Western Copper doubles down on Casino

SITE VISIT

CARMACKS, YUKON — Western Copper’s (WRN-T) Casino gold-copper- molybdenum deposit in the Yukon is huge. Standing atop the hill in its centre, the bright orange flags that mark the edges of the planned pit are so far away, they are hard to see and the deepest hole at the site ended in mineralization at 900 metres depth.

And the deposit seems designed for mining, with an oxide gold cap that returns good recoveries via dump leaching, a thick supergene zone with higher copper grades, and a huge underlying porphyry carrying copper, gold, moly and silver.

The difficulty at Casino is infrastructure. Sitting 380 km northwest of Whitehorse, Casino is a fair distance from any major road. The closest source of grid power is at Capstone Mining’s (CS-T) Minto copper-gold mine, 100 km to the east, but a mine at Casino would require more power than is used in the entire territory at present.

Western Copper is facing these problems head on. With a new resource estimate in hand the company is working to update its prefeasibility study, an effort that will include options for access and power. Essentially, the company believes that when a deposit is this big, anything is possible.

The backstory

A red-orange stain on the hillside, known as a hematite gossan, inspired a soil sampling program in 1969, around what is now the Casino deposit. Hematite gossans are often created by iron washing downhill from a porphyry, which was exactly the case at Casino.

Even though the sampling program returned interesting results, the project sat dormant until 1992 when Pacific Sentinel Gold kicked off a major exploration program. After 70,000 metres of drilling the company produced a scoping study for Casino, but it only considered the gold oxide cap.

Then in 2006, Glamis Gold (now part of Goldcorp [G-T, GG-N]) bought Western Silver, primarily for the Penasquito silver-gold project, and in the deal Western Copper was created. Much of the management team from Western Silver is now leading Western Copper.

At first Western Copper only held the Carmacks copper project, which is also in the Yukon, but by the end of 2006, the company had inked a deal to buy Lumina Copper. Lumina Copper was one of the four companies Ross Beaty had created to hold the four large copper-based properties he acquired during the economic downturn of the late 1990s. Casino was the major project in Lumina’s portfolio.

Western Copper remained focused on Carmacks through 2007 but in 2008 the company punched a few confirmation holes into Casino and produced a prefeasibility study. That study predicted a $2.1-billion investment could fund development of a large-scale, open-pit mine feeding 30,000 tonnes of oxide ore to a heap leach and 89,000 tonnes of sulphide ore into a flotation facility each day for 30 years. The 2008 study added a coal-fired power plant into the mine design, at a cost of $550 million.

That version of Casino was expected to produce a 20.4% pretax internal rate of return, enabling payback in 3.8 years, and carried a net present value of $1.8 billion, using an 8% discount. The study used metal prices that today seem almost odd: US$2.95 per lb. copper, US$30.97 per lb. molybdenum oxide and US$647 per oz. gold.

Doubling resources

In the two years since that prefeasibility study was completed a few things have changed in the mining world. The price of copper is remaining above US$3.50 per lb., the price of moly has fallen by 50% to the US$15-per-lb. range, and the price of gold has climbed dramatically, recently above US$1,400 per oz.

On top of that, the Yukon has become a hot spot for exploration. A series of exciting gold discoveries in the White Gold region, combined with the resumption of silver production at Keno Hill and the expansion of the Minto mine, have shone a light on the territory’s mineral potential and its socioeconomic support for mining. And there are few projects in the Yukon as advanced at Casino.

Western Copper has done its part, having spent the last two years drilling to expand and improve its deposit. The company completed 26,000 metres of drilling, much of it focused on gleaning a better understanding of the supergene layer. Western Copper’s geologists also re-logged all 90,000 metres of historic Casino core to better understand the deposit as a whole and to include silver grades in an updated resource.

The new resource came out in early November and more than doubled the contained metal count. The copper-bearing portions of the deposit, which includes the supergene oxide, supergene sulphide, and hypogene zones, now boast measured and indicated resources totaling 1.06 billion tonnes grading 0.2% copper, 0.23 gram gold per tonne, 0.022% molybdenum and 1.71 grams silver per tonne. Inferred resources add significantly to the resource, standing at 1.7 billion tonnes averaging 0.14% copper, 0.16 gram gold, 0.019% moly and 1.37 grams silver.

