Decision time for Western Copper and Gold’s (TSX: WRN; NYSE-AM: WRN) $3.6 billion Casino project in remote Yukon looms less than four months away.
Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) holds about 8% of the company and must decide by Nov. 28 whether to further invest in the world’s fifth-largest copper-gold project controlled by a junior miner.
“What’s next, we’ll see, but that’s going to be obviously a key development here,” Western CEO Paul West-Sells said in a late July interview in the Yukon with The Northern Miner. “They’re saying the right things, they’re saying ‘Paul, yep, we’re dotting i’s, crossing t’s, we like the project, you know, all the work we did.’”
Casino is named for a creek that runs through the site, 380 km northwest of the Yukon capital, Whitehorse. It also has the backing of a 5% investment by Mitsubishi Materials in March. With the potential to produce 11 billion lb. copper and 21 million oz. gold, it’s Canada’s largest critical minerals project, West-Sells says.
The project has the size to interest major companies on the hunt to supply some of the 12 million tonnes of copper over the next decade widely regarded as crucial to keep global warming to less than 1.5 degrees Celsius, while mines have only supplied 7 million tonnes of copper in the last two decades, Western says. The project’s scope combines with its location in the desirable jurisdiction of Canada versus troubled South America, plus reasonable economics and good relations with First Nations, West-Sells said.
“Those four things with the background of a strong copper price environment, electrification and every major mining company looking for good copper projects and you’ve got gold companies looking for the copper projects,” he said. “That’s what’s causing the excitement in the story.”
Critics might note Casino lacks road and power connections and has low grades. The mine plan so far is limited to 1.2 billion proven and probable tonnes in its mill reserve because tailings storage is constrained. The ore grades 0.2% copper, 0.2% gold and 0.02% molybdenum for 5.1 billion lb. copper, 8.5 million oz. gold and 572 million oz. molybdenum, according to a feasibility study released last year.
“I always pull my hair out when people show graphs of our project and they just have the copper and it’s like, oh, this thing looks horrible because it’s only got this little copper grade,” West-Sells said during an on-site briefing. “You need all three to make this thing work and molybdenum is a significant part of the story.”
Potential molybdenum giant
Casino, which is about 17% molybdenum, should be a top-three producer in the Americas of the metal used to strengthen steel, the CEO said. The deposit is 46% copper and 34% gold. It benefits from a 0.43:1 strip ratio, and an 800 metre by 500 metre core zone showing drill results of 289.6 metres grading 1% copper equivalent from 36.6 metres depth, and 65.8 metres of 2.5% copper equivalent from 10.6 metres downhole.
“I can put a resource around this if I increase my cut-off grade and it’s 430 million tonnes of 0.6% [copper equivalent] in this very rich part of the deposit,” said West-Sells, who trained as a metallurgical engineer. “If we start mining there, for the first four years we’re over that 0.6% and that’s significant because copper mining [at other places] in western Canada is a low-grade, high tonnage operation.”
Western is now engaged with Mitsubishi in a work program on copper concentrate quality and expects to make an announcement within weeks, West-Sells said. The junior is also preparing an environmental assessment application to be submitted next year in a process that may take three years for approval. Work on the assessment actually dates back to 2014 and since then Western and First Nations have improved proposed tailings storage plans and the development of an access road.
Western took over the project in 2006 in a merger with Ross Beaty’s Lumina Resources. Drilling and studies accelerated three years ago with a new resource estimate followed by a preliminary economic assessment, Rio Tinto’s interest and the feasibility study. Rio has said its Nuton copper recovery technology wouldn’t apply to the Casino deposit because of its strong gold and molybdenum content, West-Sells said.
The Yukon government has already committed $130 million and started to build 100 km of access road from Carmacks, a village bearing the name of a co-discoverer in 1896 of the Klondike gold rush 350 northwest in Dawson City. Western is to build the remaining 100 km to the project with 30% government financing.
The Vancouver-based company plans to ship the concentrate out through the Alaska port of Skagway, one of the gateways to the Klondike 125 years ago and where Yukon has a long-term agreement with the state. The mine is to be powered by liquid natural gas but the company is encouraged by talks started this year between the Yukon and British Columbia governments to link their grids. It would require some 760 km of new line, so would take more than several years to build before a potential connection to Casino, West-Sells said.
After-tax, Casino has a $2.3 billion net present value at an 8% discount rate, an 18.1% internal rate of return, a three-year payback period and $10 billion in cash flow over the mine life. Sustaining capital would be $751 million for total capital costs of $4.4 billion.
“It’s really driven by those first four years,” said West-Sells, a rare CEO who doesn’t sit on the board of directors. “It’s that early high grade, low strip ratio that really drives things.”
