It’s less than two years since Central Asia Metals (LON:CAML) acquired a 50% stake in privately-held Copper Bay, but as is the way with this stalwart of the junior mining sector, things have moved on pretty quickly since then.
Copper Bay holds rights over a 120,000 tonne copper resource spread out over 13 square kilometres of ground in the area of the Chañaral Bay in northern Chile.
The copper was deposited in mining waste dumped over a 40 year period into the Rio Salado, which runs into the bay from the Antofagasta region to the west.
“We’ve been working over the past 12-to-15 months on a pre-feasibility study,” says Robinson.
That’s now in, and the numbers have proved encouraging enough for Central Asia to commit a further US$3mln to the project to take it through the definitive feasibility stage, thereby taking Central Asia’s own stake up to 75%.
“A number of factors have encouraged us to make this decision,” says Robinson. “At US$88mln the capex is not exactly massive.”
Having said that, US$88mln is still more than the company’s flagship Kounrad project in Kazakhstan took to get going, and that’s proved such a wonderful money spinner. To date, the cash generated by Kounrad has allowed the company to pay back to shareholders more than two-thirds of the US$60mln that it raised on listing.
And there should be plenty more to come. It’s a level of return that has bought the company a lot of latitude and a lot of trust among its investor base, but which sadly will probably prove hard to match.
“The capex for Copper Bay is more than for Kounrad,” reflects Robinson. “But nothing is likely to match Kounrad.”
Instead, as Central Asia has gone on the hunt for new assets to invest its growing cash pile in, it’s been guided by some fairly simple parameters.
“We’re looking for projects that are in the right jurisdiction and in the lowest cost quartile,” says Robinson.
Chile is one of the world’s top tier destinations for copper mining, boasting companies of international standing in Codelco and Antofagasta, so Robinson’s first box is ticked.
And with costs at Copper Bay projected to come in at US$1.34 per pound of copper, so is the second.
But there’s plenty of work to be done yet before this project can get up and running, and a bit of fine tuning to the financials would certainly help move things along.
The pre-feasibility shows the project to have an NPV (net present value) of US$50mln and an internal rate of return (IRR) of 21%.
Robinson concedes that those aren’t “knockout” numbers, but points out that there is plenty of further upside. First off, on the basis of historic work, there’s every likelihood that the resource is three times bigger than the current official estimate. That could be game changer in and of itself.
But there’s more. The projected US$88mln capital cost includes US$11mln for a tailings management facility which, in the end, may turn out not to be necessary.
“The alternative is to put all the material back on the beach,” says Robinson, “instead of just the 90% of the material currently planned.”
That’s a fairly simple way of generating a big saving, and depends on working out what the most efficient and environmentally friendly options are – part of the bread and butter of any feasibility study.
Fine-tuning of the water and power options for the project could also deliver further savings.
All told, Robinson is pretty confident that for a minimal outlay Central Asia is getting good exposure to a project that ought to deliver a significant return.
And unlike some other companies in the sector, Central Asia is unlikely to encounter any issues with getting the funding in.
The current expansion programme at Kounrad, which will take production up to 15,000 tonnes of copper per year, is costing US$35 mln and has been funded entirely from existing resources.
For Copper Bay the company might want to turn to some external funding, although Robinson says nothing’s been decided yet.
“I would argue that about half could be done internally,” he says. “After that we could raise debt at the corporate level and clearly we’ve got fairly strong paper.”
Why is the paper strong? Precisely because investors trust Central Asia to share out the fruits of its labour as it has done with Kounrad.
The expectation is that even as expansion through the development of Copper Bay takes place that willingness to return funds to shareholders will continue, and on that basis, Central Asia is unlikely to encounter difficulties funding any deal that’s half decent.
“Fortunately we’ve under-promised and over-delivered,” says Robinson.