Rio Tinto takes strategic stake in Western Copper and Gold

Rio Tinto Canada is investing $25.6 million for an 8% stake in Western Copper and Gold (TSX: WRN; NYSE-AM: WRN), which is advancing its copper-gold Casino project in the Yukon.

The funds will be put towards economic studies and permitting.

“We’ve always said advancing this project with a big copper or gold company made sense and now we’ve got that with Rio Tinto,” Paul West-Sells, Western Copper and Gold’s president and CEO, says in an interview, adding that confidentiality agreements were signed about 18 months ago. “We’re ecstatic. Rio has experience in northern Canada with the Diavik diamond mine, they are big investors in Canada with their Alcan aluminum assets, and they have been a really good group to work with so far.”

Under the deal, Rio Tinto Canada, a subsidiary of Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO), is acquiring 11.81 million common shares at a price of $2.17 per share. Over the last year, the junior’s shares have traded in a range of 96¢ and $2.42. News of Rio Tinto’s investment sent the company’s shares up 16.1% or 32¢ to $2.31 in mid-morning trading on the Toronto Stock Exchange.

The strategic investment includes an investor rights agreement under which Rio Tinto has the right to appoint a member to the project’s technical committee and send an observer to Western Copper and Gold’s board meetings, as well as second as many as three people to the project. If Rio Tinto takes a bigger stake (12.5%), then it has the right to appoint a member to the board. In addition, it has the right to participate in any future equity issuances to maintain its stake in the company.

Western Copper and Gold plans to complete a feasibility study on Casino before the end of the year, and in the interim, will put out a preliminary economic assessment in the next six weeks. The studies will evaluate an open-pit operation, a concentrator to recover copper, gold silver and molybdenum and a solid waste facility to store mine waste rock and mill tailings. The company says the project will include a heap leach facility to recover gold, silver and copper from oxide ore.

Infrastructure will include a 130 km access road and a power generation facility to meet power demand. In addition, an airport will be relocated and some roads re-routed to lower the overall footprint.

The studies will be based on an updated resource estimate released in July 2020 that included results from 2019 drilling, as well as drilling between 2010 and 2012 that was not included in the initial resource estimate in 2010.

Casino now has measured and indicated resources of 2.17 billion tonnes grading 0.16% copper, 0.18 gram gold per tonne, 0.017% molybdenum and 1.4 grams silver per tonne (0.36% copper equivalent) for 7.4 billion lb. copper, 12.7 million oz. gold, 812 million lb. molybdenum and 100.2 million oz. silver. Inferred resources add 1.43 billion tonnes grading 0.10% copper, 0.14 gram gold, 0.01% molybdenum and 1.2 grams silver (0.24% copper equivalent) for 3.2 billion lb. copper, 6.4 million oz. gold, 323 million lb. molybdenum and 54 million oz. of silver.

The deposit remains open at depth.

Once in production, the pit could run more than 800 metres deep and 2 km by 1.8 km in diameter.

West-Sells expects the economic studies will estimate a 50 year mine life based on measured and indicated resources and possibly another 25 years based on Casino’s inferred resources. He also expects that capital costs will be in the ballpark of the $2.4 billion estimated in a 2013 feasibility study.

The mining executive, a metallurgical engineer by training, also points to the proposed mine’s very low strip ratio, which is expected to be less than 0.5:1, and says that the core of the deposit is higher grade. “We’ll be mining with the first shovels in the ground at the core of the deposit, which is about 330 million tonnes, at grades of about 0.7% copper-equivalent,” he says.

West-Sells notes that the agreement with Rio Tinto is for a work term of about 18 months, which is extendable for another 12 months, and the majority of the money will be going towards some exploration as well as engineering studies and metallurgical and geotechnical work.

“This isn’t a wide open-ended agreement, it has set an amount of time for all this work to happen and then we discuss what’s next,” he says. “Really it’s an opportunity for Rio to get to know the project, for us to get to know Rio, and at the end of the period, we decide what sort of business transaction makes sense going forward.”

The Rio Tinto investment “is exciting for Western Copper and Gold shareholders and exciting for the Yukon,” West-Sells says. “This will be a major mine in the Yukon and to have a company like Rio with a reputation of operating in Canada as well as it has, is a real benefit.”

Work at Casino began in 2009 and 2010.

Western Copper & Gold has about 136 million common shares outstanding for a market cap of about $314 million.