“They are almost like two different metals,” says Nolan Peterson, as he talks about the unique properties of copper oxide and copper sulphide.
Processing is the key. Sulphide ores require crushing, grinding and a tailings facility, which means large-scale capital expenditure that can run into the billions of dollars.
Copper oxide, by contrast, is simpler and cheaper to process. It uses heap leaching combined with solvent extraction-electrowinning (very basic physics and chemistry).
The difference is worth knowing from the outset when assessing World Copper Ltd (TSX-V:WCU, OTCQB:WCUFF), where Peterson is chief executive. Oxide is cheap and simple to produce; sulphide is complicated and expensive.
This explains why the company chose to focus on the oxide portion of the Escalones deposit, which is sited 100 kilometres southeast of the Chilean capital Santiago, rather than the polymetallic sulphide portion of the asset.
Escalones analogue
For context here, an Escalones’ analogue development in Chile, called Marimaca, which released its preliminary economic assessment in September 2020, estimated the pre-production capital cost to get a mine up and running to be US$285 million.
Even if World Copper’s asset, which is larger than Marimaca at an estimated ‘inferred’ 426mln tonnes of copper oxide ore, was to end up costing US$400 million to US$500 million, this is likely to be significantly less expensive than creating a sulphide development.
A producing mine at Escalones is some way down the road. In the meantime, there is the potential to expand the footprint of this opportunity in Chile, a mining-friendly jurisdiction that is home to 23% of the world’s copper reserves and 28.5% of global output.
And there’s a potential major value inflexion point just over the horizon - a preliminary economic assessment of the property, expected this month, will provide an independent consultant’s view of the potential of the asset.
Yet, Escalones is just one facet of the World Copper investment proposition.
The mine development and exploration group also owns a greenfield porphyry asset called Cristal that has significant potential, while it is currently closing a transaction - Cardero Resources - that will add a US project to the portfolio,
Acquisition will add a further dimension
In acquiring Cardero Resources, World Copper will take ownership of the Zonia property, which covers nearly 4,300 acres in Arizona, and is host to another copper oxide resource.
There has been plenty of historic exploration (600 drill holes for 50,000 metres) and comes with a measured and indicated resource of 77 million ‘short tons’ of ore grading 0.33% copper.
The March 2018 PEA places a net present value on the asset of US$192 million (at an 8% discount rate and a US$3 copper price). Payback would be expected to occur in just under three years.
The US$10 million all-paper acquisition of Cardero (that brings Zonia into the portfolio) is a clever one in that it spreads the geographic risk. A happy by-product of the deal is that when the exploration drill rigs are idle for winter in Chile, they should be roaring in mining-friendly Arizona and vice versa.
“Zonia is closer to development than Escalones, and much lower cost,” Peterson says.
Significant resource potential
World Copper could go one of two ways with Zonia. It could settle for what has already been delineated, or expand the resource significantly, which would require it to apply for environmental permitting.
“We have a potential expansion target to the northeast of Zonia that has never been drilled before,” Peterson explains.
“That has the potential to add 300 million to 500 million tonnes. We could tie that all together and expand the main zone resource. The trade-off for permitting (but doing things the right and proper way) is to add a significant amount of resource to the northeast. You could have an Escalones-sized resource in Arizona.”
Cristal, the company's third asset, is a potential whale that sits right on the sweet spot for the sort of tectonic/geological activity that created some of the giant copper porphyry mines in Chile, including Escondida, the world’s largest.
Greenfield opportunity
Peterson admits this particular asset will likely be developed with some outside help from the get-go.
“The natural play is to partner with someone in the region that's already there. I'll be clear about that one,” he explains.
He adds: “We're going to have to drill deeper, drill further to find these resources. We think we have a geophysical doughnut-shaped and normally that correlates well with other reserves like Escondida. And then there's been activity from majors in the region such as BHP that have found some success including 1% copper hits.”
So, how does a company valued at just C$42 million happen to be sitting on three prime copper assets?
Well, it is fair to say the management, directors and advisors have a lot of experience in finding, developing and funding assets in frontier mining.
Track record of success
Chairman Henk van Alphen, for example, has had successes with Trevali Mining, Balmoral Resources, and International Tower Hill, while World Copper president, Patrick Burns, was involved with the discovery of Escondida.
While a small sample, it is representative of the quality that runs through the company’s top team. “We have great credentials on the team,” says Peterson.
The big news of the coming weeks should be the Escalones PEA mentioned above. “I’m very excited about that,” says Peterson.
With good reason. For the first time, investors will have some tangible data from which they can derive a valuation for the asset and by extension the business too.
For context, it may be worth looking at the information generated from Marimaca, a smaller deposit than Escalones (which is now Chile’s largest primary oxide project). The consultants arrived at a pre-tax net present value for Marimaca of US$757 million (at an 8% discount rate and US$3.15 copper). The owner, TSX-listed Marimaca Copper Corp (TSX:MARI), is valued at C$320 million.
Chile lookalike underlines the potential of Escalones
And remember, Marimaca is at PEA phase on the valuation curve – exactly the point where Escalones will be later this month.
While hardly scientific, the benchmarking exercise provides some early context for Escalones PEA when it comes out. It also suggests World Copper, as an investment that may have flown under the radar.
This should be good news for new and prospective World Copper shareholders.
Across the portfolio, the assets are being developed during a period of unprecedented demand for the red metal as the world relies more and more on electrical power.
Around 20bn pounds of new copper will be required by 2040 to meet demand, analysts reckon, yet few new discoveries are being made. It creates a perfect storm for companies such as World Copper, which are developing new sources of supply.
So, the groundwork laid in 2021 by Peterson and the team puts the company in a strong position.
“Now all we have to do is roll up our sleeves and get on with it,” says the World Copper CEO. “Key to this will be putting a proper valuation on Escalones. After that, we’ll see what happens.”
Contact the author at ian.lyall@proactiveinvestors.com