Abacus advances its Ajax copper-gold project

Abacus Mining & Exploration (ame-v) has painted an interesting prospect at its joint-ventured Ajax copper-gold project near Kamloops, B.C., with a feasibility study showing the project could support a 60,000-tonne-per-day operation generating 2.5 billion lbs. copper and 2.28 million oz. gold in concentrate over 23 years.

Abacus owns 49% of the project, while its Polish partner, KGHM, holds the rest.

Mining could start as early as 2015, if the junior can secure funds to develop the project. The study estimates the cost to build a mine at US$795 million, which includes a US$87-million contingency, while anticipated cash cost to produce a pound of copper is US$1.28, net of gold credits.

To get the required capital for Ajax, Abacus is depending largely on KGHM, which has been waiting until the feasibility study to decide if it should boost its interest in the project to 80% by providing up to US$35 million in exchange for 29% of the project’s copper-equivalent reserves. If it chooses to do so, it would be responsible for providing 80% of the start-up costs, while Abacus would have the option to either raise the remaining 20% or ask KGHM to pick up the tab.

But if KGHM opts to not increase its interest within 90 days of receiving the study, Abacus could buy its partner’s 51%-stake for US$37 million. Or the junior could boost its own stake from 49% to 51% by paying KGHM US$1.5 million.

While commenting on the results of the study, KGHM said: “Work is underway on developing an optimum financing model for the project. If the decision is made to commence the project’s investment stage, at least 50% of the financing for the project would be in the form of bank loans.”

Before taxes and applying an 8% discount, the project’s net present value (NPV) is US$416 million and the internal rate of return (IRR) is 14.5%. This base-case scenario used copper and gold prices of US$2.75 per lb. and US$1,085 per oz., respectively. Payback is expected within eight years.

But with higher gold and copper prices of US$1,700 per oz. and US$3.50 per lb., the pre-tax NPV moves to US$1.6 billion and the IRR jumps to 30.3%, while payback drops to about two years.

The possible scenarios have Abacus’s president and CEO James Excell pleased. “The feasibility study confirms the economic viability of the Ajax project at long-term copper and gold prices, and demonstrates the leverage to increases in metal prices,” he said in a prepared statement.

Excell adds the feasibility is an important milestone for the company as it aims to get the project up and running in 2015. “The Ajax mine economics compare very favourably to the leading copper projects being developed around the world given its long-life, location, open-pit mining and conventional processing.”

The project hosts reserves of 2.9 billion lbs. copper and 2.7 million oz. gold from 503 million tonnes grading 0.27% copper and 0.17 gram gold.

It has seen two brief mining periods during 1989-1991 and 1994-1997 by Teck (tck.b-t, tck-n) but was closed due to low metal prices. 

On the feasibility news, Abacus closed up 3% to 16¢ within a 52-week range of 14¢-28.5¢.