International Enexco keeps it simple

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

But in an environment where risk aversion rules the day, the less glamorous projects — the ones with smaller resources that are presided over by a management team with 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 risks, 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 it will likely be built for between $120 million and $150 million.

“Big capex projects are being delayed, and that brings an opportunity to small- and mid-cap-sized projects,” Bill Willoughby, Enexco’s chief operating officer, says during a 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 closing a $2-million, non-brokered private placement that put a price of 50¢ on each unit. A unit is made up of one share and one warrant with a 60¢ strike price. 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 mid-2013.

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

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

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

That shift in perspective came after the company’s first hole at Contact returned 48 metres grading 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 a solvent-extraction electrowinning plant.”

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

With the land deal done, 2012 was all about the drill. Enexco extended the mineralized trend 915 metres east and gained the confidence to bulk up its resources, knowing that a large pit was on the table.

In all, 7,000 metres of reverse-circulation holes and 4,000 metres of core holes were drilled, with Enexco boosting measured and indicated resources by 49%.

The updated resource estimate, which came out in early October, outlined 195 million tonnes of measured and indicated resources grading 0.25% copper for 1.06 billion lb. (487,500 tonnes) of the red metal.

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

Another major step in Contact’s process was a better understanding of the deposit’s metallurgy. Concerns on the metallurgical front arose when Enexco geologists realized that weathering of the deposit ran deeper than 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 this kind of binding would not be an issue.

The positive results were a milestone for the project, even though recovery grades were slightly less and acid use was slightly higher than the company had expected when it did a prefeasibility study in 2010.

The metallurgical testing considered three zones encountered in 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 kilograms 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 kilograms per tonne.

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

The Contact deposit is described as a structurally controlled hydrothermal zone in granodiorite. It isn’t a classic porphyry, but it’s considered to have 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, 80 km southeast of Reno, where Nevada Copper (NCU-T) has the Pumpkin Hollow project and Quaterra Resources (QTA-V, QMM-X) 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. copper in the prefeasibility study, so that gives us confidence.”

And with China 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.

But macroeconomic factors remain beyond the control of mining executives, and all a management team can do is build the most efficient project it can. 

And on that front, Enexco is heading in the right direction.