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Mining Explorers 2013: Developing Arctic synergies

In partnership with NANA, NovaCopper targets multiple high-grade copper mines

As NovaCopper Inc. continues to adds to the more than 5.5 billion pounds of copper it has identified at the highly prospective Ambler mining district, the explorer is beginning to formulate a plan to develop the first of three ultra-high-grade deposits in this highly prospective but remote region of Northwest Alaska.

The Vancouver B.C.-based junior launched into 2013 with the February release of a maiden NI 43-101-compliant mineral resource estimate for South Reef, one of two high-grade copper zones found at Bornite.

Based on 29 holes drilled by NovaCopper and 13 holes previously drilled by Kennecott, the South Reef zone is estimated to contain an inferred resource of 43.1 million metric tons averaging 2.54 percent copper, or 2.4 billion pounds of contained copper.

"We are well underway to achieving our objective of defining 10 billion pounds of high-grade copper in the Upper Kobuk, which has the potential to evolve into one of the world's major copper mining districts," said NovaCopper CEO Rick Van Nieuwenhuyse.

The 2.4 billion-pound copper resource at South Reef adds to 1.1 billion pounds of copper delineated at Ruby Creek, another zone situated roughly 500 meters to the northwest, and 2 billion pounds of copper at Arctic, a volcanogenic massive sulfide deposit situated about 16 miles (26 kilometers) northeast of Bornite.

Arctic and Bornite are united under the Upper Kobuk Mineral Projects, a partnership between NovaCopper and NANA Corp., the Alaska Native regional corporation that represents the Inupiat people of Northwest Alaska.

The alliance provides NANA with the opportunity to benefit from the exploration and potential development of the Arctic deposit and VMS prospects across the 70-mile (110 kilometers) blanketed by NovaCopper's 90,624 acres of state, federal and patented mining claims.

In return, NovaCopper is afforded the opportunity to investigate Bornite and explore other prospects across a copper-cobalt belt that is hosted primarily on lands owned by NANA.

With a budget of C$16 million, NovaCopper's 2013 program focused on expansion of the copper-rich zones at Bornite and completion of a preliminary economic assessment for an open-pit mining scenario at Arctic.

Arctic open-pit

An analysis of the economics of an open-pit mine at Arctic has stripped away the idea of underground mining as the only means to recover the copper, zinc, lead, silver and gold from this VMS deposit.

"We think this (preliminary economic assessment) demonstrates that the open-pit is a viable alternative; and I think with further study as we work toward a feasibility study, we will hone in on that decision," Van Nieuwenhuyse explained in July.

This PEA for the Arctic VMS deposit is based on a conventional truck-and-shovel mine, feeding a 10,000-metric-ton-per-day mill that produces three concentrates - copper, zinc and lead.

An updated resource prepared for the open-pit scenario estimates Arctic has an indicated resource of 23.85 million metric tons averaging 3.26 percent (1.71 billion pounds) copper, 4.45 percent (2.34 billion lbs.) zinc, 0.76 percent (400 million lbs.) lead, 0.71 grams per metric ton (550,000 ounces) gold, and 53.2 g/t (40.8 million ounces) silver. Additionally, Arctic has an inferred resource of 3.63 million metric tons averaging 3.22 percent (239 million lbs.) copper, 3.84 percent (285 million lbs.) zinc, 0.58 percent (43.2 million lbs.) lead, 0.59 g/t (60,000 ounces) gold.

To reach these rich layers of VMS mineralization, roughly 300 million metric tons of waste material would be removed; including nearly 50 million metric tons of waste that would need to be mined prior to milling.

"We are looking at a series of flat ore-zones, they are polymetallic deposits, they are 100 to 200 meters below the surface," explained Van Nieuwenhuyse.

At an 8.4:1 strip ratio, the amount of waste material that needs to be removed tacks on a substantial expense, but once the high-grade VMS mineralization is reached, the increased milling rate and mining simplicity helps offset the added mining costs.

The open-pit scenario produces a net present value for Arctic topping US$537 million and is likely to fit well with the potential future development of Bornite.

