Copper Fox entices Teck Resources to form JV

Canadian diversified miner Teck Resources and TSX-V-listed Copper Fox Metals on Tuesday announced that they had formed of a joint venture (JV) to further explore and develop the Schaft Creek polymetallic project, located in north-western British Columbia (BC).

Under the terms of the agreement, which replaces a 2002 option agreement, Teck would hold a 75% interest and become the operator of the project, and Copper Fox would hold the remaining 25%.

Copper Fox president and CEO Elmer Stewart said the agreement gave Copper Fox immediate access to funds and a viable partner to continue the work it had done on the Schaft Creek property, without diluting its 25% interest in the Schaft Creek JV.

Part of the significance of the JV agreement was that it goes against the current in these market conditions, as about 70% on juniors were struggling to maintain $200 000 in the bank accounts required to maintain their listings on the TSX. With this deal signed, Copper Fox was cashed up, has the top BC operator on its side, and is financed to production, including having access to millions of dollars for exploration to unlock the project’s vast potential.

“From the outset the objective was to groom the project so that a larger company with operating and financial and development expertise could step in and take the project to production,” Stewart told Mining Weekly Online from Vancouver on Wednesday.

Teck would pay a total of $60-million in three payments, including $20-million upon signing the agreement, $20-million upon a production decision and $20-million upon the completion of the mine.

Teck would also fund all costs leading up to a production decision up to $60-million and reimburse Copper Fox $3.93-million for mineral tenure acquisition and other costs.

Copper Fox's share of any preproduction costs more than $60-million would be funded by Teck and the cash payments payable to Copper Fox would be reduced by the equivalent amount.

Teck had also agreed to use all reasonable commercial efforts to arrange project equity and debt financing for project capital costs of constructing a mining operation upon a production decision being made. It would fund Copper Fox's pro rata share of project capital costs by way of loans, if requested by Copper Fox, without dilution to Copper Fox's 25% interest.

“This partnership is a key milestone for Copper Fox Metals and reflects the spirit of the 2002 option agreement with Teck. The terms of the JV reflect the advanced stage of the project, and with Teck’s expertise in the development and operation of large mining projects and strong commitment to responsible mining we are confident the Schaft Creek project will continue to benefit the Tahltan people, local communities and shareholders,” Stewart said.

He pointed out that some of the biggest challenges the copper Fox team had to deal with since entering into the option agreement with Teck in 2002 was to figure out where the power lines would be constructed and securing port storage and shipment facilities.

“We have taken the project as far as we can, and Teck is the ideal partner to take the project forward, should a development decision be made,” he said.

Stewart noted that discussions with Teck had been going on for the past four to five months, “being more complex than some would give them credit for”.

The feasibility study, completed early in the year, built on four years of metallurgical and geotechnical work, and provided for an openpit mining operation that would process 130 000 t/d over a 21-year mine life, producing an estimated 4.88-billion pounds of copper, 4.21-million ounces of gold, 25.1-million ounces of silver and 214.92-million pounds of molybdenum.

The study placed a price tag of $3.25-billion on the project, including contingencies totalling $374-million, while sustaining capital expenditure was expected to total $1.24-billion over the proposed mine life, including $200-million for the BC Hydro tariff.

The project’s base-case pretax net present value was calculated using long-term metal prices and exchange rates and an 8% discount rate, as required by Teck Resources, at C$513-million and the internal rate of return is 10.13%, with a payback period of 6.5 years.

Stewart said the JV would as soon as possible start a 10 000 m diamond drilling programme on the untested eastern horizon of the Schaft Creek deposit, where preliminary test work had indicated another significant resource. The team would also focus on optimising the openpit design for stability.

The JV would likely make a development decision in 2014.

Copper Fox’s stock jumped 32% to trade at C$0.78 apiece on Tuesday afternoon.