Stingray perserveres under Sonoran sun

Stingray Copper (SRY-T, SRYYF-o) is pushing ahead at its El Pilar copper porphyry project in Mexico’s Sonora region in difficult times.

Not only is credit drying up as the global financial crisis deepens, but a strike at Grupo Mexico’s (GBMXF-O, GMEXICOB-m) Cananea mine is taking a toll on miners and prospective miners in the area.

El Pilar lies in Sonora state, in northwestern Mexico, about 15 km south of the U. S. border and 45 km northwest of Cananea– the largest porphyry copper deposit in Mexico.

But the prolonged strike at Cananea has meant the operation’s smelter is no longer producing enough sulphuric acid to meet the needs of miners in the area.

Sulphuric acid is used to leach copper from ore and is a byproduct of smelting. When running at full capacity, Grupo has plenty of it and has a need to dispose of it quickly.

Frontera Copper(FCC-T, FRCPF-o), which operates the Piedras Verde copper mine, had been taking advantage of just that scenario.

By entering into forward contracts with Grupo, it had secured sulphuric acid at reasonable rates — or so it thought. With the strike, Grupo declared force majeure on the contract and has been unable to deliver the required amounts, forcing Frontera to cut back on production to avoid paying exorbitant spot prices for sulphuric acid.

Such higher prices could also hurt the economics of Stingray’s El Pilar project.

Stingray vice-president Steve Brunelle says sulphuric acid prices along with copper prices are the two key economic metrics of the project.

But with a feasibility study not due out until the first quarter of next year for El Pilar, there is plenty of time for Grupo to settle with its workers, who have been striking since July 2007 over wage and safety issues.

Brunelle says that once the strike is resolved, there will be enough sulphuric acid for both Stingray and Frontera.

While Grupo’s relationship with its workers is beyond Stingray’s control, pushing ahead with a feasibility study is well within its grasp.

As part of that process, it recently received test results from 59 drill holes, chosen to represent the sequence of mining over the first nine years.

Stingray’s testing follows up on work done by Noranda and Falconbridge when they held the property under the Normex banner.

For the first year of mining, testing showed copper extraction would average 76.4% from a head grade of 0.43% copper. The number falls to roughly 70% by year three with a head grade of 0.38% copper, and by years seven, eight and nine, extraction is estimated at roughly 59% from a head grade of 0.29% copper.

Those numbers are in line with a study done by AMEC in 2006 that put overall copper recoveries at 65%.

Stingray also recently finished a 207-hole drill program that updated its measured and indicated resources to 199 million tonnes grading 0.35% copper at a copper cutoff grade of 0.25%.

A report for AMEC in 2006 estimated capital costs at US$135 million and cash costs at US78 per lb. copper, although the industry has seen significant inflationary pressures since then.

Brunelle says the company is aiming to have cash costs come in under US$1.50 per lb.

Like Frontera’s Piedras Verde, El Pilar would be mined as an open-pit, heap-leach, solvent extraction-electrowinning copper mine.

And Stingray estimates that the two projects will share many other qualities, with El Pilar estimated to have the same 1.3:1 strip ratio, a similar head grade of 0.36% copper, and copper recovery averaging roughly 65%.

“We were very aware of Piedras Verde,” Brunelle says. “We kicked the tires on it and recognized that both projects required higher copper prices because of their low grade and needed stable sulphuric acid prices.”

Stingray’sfamiliarity with Piedras Verde and its acquisition of El Pilar were born from management’s vast experience in Mexico.

Brunelle, along with Stingray’s chairman and chief executive, Peter Mordaunt, were part of the team that discovered the Alamo Dorado silver deposit — now being mined by Pan American Silver (PAA-T, PAAS-q) — while with Corner Bay Silver.

That experience sent them sifting through Mexico for their next venture, which they found in El Pilar. They bought the property from Xstrata (XSRAF-O, XTA-l) in 2007 for roughly $20 million.

The company now has about $18 million in its treasury. That’s enough, Brunelle says, to finish the feasibility study by the first quarter of next year and still have around $12.5 million left over.

Hopefully, by that time, credit financing will be easier to come by and copper prices will remain solid.

“I’m confident we’re not heading into global meltdown,” Brunelle says. “China, the rest of Asia, Brazil and Russia — I don’t see their economies seriously retreating, so I have confidence in copper prices staying above US$2.50 per lb.”