Terrane set to go with Mt. Milligan

VANCOUVER — Terrane Metals’ (TRX-V, TRXOF-O) Mt. Milligan is a go: a positive feasibility study for the mega copper-gold porphyry project in central British Columbia has Terrane envisaging production in 2012.

The study concluded a conventional truck-shovel open-pit mine and 60,000-tonne-per-day mill is economically and environmentally feasible to tap into Mt. Milligan’s 1.6 billion lbs. copper and 4.59 million oz. gold.

Now Terrane faces the prospect of finding the $917 million needed to get the project into production, plus an estimated $70 million to cover capital cost escalation.

Company president and CEO Robert Pease is certainly pleased with the result. Pease, a former Placer Dome executive, directed Terrane’s purchase of Mt. Milligan from Placer Dome when it was acquired by Barrick Gold(ABX-T, ABXN).

A Mt. Milligan mine would produce 88 million lbs. copper and 217,000 oz. gold annually over a 15- year mine life, using LME three-year rolling average metal prices of US$2.75 per lb. copper, US$600 per oz. gold, and an 89 exchange rate.

Production costs for 1 lb. copper, net of gold credits, average out to 64 or $7.12 per tonne milled. The project is expected to pay back the nearly $1-billion capital investment in 3.7 years through a pretax internal rate of return of 18.1%. Using an 8% discount rate, Mt. Milligan’s net present value (NPV) is $606 million.

Using current copper and gold prices, the project has an NPV of $1.5 billion and a 29.7% internal rate of return.

Mt. Milligan, which lies 155 km northwest of Prince George, in central B. C., hosts proven and probable reserves of 333.7 million tonnes grading 0.217% copper and 0.428 gram gold per tonne. The estimate was optimized at a US$4.20-per-tonne cutoff value and takes into account recoveries, concentrate grades, grade and mining dilution, and ore losses.

Terrane’s plan is to mill 60,000 tonnes per day using conventional crushing, grinding, and rougher and cleaner flotation circuits to produce a gold-rich copper concentrate. Coarse metallic gold will be recovered in a separate gravity concentrate and mixed with the final copper concentrate. Terrane worked to develop a simple and conventional single-line processing flow sheet.

Copper recovery is projected at 84.6% and recovery of gold at 72.3%. The final concentrate will grade 27% copper.

The Mt. Milligan deposit is a near-surface tabular body, making it well suited to low-cost, open-pit mining. Indeed, the strip ratio for the pit is expected to run at only 0.82:1. The mine production schedule foresees seven pushbacks and allows for early extraction of higher-grade reserves — in the first six years of mine life, production will average 97 million lbs. copper and 265,100 oz. gold.

For Terrane to attain its goal of production in 2012, the company will have to negotiate the remaining permitting hurdles just right. It still needs environmental approvals from both the provincial and federal governments. Both are expected to produce interim documents in the next few months, after which Terrane can apply for the final permits. The company also needs construction permits, which it expects by mid-2009.

A Mt. Milligan mine would create 400 permanent jobs over a 15- year mine life. And unlike many of

B. C.’s large-scale deposits, Mt. Milligan is not particularly isolated. It is connected to existing roads and railheads at the nearby communities of Fort St. James and Mackenzie. Mine employees will commute to the site daily from those towns. Concentrate will be trucked to the railhead at Fort St. James, then sent by rail to the port of Vancouver.

Power supply is not as simple. To connect to BC Hydro’s power grid, Terrane will have to build a 92-km, 230-kilovolt transmission line from the Kennedy substation. Part of the route follows an existing BC Hydro right-of-way. Permission to develop the power line would be included in an environmental assessment permit.

Terrane gained 3 on news of the positive feasibility study to close at 42. The company has a 52-week trading range of 32-95 and has 113.2 million shares issued. Goldcorp (G-T, GG-N) owns a 58% interest in Terrane, on a fully diluted basis.