Three companies better than one for Western Copper family

Vancouver – Convinced its portfolio of projects weren’t being adequately appreciated in the market, Yukon-focused Western Copper last year decided to spin out everything but its flagship Casino project into two new companies.

The result was Copper North Mining (COL-V), holding the high-grade, potentially near-term Carmacks copper project and the Redstone copper-silver property, NorthIsle Copper and Gold (NCX-V) with the North Isle copper-gold project on Vancouver Island, and rebranded Western Copper and Gold (WRN-T) keeping the billion-tonne, billion-dollar net present value copper and gold Casino project.

With both the Casino and Carmacks projects at advanced stages after many years of development, the spin-out also allows the separate companies to better concentrate on moving them forward towards production.

“It was important for us to make sure that we were dedicating our time on the asset within the company that had the most value,” says Paul West-Sells, president and COO of Western Copper and Gold, “and that was by far Casino.”

West-Sells, speaking with The Miner at the company’s head office, says that while the company had been managing to move both projects along for several years, what finally spurred the spin-offs was the near doubling of the Casino resource in 2011, moving the project into a whole different category.

Casino now hosts reserves of 976 million tonnes grading 0.2% copper, 0.24 gram gold, 0.023% molybdenum and 1.7 grams silver, giving contained metal values of 4.4 billion lbs. copper, 7.5 million oz. gold, 494 million lbs. molybdenum and 54 million oz. silver. Inferred resources more than double the total resource.

“The way that I view it is it went from being one of a bunch of good size copper-gold projects into being one of those handful of really large company-makers,” West-Sells says.

Along with a resource expansion last year came an updated pre-feasibility study that put the after tax project net present value at $963 million with an 8% discount and an internal rate of return of 16.2%. At November 2011 spot prices, the project comes in at an NPV of $2.2 billion and a 25.3% IRR.

With a project of that scale in the Yukon, the company has had to make extra infrastructure considerations, such as building a liquefied natural gas power plant and the infrastructure to supply that. Originally the company was considering bringing in the gas from Kitimat, but will now likely arrange for a distribution plant in Fort Nelson.

While the plant may add up-front capital costs, West-Sells says several companies have already said they’re interested in building the plant and selling gas to the company, saving Western building it itself.

“There’s a glut of natural gas, that’s a pretty well-known story,” West-Sells says, “and they’re just trying to find ways to sell that.”

With pipeline politics heating up across North America, the company also saves having to worry about such touchy infrastructure.

“The advantage is you’re not building a pipeline, you’re just filling up trucks,” West-Sells says.

As to 2012, Western Copper and Gold will be working to finish a feasibility study by the end of the year as it also advances permit applications. The company is not doing any drilling to upgrade the inferred resource since it sits below the designed open-pit and wouldn’t add value at this point.

“It’s stuff that would come out of the pit sort of 2040 or 2050,” West-Sells says. “That doesn’t change the economics of the project.”

For Copper North, permitting is its single most important goal for 2012. Last year the people advancing the Carmacks project were surprised to learn that their water license, the last permit required for the company to go forward with development, was rejected.

“When the company had approached the Water Board,” says Sally Eyre, president and CEO of Copper North, “and it’s license was denied, I think nearly all stake-holders, not only in the Yukon but all of Canada, we’re very surprised by the denial.”

Surprised or not, the Water Board’s decision was upheld after Western Copper appealed the ruling to the Yukon Supreme Court, and while the company then appeal to the Yukon Court of Appeal, the company found itself at somewhat of an impasse.

With the newly created spin-out, however, Eyre is bringing a fresh perspective and a fresh team to reinvigorate the process. Most recently, the company appointed Doug Ramsey as VP sustainability and environmental affairs to help move the permitting forward.

“With the new team we’re creating, and the new board, we’ll have a new approach”, Eyre says, “We’re re-engaging all parties; I’m pretty confident we’ll be able to secure that water license in 2012.”

As part of that fresh approach the company recently announced it was abandoning its current appeal and will instead be working closely with regulators to satisfy their concerns about heap-leach technology, output neutralization, and the discharge management plan.

When the company secures the water license, as Eyre is confident it will, Copper North will be able to launch directly into construction as it already has a quartz mining license and approval from the Yukon Environmental and Socio-economic Assessment Board. In preparation, the company is also working to update its 2007 feasibility study and secure the $150-million that will be required to build the mine.

“We’re literally 20 months away from construction to production,” Eyre says. “Carmacks – I expect it to be the Yukon’s next producing copper mine, we’re one permit away from that.”

Once in production the company will be able to tap into the 10.6 million in proven and probable tonnes grading 1.04% copper, which, according to the 2007 study, translates to a pre-tax net present value of $85 million based on a 5% discount, and a 21.1% internal rate of return.

Then, with an aim to become a mid-tier copper producer, Copper North is also working to advance its Redstone project in the Northwest Territories, which hosts an inferred resource of 34 million tonnes grading 3.92% copper and 9 grams silver.

NorthIsle, meanwhile, plans to start drilling the Hushamu porphyry deposit at its Island Copper-Gold project sometime in January. The project hosts a measured and indicated resource of 231 million tonnes grading 0.27% copper and 0.31gram gold.

With the turmoil of the markets in 2011 it’s hard to measure whether the spin-out was successful in creating more value than would otherwise exist. Last January Western Copper hit an all-time high of $4.40 with 93 million shares out for a market capitalization of roughly $409 million. This January Western Copper recently closed at $1.71, still with 93 million shares out, while Copper North closed at 25¢ with 47.3 million shares out, and NorthIsle at 27¢ with 46.5 million shares out, for a combined market capitalization of about $183 million.