Quaterra completes MacArthur PEA

Quattera Resources (QTA-V) took a step closer this week to near-term production at its MacArthur project, a fully-stripped porphyry copper oxide property in the historic Yerington copper district of Nevada.

A preliminary economic assessment has concluded that MacArthur has the potential for development as a large-scale copper oxide heap leach operation that would recover 747 million pounds of copper over an 18-year mine life, or 41 million pounds of copper annually, at an average mining rate of 14 million tonnes per year.

The PEA considered an open-pit mine based on an acid soluble measured and indicated oxide and chalcocite resource model of 144 million tonnes grading 0.212% copper at a 0.12% cut-off, and an inferred oxide and chalcocite resource of 220 million tonnes at 0.201% copper.

Initial capital expenditure is estimated at US$232.7 million with average life-of-mine operating costs of US$1.89 per lb. copper.

MacArthur’s after-tax net present value at an 8% discount rate would come to US$201.6 million at a base case copper price of US$3.48 per lb. The project would break even at a copper price of US$2.56 per lb. and at US$2.23 per lb. after the first three years when the capital is paid off. The after-tax internal rate of return equals 24.2% with a 3.1 year payback period.

“It’s pretty hard to impress the markets these days but it’s a big, low-grade project and it has favourable economics and I’m pretty happy,” says Tom Patton, the company’s chief executive, in a telephone interview. “It certainly met my expectations and probably in some ways exceeded them because it’s a much bigger project than I had thought it was at the beginning.”

Quaterra has a significant land position in the Yerington district in western Nevada, about 80 km southeast of Reno, that includes the MacArthur project, the past-producing Yerington mine and the Bear prospect.

Patton noted that the thing that excites him the most about the PEA is that it is just the first piece in what he hopes is going to be a much larger Yerington copper project that would include the primary oxides and sulphides deposited in and around the Yerington copper pit, the large Bear copper porphyry and hopefully the primary sulphides underneath the oxides at MacArthur. (Not included in the PEA’s mine plan model was a measured and indicated sulfide resource at a 0.15% cut-off of 1 million tonnes grading 0.292% copper for 6.4 million pounds of contained copper and an inferred sulfide resource of 122,000 tonnes grading 0.283% copper.

The pit at MacArthur will be quite large—stretching almost 4,000-5,000 feet in a north-south and east-west direction, Patton notes.    

In terms of costs in today’s increasingly high-cost environment, Patton says the company can put MacArthur into production “at a relatively modest outlay” (US$233 million) and says it’s “a fairly reasonable target.”

 “I think it’s hard to find copper deposits brought in for either that price or time range so we’re excited about it,” he continues. “It bears mentioning that even though we used US$3.48 per lb. as the base case for copper, which the SEC recommends, (it’s a three-year LME historical average), that this thing is economic at significantly lower prices.”

Patton also noted that he believes there are significant opportunities to optimize and expand MacArthur’s operations and economics with the oxide residuals at the Yerington mine site as part of a district-wide oxide project. MacArthur is about8 km north of the Yerington mine.

“A potential opportunity are the residuals and the old dumps and tails and we’re drilling those right now and hope to add that piece to our SX/EW operation that will result in an even more robust deposit,” he explains. “We’ll be doing met studies on them.”

Patton also pointed to Nevada’s mining friendly jurisdiction, excellent infrastructure and the fact that Lyon County has one of the highest unemployment rates in the United States.

The Yerington mine, a single pit operated by Anaconda, produced 1.7 billion pounds of copper from oxide and sulfide ore between November 1953 and June 1978.

Christopher Ecclestone, a mining analyst at Hallgarten & Co. who was among a group of nearly sixty analysts, bankers and investors who visited Quattera’s properties in Nevada in October 2011, says the Yerington pit is currently about 6,400 feet long by 2,800 feet wide by up to 500 feet deep. Anaconda shut down the operation in 1978 due to low copper prices and low profit margins on the sulfide ores, Ecclestone says in a January 2012 research report. Quaterra acquired Yerington without assuming environmental liabilities.

Quaterra’s Bear deposit, adjacent to the Yerington pit, contains a historical non-compliant NI 43-101 resource of 4.08 billion pounds of copper at 0.4% copper and an initial drill program is set for later this year.

Ecclestone describes the company as “the best positioned player in the Yerington copper district … with two past-producing mines at its disposal,” adding that Quaterra “reminds us of the U.S. television program in which intrepid entrepreneurs buy the contents of a locked storage unit “sight unseen” on the basis that there might be something valuable inside that they can resell.”

“Quaterra uses in-house expertise and its network of consultants, prospectors and industry contacts to identify, acquire and evaluate prospects in mining-friendly jurisdictions that have the potential to host large and/or high-grade base and precious metal deposits,” Ecclestone continues, noting that Patton is credited with the discovery of the Penasquito silver/gold deposit in Mexico while running Western Silver.

Deposits closest to Quattera’s properties include Entree Gold’s (ETG-T, EGI-X) Ann Mason deposit to the west of Yerington and Nevada Copper’s (NCU-T) Pumpkin Hollow to the east of Yerington.

At presstime in Toronto Quaterra was trading at 42 cents within a 52-week range of 36 cents and $1.61 per share.