Combining all resource classes, the supergene and hypogene zones are home to 9.9 billion lbs. copper, 16.6 million oz. gold, 1.2 billion lbs. molybdenum and 133 million oz. silver.

The oxide cap also grew. Oxide resources now stand at 58 million measured and indicated tonnes grading 0.46 gram gold and 2.77 grams silver plus 9 million inferred tonnes averaging 0.35 gram gold and 1.92 grams silver, for a total contained metal count of 1 million oz. gold and 5.7 million oz. silver.

The pit encompassing the deposit now stretches 1.8 km east to west and 1 km north to south.

“The resource upgrade to the Casino project, one of the world’s largest open-pittable gold, copper and molybdenum deposits, is remarkable,” says Western Copper chairman and CEO Dale Corman. “This new resource will be included in a revised prefeasibility study scheduled for completion in early 2011, where we expect the large increase in supergene mineralization to result in higher grades over the initial operation of the mine and lower strip ratios, and much better economics.”

It is that supergene layer that makes the Casino deposit special, at least for Canada. Porphyry deposits in Chile and in the southwestern United States commonly bear this copper-enriched layer, which is created when groundwater leaches copper from the upper layer of a deposit and re-deposits it at the water table level. The result is an oxidized upper layer stripped of copper but still bearing gold, followed by a zone of secondary copper mineralization consisting primarily of chalcocite and minor covellite. The average copper grade in the enriched zone can be up to twice that of the underlying primary mineralization, which consists of pyrite, chalcopyrite and molybdenite.

The process happened to porphyry deposits in Canada, but most of the country was subsequently covered by glaciers. When those ice sheets moved and then melted, the action scraped away the upper layers of most deposits. Casino is lucky because of its location — that portion of the Yukon was not glaciated in the last ice age, so the entire zonation was preserved.

Otherwise the geology of the Casino deposit is typical of many porphyries. It is centred on a tonalite stock that intrudes the granitoids of the Dawson Range. The intrusion caused brecciation of both the intrusive and the surrounding country rocks along its contacts. In the east, the breccia reaches up to 400 metres width; it is narrower along the other sides. The breccia zones carry the best grades, as they provided the conduit for mineralizing fluids to move. Grades decrease moving away from the contact breccias, both moving towards the centre of the intrusion and moving away, into the surrounding granitoids.

Casino may not have high grades but it makes up for that in size. And its grades are in line with those at operating mines and comparable development projects. For example combining all of Casino’s metals into a copper equivalent gives a higher grade than the head grades at Teck Resources’ (TCK. BT, BT, TCK-N) Highl
and Valley copper mine, Taseko Mines’ (TKO-T, TGB-N) Gibraltar copper-moly mine, and Northgate Minerals’ (NGX-T) Kemess South gold-copper mine.

The deposit is also well-suited to conventional recovery techniques. It contains no arsenic, which is a penalty in copper concentrates, and a dump leach recovers 60-70% of the gold. Milling and flotation then recover most of the remaining gold and 85% of the copper.

So the only real hurdle at Casino is its somewhat isolated location. The company is currently building a road to the Yukon River so that it can barge supplies to site during the next phase of exploration and pre-development. A road all the way into a mine at Casino would be 140 km long and likely cost $120 million.

The other question is how to power a mine at Casino, which is expected to require 125 megawatts. Connecting to the grid is not really an option, as the operation would need as much power as is used in the entire Yukon right now. As stated, the old prefeasibility study included a coal-fired power plant, at a cost of $550 million. Corman says the new study will look at using natural gas. He says a natural gas plant would cost less to build — probably something like $200 million — but the cost of buying and transporting gas to site are higher than for coal. The mine would have to truck fuel in from Fort Nelson, at a rate of one truck per hour.

That could change, though, as there are plans to build a natural gas pipeline through the Yukon in 2021. That line, if built, will pass within 90 km of Casino, potentially offering a much cheaper source of fuel.

While there are many questions yet to be answered, Western Copper envisions producing gold from a heap leach at Casino by 2015. A year later, the company wants to get the mill running and start producing copper and molybdenum.

Western Copper is spending $56 million exploring Casino this year, much of which is already complete. It is now busy spending an additional $5 million earmarked for permitting and feasibility work. At the end of June, the company had $6.2 million in cash and equivalents.

Western Copper recently closed at $1.68 per share, trading within a 52-week range of 81¢ -$2.25. The company has 82 million shares outstanding or 88 million fully diluted.