For Terrane and Goldcorp it’s crunch time on Mt. Milligan

Vancouver – The question on many analysts minds during a Terrane Metals (TRX-V, TRXOF-O) conference call addressing a revamped feasibility study of the company’s Mt. Milligan copper-gold project Thursday, Oct. 15, was: What will Goldcorp (G-T, GG-N) do?

The answer from Terrane president and CEO Robert Pease was: We’ll have to wait and see.

Goldcorp has the option to convert its 60% fully diluted equity stake in Terrane into a direct joint-venture interest of the Mt. Milligan project, a project now boasting the second largest gold reserve in Canada according to Pease.

The deadline on the one-time option is fast approaching, a date which falls in early January, 2010, Pease said. Terms of the option agreement, which accompanied a $40 million loan (so far about a third drawn) extended to Terrane with the backing of Goldcorp a year and a half ago, allow Goldcorp to take between a 30% and 60% joint-venture stake of Mt. Milligan in exchange for a proportional conversion of its equity stake.

“If I can put on an imaginary Goldcorp hat for a moment,” Pease told analysts, “we gotta now see how this project fits into (Goldcorp’s) pipeline and their strategy for growth. I think that’s really the question of the day.

“And we all know their pipeline isn’t empty,” Pease continued. “And they are big projects and there’s only so much capital to go around.”

While Pease was careful during the conference call not to draw any definitive conclusions about Goldcorp’s intentions, he noted that so far they have been highly supportive of the Mt. Milligan project. As an example of that support he pointed to comments in Terrane’s press release about the revamped feasibility study made by Goldcorp president and CEO Chuck Jeannes.

“We are very pleased with the Feasibility Update Study,” Jeannes stated. “Not only did it hold the line on costs but it also significantly boosted reserve ounces and mine life. Terrane has clearly grown Mt. Milligan into a major, construction-ready, copper-gold project with an opportunity for outstanding net operating margins. Goldcorp, as majority shareholder, remains committed to working closely with the Terrane Board of Directors to unlock value for all shareholders at Mt. Milligan.”

As a shareholder Pease noted that Goldcorp, whatever it decides to do with the Mt. Milligan option, won’t want to undercut the value of its stake in Terrane. Pease said Goldcorp is in it with the rest of shareholders and that “they don’t want to do anything that will destroy the company. They don’t want to put themselves into a writedown situation.”

The revamped feasibility study undoubtedly gave an attractive outline to the Mt. Milligan project, one that boosted Terrane’s shareprice 8¢ to 78¢ (the company has 123.2 million shares outstanding and 407 million shares fully diluted).

The updated look at the Mt. Milligan project grows the project’s copper and gold reserves by more than 30% to 482 million tonnes grading 0.2% copper and 0.39 gram gold per tonne. With additional reserves came a 45% longer mine-life of 22 years and capital costs of $915 million.

The 60,000-tonne-per-day proposed mine would be a conventional open pit mine using a typical flotation circuit to produce a concentrate grading 26.4% copper and 43.3 grams gold per tonne.

Addressing the mine plan during the conference call Pease emphasized the higher grade gold aspect to an initial operation at Mt. Milligan that Terrane developed in the updated feasibility study. During the first six years of operation gold would account for 55% of revenue; gold production would hit 262,000 oz. per year while yearly copper would come in at 89 million lbs.

Over the 22-year life of mine Terrane estimated gold production at 194,000 oz. gold per year and copper production at 81 million lbs.

The base case scenario in the updated feasibility study used US$2-per-lb. copper and US$800-per-oz. gold. and accordingly returned a net present value of just over $1 billion and an internal rate of return of 17.4%. Payback would come after about 4 years and cash costs would average US$51-per-oz. gold net of copper credits.

Concentrate from Mt. Milligan, 155 km northwest of Prince George, B.C., would be trucked about 80 km to a loading site just north of Fort St. James where it could be transported by train to Asian-bound cargo ships in Vancouver.

In his address to analysts during the conference call Pease underlined the fact that the project is close to being fully permitted. The B.C. provincial governments approved the project in March 2009 and issued a Mine’s Act permit in Sept. 2009. Futhermore, Pease said, he expected the federal government to approve the project in the fourth quarter of 2009, with a few residual permits to follow in the first quarter of 2010.

If all goes well – both in terms of permitting and financing – Pease forecasted that the Mt. Milligan project could be fully commissioned in 2012 and reach full production in 2013.

But what happens if Goldcorp doesn’t enter into a joint venture? Pease said Terrane would consider its options, including other taking on other partners. He also noted that Mt. Milligan has been well received in the debt market.

Yet the moment Terrane won’t be shopping around for alternative financing, at least not until Goldcorp makes up its mind. On that note Pease said: “We’re looking forward to clarity from Goldcorp on their longterm intentions.