Schaft Creek twice the price for Copper Fox (September 29, 2008)

Vancouver — Copper Fox Metals (CUU-V, CPFXF-o) has both upped the size and doubled the capital cost of its Schaft Creek, copper-gold project, about 300 km north of Prince Rupert, B. C., with the release of a delayed prefeasibility study.

A 2007 preliminary economic assessment had considered a 65,000- tonne-per-day scenario with capital costs coming in at around $1.4 billion. But the prefeasibility study for Schaft Creek increases the milling rate to 100,000 tonnes per day and pegs capital costs at about US$2.95 billion.

Copper Fox president and CEO Guillermo Salazar says the revised figures come in light of cost overruns and subsequent suspension of construction of the similarly sized Galore Creek project in November 2007. As NovaGold Resources (NG-T, NG-x) and Teck Cominco (TCK. B-T, TCK-n) began to develop Galore, projected construction costs ballooned, potentially more than doubling the capital costs to about $5 billion.

Since then, NovaGold and Teck have gone back to the drawing board and plan on releasing a revised feasibility study in the fourth quarter of 2009.

Events there were a major reason for the delay in Copper Fox’s release of its Schaft Creek prefeasibility study. Salazar says Copper Fox wanted to ensure the robustness of its figures.

“We’ve gone through the numbers once, twice, and over and over,” Salazar says. He notes that volatilities in the labour market, among other factors, are a big reason for the inclusion of a US$536-million contingency fund figure.

As for the change in the scale of the project, that comes on recommendations made in the preliminary economic assessment.

“Thirty three years of a measured and indicated resource is too much,” Salazar says, referring to the mine life in the 2007 preliminary economic assessment.

The latest permutation of the plan drops the mine life down to 23 years. Over that span of time, Copper Fox expects to produce 4.76 billion lbs. copper, 255.2 million lbs. molybdenum, 4.5 million oz. gold and 32.5 million oz. silver.

The prefeasibility study forecasts an after-tax 15.3% internal rate of return, a net present value of US$1.6 billion at a discount rate of 8%, a payback period of 4.9 years and sets the production date as the fourth quarter of 2013. It puts cash operating costs at US$12.49 per tonne.

Forecasts were based on US$3.12 per lb. copper, US$33 per lb. moly, US$693 per oz. gold and US$13 per oz. silver.

Copper Fox optioned Schaft Creek from Teck Cominco. As it stands, Copper Fox has earned a 70% stake in the project and can earn an additional 23.4% if it finishes a positive feasibility study. But within 120 days of the feasibility study, Teck can buy back 20% if it matches Copper Fox’s spending, 40% if it pays three times the junior’s costs and 75% for four times its spending.

At the moment Copper Fox is in the midst of moving the project to feasibility by mid-2009, a goal that Salazar says the company is still on target to meet.

And as for share price, on any other day Salazar might consider a 1 drop (to close at 19) an extremely poor showing. But with news of the Merrill Lynch buyout and the Lehman Brothers bankruptcy rocking the boat recently, he says, “I guess it’s not so bad.”