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Analyst Commentary: Yellowhead Mining Harper Creek Copper Project Feasibility Study Shows the Potential for an Economically Robust Copper Mining Operation

Yellowhead Mining’s (TSXV:YMI) recently released Harper Creek Copper project feasibility study shows the potential for an economically robust copper mining operation based on long term average copper prices of $2.50 per lb copper.  Copper is currently trading at $3.76/lb.

World copper demand is forecasted to grow at about 4% per year. That means globally we will need to produce an additional 800,000 tonnes of copper per year (according to data taken from Kitco.com).  Put another way; that translates to 13 Harper Creek-Sized mines that need to be put into production every year, just to keep pace with increasing copper demand. That’s in addition to replacing old mines that are running out of copper ore.

Based on these statistics, it is obvious that a continued deficit in copper supply and low inventory will continue to buoy the copper price and bode well for quality copper projects coming on stream.

The Harper Creek Project is a copper-gold-silver volcanogenic sulphide deposit located in south-central British Columbia, approximately 150 kilometers by highway north of Kamloops. It is a low-grade bulk tonnage deposit that has the potential to produce 130 million lbs of copper per year for a mine life of 28 years. The average copper grade is 0.262% or 5.77 lbs of copper per tonne of rock.  At today’s copper price that means the gross value of one tonne of rock is $21.69 (ignoring gold and silver credits and metallurgical recoveries). The current feasibility study indicates that each tonne of rock can be mined and milled for a life of mine cost of $6.88. This does not include transportation or smelter charges.

The market is often wary of large low grade deposits since they are very sensitive to commodity price and often come with a hefty price tag to put into production.  Given the fact that the Harper Creek deposit has excellent access to infrastructure; (it is just 8 km south of the Yellowhead Highway with access to CN rail line and BC Hydro lines), the project is much more attractive than if it was in the middle of nowhere.

When we compare Harper Creek with the Copper Mountain project, (another low-grade copper deposit which was just put into production last year), it is easy to see the potential future value of Yellowhead Mining as it moves Harper Creek towards production.

Copper Project Comparison

Harper Creek

Copper Mountain

Ownership

100% Yellowhead Mining

75% Copper Mtn

25% Mitsubishi

Location

124 km NE of Kamloops next to town of Vavenby BC

20 km south of Princeton BC

Share Structure

53.3 million shares outstanding

71.6 million Fully Diluted

98.4 million shares outstanding

103.2 million fully diluted

Current Share Price

$0.79

$4.18

Current Market valuation per lb Payable CopperNot including by-product credits

$0.01/lb of payable copper

3.63 Billion lbs payable copper

$0.36/lb payable copper

1.10 billion lbs Payable Copper

Infrastructure

Excellent: road, rail and hydro accessible

Excellent: road, hydro accessible

Capital Cost

$838.95 Million

$438.5 million

Mining rate per day

70,000 tonnes per day

35,000 tonnes per day

Average forecast Production

130 million lbs Copper per year

85 million lbs Copper/ year

Secondary Metals

Gold and Silver

Gold and Silver

Life Of Mine (LOM)

28 years

17 years

Life of Mine Cash (on site )Costs per lb Cu net of by-productsDoes not include transportation and smelter costs

US$0.95/lb Cu

US$1.18

Tonnes of ore (Proven and probable)

704.4 million tonnes

194.6 million tons

Copper grade & (Metallurgical recovery)

0.262% Copper (89.6% recovery)

0.36% copper (89% recovery)

Concentrate Grade

25.5%

30%

Gold grade

0.029 g/t Au (57.9% recovery)

0.09 g/t Au (48.8% recovery)

Silver grade

1.14g/t Ag (66.8% recovery)

1.25 g/t Ag (66% recovery)

Feasibility NPV (pre tax)

$749.7 million (8% discount rate) 2012

$346.9 million (10% discount rate) 2009

Life of Mine average Commodity Price Assumptions

US$2.50/lb Cu,

US$1250/oz Au

US$20/oz Ag

US$1.80/ lb Cu

US$900/oz Au

US$12/oz Ag

Exchange Rate (LOM)

US$0.86:CAD$1

US$0.80:CAD$1

The chart above compares data from the feasibility studies published from both projects. The Copper Mountain mine is currently in production and is quite profitable.

Harper Creek’s copper grade and concentrate grade are slightly lower when compared with Copper Mountain but this is negated by Harper Creek’s economy of scale with double the production rate and 3.6 times the resource.

The copper concentrate at both projects is clean and highly sought after by smelters. That is one of the main reasons why Mitsubishi purchased 25% of Copper Mountain and helped finance the mine into production: to secure a supply of high quality concentrate to blend with lower quality concentrates at its smelters. This improves economic recoveries of copper at the smelter.

Testwork carried out by in 2011 demonstrated that concentrates at Harper Creek could be upgraded to above 30% copper but that at 25.5%, copper recoveries were over 90% which represented better economics at current metal prices.

Harper Creek is strategically located to deliver copper concentrate to Pacific Rim Asian smelters. The concentrate is highly marketable and is considered to be low in deleterious elements. Concentrate from the project site will be trucked from the mine site approximately 20km to the rail head at Vavenby, and temporarily stored until loaded onto rail by CN for transport to the Port of Vancouver, an approximate rail distance of 560km.

Currently Yellowhead Mining is in the process of working through the permitting stage of development and will continue to investigate opportunities to improve the project’s economics. Management will proceed with financing and strategic partnership discussions as detailed engineering work on the project continues.

Bottom Line

Yellowhead Mining has a 100% interest in the Harper Creek l copper deposit which lies next to excellent infrastructure. The positive feasibility study indicates a robust operation at current commodity prices and a clean concentrate will be in high demand by smelters. As the project continues to be de-risked as it moves through the permitting and financing stages of development, its value will undoubtedly increase.

 

Yellowhead Files Harper Creek Feasibilty Study on SEDAR

Results from the Feasibility Study were previously announced on March 2, 2012. The Feasibility Study confirms the technical and financial viability of constructing and operating a 70,000 tonne-per-day copper mining and processing operation at Harper Creek.

Read the full article: “Yellowhead Files Harper Creek Feasibilty Study on SEDAR” 

Return to the Yellowhead Mining educational profile 

 

THOMAS SCHUSTER, ANALYST 

With a degree in Geological Sciences from the University of Toronto, Thomas started his career in the 1990s as an exploration geologist in the famous Timmins mining camp in Northern Ontario. He then moved to Vancouver and took a position as staff Journalist at the well-known mining publication, The Northern Miner, reporting the merits and shortcomings of Canadian exploration and mining projects worldwide. This built a foundation for his later work as a Mining Analyst for the Toronto-based institutional investment firm, Fraser Mackenzie. Thomas is currently based in Vancouver working as an independent mining analyst.

Disclosure: No positions at time of writing.


Yellowhead Mining is a client of Dig Media. Dig Media was paid a fee for the creation and dissemination of this commentary.