Fish Lake reserves estimated to top billion-ton level

With the results from the remaining holes of the drilling program on the Fish Lake property in southcentral British Columbia now in hand, Taseko Mines (VSE) estimates the deposit contains 1.265 billion tons grading 0.22% copper and 0.012 oz. gold per ton.

The new reserve estimate is based on a total of 120 drill holes and a copper-equivalent cutoff grade of 0.3%.

At a 0.4% cutoff, preliminary mineral reserves are estimated at 979 million tons grading 0.25% copper and 0.013 oz. gold.

Boosting the cutoff grade to 0.5%, the reserve estimate drops to about 739 million tons grading 0.28% copper and 0.015 oz. gold.

Taseko is attempting to find a buyer for the property under an option deal with Cominco (TSE). If a buyer is not found by May 31, 1995, the property reverts back to Cominco with Taseko retaining a 20% net profits interest. According to the property agreement, Cominco will receive 40% of the proceeds from any sale up to a maximum of $48 million.

Given the current price of Taseko’s common stock at about $13 and the 10.7 million shares outstanding (fully diluted), the Fish Lake property is currently valued at about $190 million.

A takeover premium, plus a capital cost measured in the hundreds of millions of dollars, puts a steep price on any potential mine at the property. Taseko is, however, projecting a healthy profit margin for the deposit.

The company notes that the Fish Lake reserves have a net smelter return in the range of $8 per ton compared with average cash operating costs for British Columbia open-pit copper producers at about $4.

Robert Dickinson, president of Taseko, said the net smelter return value is based on copper recoveries of 88%, gold recoveries of 73%, a copper price of US$1.15 and a gold price of US$350 per oz., an 80 cents exchange rate and smelter net backs (after charges and transportation) of about 96% for gold and 60.5% for copper.

The estimate used copper and gold grades at a 0.4% cutoff.

Dickinson stressed that smelter rates are volatile and the figures are only estimates.

While in the process of searching for a buyer, the company is proceeding with its feasibility, engineering and permitting programs for a large-scale open pit copper-gold mine.