4 billion for a 65,000-tonne-per-day open-pit mine, plus $337 million in working, sustaining, and closure costs. By September 2008 the company had completed a prefeasibility study on a 100,000-tonne-per-day mine, and initial capital costs had ballooned to $2.95 billion, plus $797 million in sustaining costs.

It wasn’t until almost a year-and-a-half later, in January 2010, that the company contracted Wardrop to complete a feasibility study on a 120,000-tonne-per-day mine, which Copper Fox expected to be done by the end of 2010. The company then put out a release in June 2010 emphasizing it was “on track” to having the study done by the end of the year.

The feasibility study, however, was not finished by the end of 2010. And since then Copper Fox has been forced to push back the expected completion date to June 2011, the end of 2011, end of first quarter 2012, and now the company is working with “midsummer to late summer, 2012” as the expected timeframe for the study.

Making the delay in the feasibility all the more interesting is that Teck Resources (TCK.B-T, TCK-N), which optioned the property to Copper Fox in 2002, has an earn-in right that is triggered when the feasibility study is completed. Teck will have 120 days after the study is done to decide whether it wants to earn back 20%, 40%, or 75% of the project by spending one, three, or four times what Copper Fox has spent on the project, which at the end of January totally $74.8 million. If Teck chooses to earn 75% it will also be responsible for arranging full project financing.

Completing the feasibility study also trigger a clause that will give Copper Fox Teck’s 78% interest in Liard Copper Mines, which holds a 30% carried interest in the original option property and would give Copper Fox another 23.4% interest in the property. Royal Gold (RGL-T, RGLD-Q) also has a 3.5% net profits interest in the original 83.3-sq.-km property.

And while the study has continued its slow forward progression, Mexican investor Ernesto Echavarria has been accumulating more and more Copper Fox shares and now controls 211.2 million of the 388 million total shares outstanding.

The bulk of those shares came thanks to a well-timed deal in 2009 where for a $5-million investment he secured 88.9 million shares and an equal number of warrants exercisable at 7.5¢ each. Throughout 2010 he exercised those warrants as the company climbed from its all-time low of 4¢ to a high of $2.75 in early 2011.

Echavarria has since continued to personally bankroll capital-deficient Copper Fox, which at the end of January had $2 million in working capital and a $14.6 million deficit. In the past year Echavarria has been the sole participant in four separate financings totalling $13.2 million, at unit prices ranging between $1.10 and $1.50, and in January he was paid 1.3 million shares to repay a $1.4-million load owed to him by the company.

The company might have to soon ask Echavarria for more though, having outlined a $10-million 2012 exploration program for Schaft Creek.