Nevada copper lures Enexco south

Having some money kicking around from the old uranium boom days has its advantages.

International Enexco (IEC-V) made its name as a uranium play over five years ago at the height of the buzz over the radioactive metal as the prospectiveness of its Mann Lake project in the Athabasca Basin helped it raise $13 million.

Then the market crash came and with uranium prices slow to recover while copper prices were flying high, management decided to turn its attention to a project buried in its portfolio.

The Contact Copper project in northeast Nevada’s Elko County had been in Enexco’s president and chief executive Arnold Armstrong’s war chest since the 1960s. And indeed copper mining in the area goes further back than that…all the way back to the 1890s in fact, with roughly 25 million lbs of copper coming out of the ground up until the 1950s.

With a good mining history and copper oxide mineralization right at surface, the promotion of Contact to flagship status seemed to be a no-brainer.

There was, however, one wrinkle in the plan.

While Contact hosted a promising deposit, the true extent of it remained unknown because Enexco’s property claim ran out in the south eastern portion of the deposit.

Actually, ‘pinched out’ is a more accurate description as claims held by Allied Nevada’s (ANV-T, ANV-N) closed in around the deposits eastern flank.

Bill Willoughby, Enexco’s chief operating officer, says the company knew it needed to make a deal for the land if the full economics of Contact were ever to be realized, and so it started negotiations with the larger company.

Those talks dragged on for the better part of four years.

Willoughby explains that the reason for the delay was that Allied wanted to poke around a bit more to see what the claims held but was in no hurry to do so.

When it finally did get around to drilling four holes the copper it found wasn’t the gold it was looking for and it became more open to dealing with Enexco.

That renewed openness lead to a deal being struck between the two companies that was announced on Sept. 26. The deal saw Enexco gain control over 33 sq. km of claims that adjoin Contact for 3.2 million of its shares. In total, Enexco now controls 53 sq. km of land in the area.

Enexco’s tight capital structure, it has roughly 23 million shares outstanding, means that the deal secured for Allied a 12.4% stake in the company and minimized dilution to Enexco shareholders.

Enexco’s largest shareholder remains Armstrong who holds roughly 25% of the company’s equity.

With the land issue out of the way Enexco will now focus on pushing through to the completion of a feasibility study, which is scheduled to be done by the spring of next year. The company currently has $2.5 million in the kitty, which Willoughby says will be enough to get the study completed.

A prefeasibility study completed last year envisioned a mine that would produce 25 million lbs. of copper cathode per year. Capex for the mine was estimated at $86 million with operating cash costs of 93¢ per lb copper. The study calculated an NPV of $44 million using a 10% discount rate.

Willoughby says the company wants to finance construction of the mine with two thirds debt and one third equity issuance.

If the funds are forthcoming the mine could be up and running by 2014 and would have an initial mine life of nine and half years, at current resource levels.

Those current levels are made up of measured and indicated resource of 122 million tonnes grading 0.263% copper for 712 million lbs of the red metal. Out of that resource 49 million tonnes are classified as reserves with a 0.29% copper grade.

The site has additional inferred resources of 48 million tonnes grading 0.272% copper for 291 million lbs of copper.

Willoughby says an upcoming drill program will focus on expanding the deposit eastward into the newly acquired claims and putting more resources into reserves.

As for the Mann Lake uranium project which was responsible for generating the cash Enexco needed to prove up Contact, the project still sits comfortably in the company’s portfolio.

Enexco has a 30% stake in Mann Lake, while the operator, Cameco (CCO-T, CCO-N) has a 52.5% stake and Areva holds the reaming 17.5%.

In Toronto on Sept. 27, Enexco shares were trading for 37¢ and have moved between 23¢ and 43¢ over the last 52-week period.