Stingray pushes on in Mexico’s Sonora

Stingray Copper (SRY-T) is pushing ahead with its El Pilar copper porphyry project in Mexico’s Sonora region in difficult times.

Not only is credit drying up as the global financial crisis deepens, but a long strike at Grupo Mexico’s largest copper mine in the country is taking a toll on miners and prospective miners in the area.

El Pilar lies in the Sonora region of northwestern Mexico 15-km south of the U.S. border and 45-km northwest of Grupo Mexico’s Cananea Copper Mine the largest porphyry copper deposit in Mexico.

But a long strike at Cananea has meant the smelter associated with the mine is no longer producing the amount of sulphuric acid needed by miners in the area.

Sulphuric acid is used in the leaching of copper from ore and is a byproduct of smelting. When running at full capacity Grupo has plenty of it and has a need to dispose of it quickly.

Frontera Copper (FCC-T) which operates the Piedras Verde mine, had been taking advantage of just that scenario.

By entering into forward contracts with Grupo it had secured sulphuric acid at reasonable rates. Or so it thought. With the strike, Grupo declared force majeure on the contract and has been unable to deliver the required amounts, leaving Frontera to cut back on production to avoid paying exorbitant spot prices for sulphuric acid.

Such higher prices could also hurt the economics of Stingray’s El Pilar project.

Stingray’s vice president Steve Brunelle says sulphuric acid prices along with copper prices are the two key economic metrics to the project.

But with feasibility not due out until the first quarter of next year, there is plenty of time for Grupo to settle with its workers who have been striking since July of last year over wage and safety issues.

Brunelle says that once the strike is resolved, there will be enough sulphuric acid for both Stingray and Frontera.

While Grupo’s relationship with its workers is beyond Stingray’s control, pushing ahead with feasibility is well within its grasp.

As part of that process it recently received test results from 59 drill holes, chosen to represent the sequence of mining over the first nine years.

Stingray’s testing follows up on work done by Noranda and Falconbridge when they held the property under the Normex banner.

For the first year of mining testing showed copper extraction will be 76.44% from a 0.43% copper head grade. The number falls to roughly 70% by year three from a 0.38% head grade, and by years seven, eight and nine, extraction is estimated to be roughly 59% from a head grade of 0.29% copper.

Those numbers are much in line with a study done by AMEC in 2006 that put overall copper recover at 65%.

The company also recently finished a 207 hole drill program that updated its measured and indicated resources to 199 million tonnes grading 0.35% copper with a copper cutoff grade of 0.25%.

A report for AMEC in 2006 estimated capital expenditures of US$135 million and cash costs of 78 per lb of copper, although the industry has seen significant inflationary pressures since then.

Brunelle says the company is aiming to have cash costs come in under the US$1.50 per lb. level.

Like Frontera’s Piedras Verde, El Pilar would be mined as an open pit, heap leach, and solvent extraction-electrowinning copper mine.

And Stingray estimates that the two projects will share many other qualities with El Pilar estimated to have the same 1.3 to 1 strip ratio; a similar head grade of 0.36% copper; and copper recovery averaging roughly 65%.

“We were very aware of Piedras Verde,” Brunelle says. “We kicked the tires on it and recognized that both projects required higher copper prices because of their low grade and needed stable sulphuric acid prices.”

Stingray’s familiarity with Piedras Verde and its securing El Pilar was born from management’s vast experience in Mexico.

Brunelle, along with Stingray’s chairman and chief executive, Peter Mordaunt, were part of the team that discovered the Alamo Dorado Silver deposit now being mine by Pan American Silver (PAA-T, PAAS-Q) — while with Corner Bay Silver.

That experience sent them sifting through Mexico for their next venture which they found in El Pilar and bought from Xstrata (XSRAF-O, XTA-L) in 2007 for roughly $20 million.

The company has roughly $18 million in its treasury enough, Brunelle says, to finish feasibility by the first quarter of next year and still have between $12 and $13 million left over.

Hopefully by that time, credit financing will be easier to come by and copper prices will remain solid.

“I’m confident we’re not heading into global meltdown,” Brunelle says. “China, the rest of Asia, Brazil and Russia, I don’t see their economies seriously retreating, so I have confidence in copper prices staying above $2.50 per lb.”

Stingray shares are currently trading for 35 in Toronto and have traded between $1.19 and 31 over the last 52-week period and it has 59 million shares outstanding.