International Enexco keeps it simple

Mining investors often get caught up in the idea that the bigger the deposit the better the deposit.

But in an environment where risk aversion rules the day, the less glamorous projects — the ones with smaller resources that are being presided over by a management team that has a firm handle on things — can take on a new shine.

Such is the case with International Enexco (IEC-V), a junior that decided it is better to wrap its mind and capital around a project that ratchets down on the risk, rather than shoot for the stars.

Enexco’s Contact Copper project in Northeastern Nevada is a relatively small scale project in a safe, mining friendly jurisdiction that has good infrastructure and will likely be built for between $120 and $150 million.

“Big capex projects are being delayed and that brings an opportunity to small and mid cap sized projects,” said Bill Willoughby, Enexco’s chief operating officer, on a recent visit to Toronto.

The appetite for such projects is evidenced by the company’s recent equity raise. While most juniors aren’t even approaching equity markets under the current anemic conditions, Enexco is in the process of closing a $2 million non-brokered private placement that put a price of 50 cents on each unit. A unit was made up of one share and one warrant with a strike price of 60 cents. The deal is expected to close in November.

The proceeds should be enough to get the company through a feasibility study, which should be finished by the middle of next year.

If it meets that goal, Contact could conceivably reach production by 2016 and may well pass splashy large scale deposits such as Augusta Resources’ (AZC-T, AZC-N) Rosemont mine in Arizona and Northern Dynasty (NDM-T) and Anglo American’s (AAL-L) Pebble project in Alaska — both of which have faced considerable obstacles on their road to production.

If Contact does make it all the way, Willoughby will look back on two key developments that pushed Contact out of its infancy.

The first was Enexco’s realization that the project was acquired as a possible high-grade underground deposit, while it turned out to be a low-grade open pit project.

The shift in perspective came after the company’s first hole at Contact returned roughly 48 metres with an average grade of 0.63% copper.

“And it was all oxidized,” Willoughby says. “That was a big step forward at the time because it meant it was going to be considerably cheaper to mine with a heap leach and an SX-EW plant.”

The second big step Willoughby points to was the company getting a land deal done with Allied Nevada Gold (ANV-T, ANV-N) in 2011. That deal doubled Enexco’s land position and, most importantly of all, opened up the eastern end of the project for open pit development.

With the land deal done, 2012 was all about the drill. Not only was Enexco now able to extend the mineralized trend 915 metres to the east, but it also had the confidence to significantly bulk up its resources knowing that a large pit was now on the table.

In all, 7,000 metres of reverse circulation holes and 4,000 metres of core holes were put into the ground and Enexco managed to boost measured and indicated resources by 49%.

The updated estimate, which came out in early October, outlined 195 million tonnes of measured and indicated resources, with an average grade of 0.25% copper for roughly 1.06 billion lbs. of the red metal.

Willoughby estimates that of those upgraded resources roughly 15% came from the former Allied Nevada ground.

Another key step in the process for Contact was the deposit’s metallurgy. Concerns on the metallurgic front arose when Enexco realized that weathering of the deposit ran deeper than was initially suspected.

The weathered rock decomposed into sand-like grains, which raised the possibility that on a leach pad such material, would turn to clay and bind up the bottom of the pad.

The results of a metallurgical study released in mid-September, however, showed that such binding would not be an issue.

The positive results were a key milestone for the project even though recovery grades were slightly less and acid usage slightly higher than what the company thought they would be back when it did a prefeasibility study in 2010.

The metallurgical testing considered three phase of the deposit: the surface gruss, the sub-surface gruss and the mid-depth oxide. The surface gruss has an average head grade of 0.54% copper, extraction of 73% and acid consumption of 20.5 kilograms per tonne.

The sub-surface gruss has a head grade of 0.15% copper, extraction of 68.1% and acid consumption of 11.5 kg per tonne and the mid-depth oxide has a head grade of 0.27% copper, extraction of 79.2% and acid consumption of 11.9 kg per tonne.

Willoughby points out that there is a flip side to having slightly lower extractions and higher acid usage: the weathered rock should make for cheaper mining costs due to significantly lower crushing costs.

The Contact deposit is described as a structurally controlled hydrothermal zone in granodiorite. While not classic porphyry it is considered to be of a porphyritic style where the stockworks of mineralized veinlets disseminate copper into the surrounding rock.

Willoughby says the best comparables for the deposit are in Nevada’s Yerington district, roughly 80-km southeast of Reno where Nevada Copper (NCU-T) has the Pumpkin Hollow project and Quaterra Resources (QTA-V) has its MacArthur Mine.

As for how the volatile global economy could affect Contact, Willoughby says the project is insulated in some ways.

“If copper prices slide other costs will slide, too. Things like fuel cost and acid costs will come down,” he says. “Our operating costs were based on a copper price of US$2.25 per lb. of copper in the prefeasibility study so that gives us confidence.”

And with China still consuming 40% of the global copper supply, and recent reports out of the U.S. that housing starts are up and car sales are higher, too, Willoughby has reason to stay optimistic about the future price of copper.

At the end of the day, however, macro-economic factors are out of the control of any mining executive. All a management team can do is make sure all of its ducks are lined up in a row, and build the most efficient project it can. And on that front, Enexco is heading in the right direction.