Quaterra completes MacArthur PEA

Quaterra Resources (QTA-V, QMM-X) has taken a step closer to near-term production at its MacArthur project, a fully stripped porphyry copper-oxide property in western Nevada’s historic Yerington copper district.

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

The PEA considers 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 0.20% 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,” Thomas Patton, the company’s CEO, says 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 80 km southeast of Reno that includes the MacArthur project, the past-producing Yerington mine and the Bear prospect.

Patton notes that the PEA is the first piece in what he hopes will be a much larger Yerington copper project that would include 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 sulphide resource at a 0.15% cut-off of 1 million tonnes grading 0.292% copper for 6.4 million contained lb. copper, and an inferred sulphide resource of 122,000 tonnes grading 0.283% copper.

The pit at MacArthur could stretch for 1.5 km in a north–south and east–west direction, Patton notes.

In the current high-cost environment, Patton says the company can put MacArthur into production at a “relatively modest outlay” with 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 Securities and Exchange Commission recommends [it’s a three-year London Metal Exchange historical average] — that this thing is economic at significantly lower prices.”

Patton also notes there are 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 8 km north of the Yerington mine.

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

Patton also points to Nevada’s mining-friendly jurisdiction, excellent infrastructure and the fact that Lyon County has one of the highest unemployment rates in the U.S.

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

Hallgarten mining analyst Christopher Ecclestone, who was among a group of nearly 60 analysts, bankers and investors who visited Quaterra’s properties in Nevada in October 2011, says the Yerington pit measures 1,951 by 853 metres and reaches a depth of 152 metres. Anaconda shut down the operation in 1978 owing to low copper prices and low profit margins on the sulphide ores, Ecclestone says in a January research report. Quaterra acquired Yerington without assuming environmental liabilities.

Quaterra’s Bear deposit, adjacent to the Yerington pit, contains a historical non-National Instrument 43-101-compliant  resource of 4.08 billion lb. copper at 0.4% copper. 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, high-grade base and precious metal deposits,” Ecclestone continues. he notes that Patton is credited with discovering the Penasquito silver-gold deposit in Mexico while running Western Silver.

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

At presstime Quaterra traded at 41¢ within a 52-week range of 36¢ to $1.61 per share.