Quaterra picks up past producer in Nevada

The 1970s were not kind to the Anaconda Copper Company. Its properties were expropriated in Chile and the company was eventually taken over by Arco, an oil and gas company that wasn’t interested in the copper producer’s mineral assets, which included the estimated four billion pounds of copper remaining at its open-pit mine in Yerington, Nev., about 80 km southeast of Reno. 

A bankruptcy court awarded Quaterra Resources (QTA-V, QMM-X) Anaconda’s former Yerington property in 2007 – now owned by Aritmeco Inc. – and Quaterra spent the following three years conducting due diligence on the legal and technical issues of the property and its environmental liabilities (it is a U.S. Environmental Protection Agency Superfund site but is not on the National Priority List), before announcing last week that it would purchase it for US$500,000 in cash, 250,000 shares in shares, and a 2% net smelter return royalty capped at $7.5 million.

Thomas Patton, Quaterra’s president and chief executive, says the first priority will be to convert and expand the historic resource estimate. The open pit produced 1.7 billion lbs. copper from 104.8 million tons of oxide ore and 58.6 million tons of sulfide ore for 25 years before it was shut down due to low copper prices in 1978.

Quaterra estimates that the remaining copper in and around the Yerington pit at a cut-off of 0.2% copper includes 97.8 million tons with an average grade of 0.356% copper containing about 696 million lbs. copper within the original pit design. The company also reckons there is an additional 22.8 million tons of material adjacent to the pit with an average grade of 0.30% copper containing 136.8 million lbs. copper.

Along with the property comes Anaconda’s database that includes collar locations, rock types, and geochemical assays of 760 historic drill holes. It also includes most of the historic drilling data for the Bear deposit in the northeast corner of the property, about 4 km north of the open pit.

Anaconda discovered the Bear deposit in 1961 during condemnation drilling in its sulphide tailings disposal area and it has an historic resource estimate of more than 500 million tons of material averaging 0.4% copper.

Quaterra’s wholly owned subsidiary, Singatse Peak Services, or SPS, will validate the historic drilling during a two-year program to complete a National Instrument 43-101 resource estimate and technical report on the project.

“We’re going to start with the pit and we think we’ll be drilling before the end of the second quarter,” Patton said in a telephone interview discussing the acquisition. “We’ll twin about fifteen holes at the pit and incorporate them into the database around the pit and then we’re just going to start moving north. We can’t wait to get at the Bear and several other targets.”

The Bear deposit has a footprint of about 3.2 km by 4.9 km. Some of the mineralization is fairly shallow, some of it quite deep, some high-grade and some low-grade.

One hole Anaconda drilled that has Patton particularly excited returned 702 continuous metres (2,300 ft) of 0.45% copper mineralization that “just smacks of a big system,” he said.

The fact that there has been little exploration on the property since 1978 has Quaterra’s management and exploration team very excited.

But what also excites them is the ease of permitting a past-producing mine. “With the realities of permitting in the United States today, it’s a lot easier to permit a mine where there’s been a mine before,” Patton pointed out, adding that the company has 2,623 metres (8,600 ft.) of water rights.

“The question isn’t so much anymore whether there are economic resources of copper,” he continued. “It’s where you can get into production within a five-year window.”

While he admitted it’s difficult to predict with any certainty how long it will take to get the property into production, he said five years appears reasonable. “We’ve got to drill, do a prefeasibility and a bankable feasibility. It all takes time,” he said. “You can argue about how long in absolute terms but I think it’s safe to say that the time to production is going to be less out there at Yerington that at most other copper exploration projects at a comparable stage.”

As for any environmental liabilities on the property, the purchase agreements were completed with the U.S. E.P.A., Nevada state agencies and the Atlantic Richfield Company (the previous owners of Anaconda) to define, limit and protect the company from existing liabilities and allow access to
explore.

“We’re confident that it won’t be put on the National Priority List for at least the next two years,” Patton explained, “so we’ve got a two-year window that this thing has the potential to go the route of a mine and if so, that’s not a bridge we have to cross. Why would anyone want to spend taxpayer money on it if it could be fixed privately… the preferred alternative for most people is, let us explore, and if we can find a new mine out there, it could take care of all the outstanding environmental problems.

“If we drilled for two years and were unable to find an economic concentration of copper, we could honestly tell the authorities involved that this isn’t for us, we’re out of here and they still have all the options available to them that they have now.”

As for where copper prices might be headed, Patton says that, while mining is a cyclical business with prices going up and down, the supply-demand fundamentals for copper over the near term are going to be tight simply because a lot of the old workhorse mines are wearing out.

“How do you replace these things when it takes so long and it’s so expensive to build new mines?” he asked. “And with rising resource nationalism and all these environmental issues, you may be able to argue that in twenty years there might not be a [copper supply] problem, but I would say it’s going to be pretty tight for the next ten years.”

In addition to its latest acquisition in the Yerington copper mining district, Quaterra already owns the extremely large, low-grade MacArthur deposit nearby. Mac-Arthur is a stand-alone, fully stripped copper oxide deposit with potential for expansion. Since 2007, Quaterra has drilled more than 36,600 metres (120,000 ft) at MacArthur and believes that it can be a low-cost, open-pit, run-of-mine, heap-leach project with a short timeline to production.

Quaterra updated the project’s resource estimate in December 2010. It currently has a base case measured and indicated oxide/chalcocite resource of 143.7 million tons averaging 0.192% total copper for 551.6 million lbs. contained copper.

The inferred oxide/chalcocite resource measures 215.0 million tons averaging 0.197% total copper for a contained 846.8 million lbs. copper, while the inferred primary sulfide resource of 74.1 million tons averaging 0.256% total copper contains 379.5 million lbs. copper.

The combination of Anaconda’s former open-pit mine and the Bear deposit along with the MacArthur project now gives Quaterra about 42 km (26 miles) of property “right in the middle of what I think is going to be a prolific and expanding copper camp in the most mining-friendly state in the U.S.,” Patton said.

In Toronto at presstime, Quaterra was trading at $1.56 per share and over the last year has traded in a range of $1.05 and $2.08 per share.