Teck, Pilot think small to boost Halilaga economics

VANCOUVER — Partners Teck Resources (TSX.B: TCK; NYSE: TCK) and Pilot Gold (TSX: PLG; US-OTC: PLGTF) have taken a more modest approach to mine development in revising the 2012 preliminary economic assessment (PEA) for their Halilaga copper-gold porphyry project in northwestern Turkey, and the effort appears to be paying off.

By contemplating an optimized 25,000 tonnes per day rather than the 50,000-tonne-per-day operation envisaged in 2012, the revised PEA more than doubles the after-tax internal rate of return (IRR) to 43.1% from 20%, while keeping the net present value fixed at US$474 million using a 7% discount rate. The payback period has also been slightly reduced to 1.3 years.

Most importantly, the new study slashes estimated initial capital expenditures (capex) by US$543 million, or 61%, to US$346 million and total capex by US$610 million, or 52%, to US$558.5 million. 

The above calculations assume copper and gold prices of US$2.90 per lb. and US$1,200 per oz., unchanged from the 2012 study.

For Pilot Gold president and CEO Matt Lennox-King, these changes show the project can be adapted to match changing market conditions. 

“If you look back at 2012, a lot of the appetite in the market was how big and how long can you mine for,” Lennox-King tells The Northern Miner in a phone interview. “The original PEA had good economics and the IRR was healthy, but when you fast-forward to now, it’s an entirely different market. Companies and investors are looking for rapid payback, lower capex and high-grade operations where you’re not as much at the whim of metal prices.” 

The new PEA encompasses four major changes: a smaller mill with a 25,000-tonne-per-day capacity; optimized, higher-grade pit shells; a switching to a contract miner rather than owning a fleet; and, for the biggest payoff, adding a carbon-in-leach unit to the processing circuit, which would increase gold recovery by 15%.

“We’re able to recover a higher grade of gold, and that’s really what it comes down to more than anything else,” Lennox-King says.

During its 13.6-year mine life, Halilaga would produce 779.4 million lb. payable copper and 924,000 oz. payable gold at average grades of 0.3% copper and 0.34 gram gold per tonne. The copper cash cost would be US$1.08 per lb., net of by-products.

Halilaga is located in a district known by explorers for its high and low sulphidation systems, such as Alamos Gold’s (TSX: AGI; NYSE: AGI) Agi Dagi and Kirazli gold deposits. The partners describe Halilaga as the first copper-gold porphyry discovered in Western Turkey.

“We’re beginning to recognize a huge amount of porphyry potential underlying the high and low sulphidation systems in the district,” Lennox-King says. “Outside of Halilaga, we’ve also been able to demonstrate this at our TV Tower property, in partnership with Teck.”

Drilling in 2014 at the Columbaz target — the third, gold-rich porphyry discovered at the TV Tower property — returned a 499-metre intercept of 0.36 gram gold and 0.1% copper.

Lennox-King notes that Columbaz was a low-sulphidation gold target but that during drilling, geologists saw high-grade gold veins cross-cutting an altered, lower-grade matrix consistent with a porphyry system.

While exploration and the PEA have kept Teck and Pilot busy, the environmental impact assessments for the properties are moving along more slowly. Approvals from the Ministry of Environment and Urbanization were suspended in 2012 after an injunction by a local non-governmental organization.

“We are just letting the process run its course,” Lennox-King says, adding that the injunction “has no impact on our ability to complete work, or advance the projects.”

He draws some optimism from the recent approvals for the nearby Agi Dagi and Kirazli projects, both of which faced similar issues. “Halilaga is in a mining-friendly jurisdiction, which makes it a compelling development project,” he comments. 

Lennox-King says any decision to advance Halilaga will probably be made in the latter half of 2015, at Teck’s discretion, but Pilot “fully supports bringing the project further along — for us it represents a high-quality opportunity.”

In the meantime, the partners are focused on ramping up exploration at Columbaz, and elsewhere within TV Tower. 

“When you have a Canadian leading miner by your side it really speaks to the potential of the properties,” Lennox-King says. “Over time what we envision is an emerging porphyry district from this part of Turkey, and we’re only beginning to scratch its surface. With Halilaga, we believe we’re off to a great start.”