What’s next for BC’s Ajax copper-gold project?

Abacus Mining & Exploration (AME-V) envisions an interesting prospect at its joint-ventured Ajax copper-gold project near Kamloops, B.C., with a feasibility study showing the project could support a 60,000-tonne-per-day operation generating 2.5 billion lbs. copper and 2.28 million oz. gold in concentrate over 23 years.

Abacus owns 49% of the project, while its Polish partner, KGHM, holds the rest.

Mining could start as early as 2015 if the junior secures funds to develop the project. The study estimates building costs at US$795 million, which includes a US$87-million contingency, while anticipated cash costs to produce a pound of copper is US$1.28, net of gold credits.

To get the required capital for Ajax, Abacus depends largely on KGHM, which has been waiting until the feasibility study to decide if it should boost its interest in the project to 80% by providing up to US$35 million in exchange for 29% of the project’s copper-equivalent reserves. If it chooses to do so, it would be responsible for providing 80% of the start-up costs, while Abacus would have the option to raise the remaining 20%, or ask KGHM to pick up the tab. 

If KGHM does not increase its interest within 90 days of receiving the study, Abacus could buy its partner’s 51% stake for US$37 million, or the junior could boost its own stake from 49% to 51%, by paying KGHM US$1.5 million.

Commenting on the study’s results, KGHM states that “work is underway on developing an optimum financing model for the project. If the decision is made to commence the project’s investment stage, at least fifty percent of the financing for the project would be in the form of bank loans.”

Before taxes and applying an 8% discount rate, the project’s net present value (NPV) is US$416 million and the internal rate of return (IRR) is 14.5%. This base-case scenario uses copper and gold prices of US$2.75 per lb. and US$1,085 per oz., respectively. Payback is expected within eight years. 

But with higher gold and copper prices of US$1,700 per oz. and US$3.50 per lb., the pre-tax NPV moves to US$1.6 billion and the IRR jumps to 30.3%, while payback drops to about two years.

James Excell, Abacus’ president and CEO, is pleased by the possible scenarios. “The feasibility study confirms the economic viability of the Ajax project at long-term copper and gold prices, and demonstrates the leverage to increases in metal prices,” he said in a prepared statement.

Excell adds the feasibility is a  milestone for the company because it aims to have the project up and running by 2015, and that the “Ajax mine economics compare very favourably to the leading copper projects being developed around the world, given its long life, location, open-pit mining and conventional processing.” 

The project hosts reserves of 2.9 billion lbs. copper and 2.7 million oz. gold from 503 million tonnes grading 0.27% copper and 0.17 gram gold. 

 It saw two brief mining periods between 1989-1991 and 1994-1997 by Teck Resources (TCK-T, TCK-N), but closed because of low metal prices. 

On the feasibility news, Abacus closed up 3% to 16¢ within a 52-week range of 14¢-28.5¢.