Excelsior’s strong economics at Gunnison create market stir

VANCOUVER — Excelsior Mining (TSXV: MIN) took its time with a prefeasibility study (PFS) at its Gunnison copper project in southern Arizona, but when the company finally unveiled its results on Jan. 17, the market took notice. Excelsior shares rocketed 358% during daily trading after the release, with 13.3 million shares trading hands before closing at a 52-week high of 55¢ per share.

Excelsior’s previous study at the project was a preliminary economic assessment (PEA) in November 2011, and according to president and CEO Stephen Twyerould, the delay in delivering an updated PFS had everything to do with weak capital markets. The company took the intervening two years to fine-tune its hydrogeological and metallurgical studies and better understand the project’s North Star deposit, which is suited for in-situ mining using solvent extraction.

“We were cautious about our cash float. We really slowed things down and were careful about how we spent every dollar,” Twyerould says during a phone interview. “One of our focuses was studying how our solution is going to move through the rock. We also spent quite a bit of time to work on recoveries and acid-consumption rates.”

Gunnison is 105 km southeast of Tucson in Arizona’s copper porphyry belt. North Star is a classic copper skarn deposit, with oxide mineralization over 3 km of strike and hitting maximum widths of nearly 300 metres. At a 0.5% copper cut-off grade, North Star holds 620 million measured and indicated tonnes grading 0.29% copper for 3.9 million contained lb. Inferred resources tack on 306 million tonnes of 0.21% copper for 1.4 million lb.

The oxidized nature of North Star’s mineralization — which runs from 180 metres to 430 metres deep — would allow Excelsior to produce copper cathode with acid solution-based mining.

The system carries relatively low anticipated start-up costs for a large copper mine, with Gunnison’s initial capital expenditures pegged at US$285 million. The operation would produce 110 million lb. copper annually in its first decade, with life-of-mine copper cathode sales pegged at 1.7 billion lb. over two decades.

“The biggest part of our sustaining capital will be the recovery-injection wells we’ll need to build all the time,” Twyerould says when asked about Gunnison’s US$602-million sustaining costs, adding that well drilling accounts for 80% of that total over the mine’s life.

“If you want to think of it like traditional mining, it would be comparable to a constant cutback on the walls of your pit as you go deeper, or the extension of an underground decline. For example, if we drilled 100 wells in year one to get us started, we might need to drill another 50 wells in year two. And the number of wells we’ll need will be a factor of our grades and recoveries,” he says.

The sustaining capital figure includes an on-site acid plant starting in Gunnison’s third year, which could drop average life-of-mine operating costs as low as US68¢ per lb. copper.

The plant would add US$75 million in sustaining capital costs, but would result in an estimated US30¢ drop in direct cash costs.

Excelsior’s acid-plant model at Gunnison carries an US$826-million after-tax net present value (NPV) at a 7.5% discount rate, along with a 45% internal rate of return (IRR) and a 2.4-year payback period. If the company doesn’t install an acid plant and buys its supply at market, Gunnison’s after-tax NPV sits at US$721 million, with a 46% IRR and a two-year payback. Excelsior’s base case assumes a conservative copper price of  US$2.75 per lb.

Twyerould points out that most of Gunnison is on private land, with some parts occupying state and federal land. The federal portions are unique, however, as they cover what are referred to as Homestead Act lands, which also operate as private land for permitting.

“People are often surprised to hear me say this, but it’s generally easier to permit these in-situ projects when compared to more traditional mines,” Twyerould says. “We don’t generate a lot of the disturbances typically associated with mining — like dust or the use of explosives, for example — so there are actually fewer required permits. Thankfully for us there is nobody using any water near or downstream from our site. We’re so remote that we don’t have agriculture, or anything else involved.”

During 2014 Excelsior will tweak the metallurgy and infill drill parts of North Star as it advances the project towards its last development stage.

 The company reported cash and equivalents of US$2.7 million at the end of September, and Twyerould figures that should carry the group through 2014.

Excelsior has seen 29 million of its 66 million outstanding shares traded since announcing its PFS at Gunnison. Shares are  up 254% since Jan. 17, and closed at 46¢ at press time, for a $30-million market capitalization.

“Our management and a few others are big shareholders, so we’re conscious about dilution and don’t want to blow out the capital structure. We’re going to focus on things like off-take agreements, strategic partnerships and alliances with end consumers of the copper cathode,” Twyerould says.

“Many strategic partners are aware of us, but we needed to wrap up our technical documents to give them some confidence about the project’s merits. We’re really excited to get back in front of all those people.”