Desert Star eyes BC copper through $28.8M Capstone deal

VANCOUVER — Desert Star Resources (TSXV: DSR; US-OTC: IAXFF) is working to develop the copper-rich Kutcho volcanogenic massive sulphide (VMS) project, 100 km east of Dease Lake, British Columbia.

The Vancouver-based company has struck a deal with Capstone Mining (TSX: CS; US-OTC: CSFFF) to buy the project for $28.8 million in cash, and shares equal to 9.9% of its post-deal equity.

Desert Star has updated a prefeasibility study on Kutcho carried out by JDS Energy and Mining, and the company intends to complete a feasibility study the second quarter of  2018.

It then hopes to have mining permits in hand ideally by the end of 2019.

“We’ve talked to different groups in the financial community, and one thing we hear is that there aren’t any good mid-tier copper producers … there’s a big gap in this segment,” Desert Star president and CEO Vince Sorace says during an interview.

Desert Star has outlined a $221-million hybrid development that would leverage mechanized cut-and-fill, open pit, and long-hole stoping over a 12-year mine life. Credit: JDS Energy & Mining.

“Kutcho probably isn’t big enough to be attractive to a large-scale copper company, but it can certainly fill a niche in the market,” he adds.

The project has seen over $50 million in historical exploration and development expenses, which now underpin the updated prefeasibility study.

Desert Star chief operating officer Rob Duncan says his team built upon work Capstone finished in 2010, but incorporated detailed re-costing on capital and operating expenses, and a review of metallurgical work.

The project hosts measured and indicated resources of 11.3 million tonnes of 2.19% copper, 3.28% zinc, 0.39 gram gold per tonne and 36.7 grams silver per tonne. Contained metals total 545 million lb. copper, 816 million lb. zinc, 100,000 oz. gold and 1.1 million oz. silver.

Kutcho’s mineralization comprises three “Kuroko-type” VMS deposits along a west-plunging linear trend. The largest — the Main deposit — comes to surface at the eastern end, while the Sumac deposit is down-plunge. The Esso deposit sits along the western flank, 400 metres below surface.

Desert Star will acquire the project for $28.8 million in cash and shares equal to 9.9% of its post-deal equity. Credit: JDS Energy & Mining.

Desert Star has a preliminary  $221-million hybrid development plan that would leverage mechanized cut-and-fill, open pit and long-hole stoping over a 12-year mine life.

The 2,500-tonne-per-day operation would produce 33 million lb. copper and 46 million lb. zinc annually, plus by-product gold and silver.

Anticipated operating costs are estimated at US$1.60 per lb. copper, excluding by-product credits. The company assumes metallurgical recoveries of 85% copper, 76% zinc, 48% silver and 41% gold.

“Over the past 12 months, we shifted gears toward finding an advanced asset. We turned over at least a dozen projects from feasibility right down to advanced exploration,” Sorace says.

“We heard rumblings over the years that [Capstone] was interested in selling Kutcho. We understood that it would be marketed again, so we said: ‘Let’s get to a number that makes sense for both sides.’”

The latest study features a $265-million, after-tax net present value at an 8% discount rate, along with a 28% internal rate of return. Operating costs are pegged at $73.72 per tonne of material milled, while sustaining capital is earmarked at $67.1 million.

The Kutcho volcanogenic massive sulphide copper project, 100 km east of Dease Lake, B.C., which Desert Star Resources is acquiring from Capstone Mining. Credit: Desert Star Resources.

Assuming the deal with Capstone closes in the third quarter, Desert Star will begin a feasibility study that includes geotechnical studies, metallurgical sampling and infill drilling.

Desert Star has strengthened its management team and board of directors, with recent board additions headlined by former B.C. Energy and Mines Minister Bill Bennett, and former Capstone Mining and Sherwood Copper exec Stephen Quin.

“Our team was bolstered to address any questions around permitting in the province,” Sorace says. “We’ve brought in people with great contacts and experience in the industry.”

Duncan says the focus will be on advancing development over the near-term, but that Kutcho has  exploration potential across its 171 sq. km property package. Project data goes back to the 1980s, and includes versatile-time domain electromagnetic (VTEM) surveys and historical drilling around the Esso deposit.

“The historic data indicates discovery upside, but that’s likely not going to become a priority until year two,” Duncan says. “There are repeated sulphide horizons at the project because it’s a folded sequence, and we see promising VTEM conductors alongside drill intercepts of massive to semi-massive sulphides.”

Desert Star shares have traded in a 52-week range of 18¢ to 47¢ per share, with trading at 45¢ per share at press time. The company has 16.4 million shares outstanding for a $7.4-million market capitalization.