Teck Cominco and the Big Payout

Kalgoorlie, Western Australia — Executives of Teck Cominco (TCK.B-T, TCK-N) virtually sat on the doorstep of Rudi Gomez’s suburban residence in Adelaide to ensure a deal would be struck with this engineer, who had boldly risked his personal wealth to drill virgin targets at Carrapateena on South Australia’s Stuart Shelf.

That was in 2005, and a win-win scenario is looming that may crystallize by the end of this year, as Teck Cominco is on the verge of proving up a major new copper-gold discovery. Should this see Teck Cominco proceed with an advanced feasibility study, then Gomez is about to become one of South Australia’s richest men.

The big question is what will be the payout for Teck Cominco to secure 100% of the project? The big Canadian miner has already made staged payments to Gomez that reportedly amounted to A$32 million.

In answer to a question from the author at the annual Diggers & Dealers Forum here, Teck Cominco’s chief operating officer, Peter Kukielski, said that to consummate its deal with Gomez if Carrapateena proved viable, the company would pay him what is deemed to be 66% of the market value of the project.

At this stage that figure cannot be calculated because drilling to get a market-compliant reserve is ongoing. However, market observers following the action in South Australia’s far north believe Carrapateena could end up being as big or bigger than Prominent Hill, a copper-gold project advancing towards commissioning.

So, if Carrapateena does match or outdo Prominent Hill, owned by Oxiana (OXR-A), then the payout to Gomez could be in the A$500-600 million range. At this stage the figure is pure guesswork, as there’s more drilling to be carried out to produce a tangible resource to Canadian resource assessment standards.

If Prominent Hill is a barometer, the reserve there is a contained 1.5 million tonnes of copper metal and 1.9 million oz. gold, and there is a distinctive gold zone containing 900,000 oz.

Teck Cominco is one of the big spenders on exploration in Australia with the budget this year set at A$10 million, made up of work on its Lennard Shelf properties in Western Australia’s Kimberleys and Carrapateena.

Teck Cominco has a lot more deep drill holes to put into Carrapateena where the first sign of something big came from one of Gomez’s two wildcat holes undertaken with financial support from the South Australian government’s PACE program for drilling greenfield targets.

If ever proof was wanted of the subsequent drilling by Teck Cominco it came with Hole 50 with 905 metres grading 2% copper and 1 grams gold per tonne. Hole 2 was another, with 335 metres at 1.25% copper and 0.5 gram gold. The PACE success had come up with the eyebrow raiser that first alerted Teck Cominco: an intercept of 178.2 metres at 1.83% copper, 0.64 gram gold, 0.21% celerium and 0.13% lanthanum.

Hole 50 is being touted by some commentators as being the best hole for copper-gold in Australia and one Australian member of Teck Cominco’s team reportedly said it may well be the best hole ever drilled by Teck Cominco in its 100 years of life.

Carrapateena is the third plum in what may be one of the world’s biggest mineralized puddings, as the deep cover of the Stuart Shelf has produced: BHP Billiton’s Olympic Dam (a massive copper-uranium-silver-gold deposit) that contains about one-third of the world’s uranium resources and where an ambitious plan for a A$7-billion open pit is under study for an ore system under more than 300 metres of sterile cover); Prominent Hill, which has surface exposure; and now Carrapateena, where the cover appears to average 400 metres.

The Lennard Shelf region of Western Australia’s remote Kimberleys has a lead-zinc industry revived from the funeral pyre of Western Metals. There, Teck Cominco re-commissioned in June the Pillara operation by milling at 1 million tonnes per annum at a mill with a capacity three times that. The Pillara project has reserves of 3 million tonnes at 7.3% zinc and 1.8% lead and is a 50-50 project between Teck Cominco and Xstrata (XTA-L).

Teck Cominco’s land package in the region, prospective for Mississippi Valley-type deposits, covers 1,500 sq. km. Some A$6 million is being spent this year near Pillara and on targets in Emanuel Range, and the regional commitment has included reclamation of some of Western Metal’s mines.

The quest is to get the mill back to operating at full capacity, and Teck Cominco has other joint venture projects in the Kimberleys that may provide the feed.

— Based in Perth, Australia, the author is a freelance writer specializing in mining.