Over the 12-year mine-life contemplated in the PEA, Arctic's annual payable production is projected to be 125 million pounds of copper, 152 million lbs of zinc, 24 million lbs of lead, 29,000 ounces of gold and 2.5 million oz of silver. This comes to a total of 1.5 million lbs of copper, 1.8 million lbs. of zinc, 289,000 lbs of lead, 30.5 million oz of silver and 349,000 oz of gold.

Copper accounts for 60 percent of the net revenues, zinc and lead account for 25 percent, silver and gold make up the remaining 15 percent.

The PEA estimates the initial capital expenditures to develop a mine at Arctic to run US$717.7 million. Adding in sustaining capital of US$164.4 million, the total estimated capital expenditures over the 12-year mine life are anticipated to total US$882.1 million.

The base case scenario for the PEA utilizes long-term metal prices of US$2.90/lb for copper, US85 cents/lb for zinc, US90 cents/lb for lead, US$22.70/oz for silver and US$1,300/oz for gold.

At these pricing assumptions, the economic assessment estimates the open-pit mine scenario would produce an after-tax net present value (8.0 percent discount) of US$537.2 million; an after-tax internal rate of return of 17.9 percent; and an after-tax payback of 5.0 years.

"The results of the PEA show that the Arctic Deposit has positive economics even in today's low metal price environment. The project has excellent margins with annual average payable production of approximately 125 million pounds of copper at an average cash cost of US62 cents per pound of copper net of by-product credits. On that basis, once in production as contemplated by the PEA, Arctic would be in the lowest quartile among copper producers in terms of cash costs," said Van Nieuwenhuyse.

NovaCopper has identified a number of areas in which it can improve the economics as it looks to complete a pre-feasibility level study for an open-pit mine at Arctic.

"While the economics of the project are positive, I believe that some of the project parameters, such as metallurgical recoveries, capital and operating costs, can be improved, and we will continue to focus on these aspects going forward," explains Van Nieuwenhuyse.

The company is also working with the state of Alaska to source liquefied natural gas to replace diesel to power the generators at Arctic.

"A recently released feasibility study, prepared by the Alaska Industrial Development Export Authority, suggested that the use of LNG should lead to substantial power cost reductions. Under that scenario, a stand-alone liquefaction plant would be constructed on the North Slope of Alaska from where LNG would be trucked to Fairbanks and other interior markets of the state," the NovaCopper CEO explained.

Upper Kobuk synergies

Aside from further refining the project parameters, one of the most advantageous blue-sky prospects for the economics of mining the Arctic deposit may it the fact that it may not be the largest of the copper-rich Upper Kobuk Minerals Projects to be developed..

"Right now we have not incorporated any potential synergies with Bornite. We do think that is one of the upsides that we will be taking a look at as time goes forward," explained Van Nieuwenhuyse.

Ruby Creek is a near-surface zone at Bornite that hosts an indicated resource of 6.8 million metric tons averaging 1.19 percent (179 million lbs) copper and an inferred resource of 47.7 million metric tons averaging 0.84 percent (883 million lbs) copper. South Reef, a richer but deeper zone, has an inferred resource of 43.1 million metric tons averaging 2.54 percent (2.4 billion lbs) copper.

Early in May, NovaCopper kicked off a 8,142-meter drill program focused on expanding these adjacent zones of high-grade copper.

"We just finished up drilling on-site - this year's drilling was all focused on Bornite," Van Nieuwenhuyse explained late in July.

With assay results from the 17-hole drill program still pending, the NovaCopper CEO was restrained from talking too much about the exploration potential for Bornite. One comment, though, indicates that the company hasn't found the boundaries of the deposits.

"We are still finding more and more copper at Bornite, so we are still trying to size and scale the system there," said Van Nieuwenhuyse.

If Bornite follows Arctic toward development, it may enhance the prospect of putting more equipment to work stripping the waste rock off the VMS deposit.

"We are going to look at an opportunity to increase the mining of the waste rock material (at Arctic) to remove it quicker. It also may include stockpiling in those early years," said Van Nieuwenhuyse.

If the extra trucks, shovels and other equipment needed to speed up the removal of the waste rock at Arctic could be utilized to mine the open-pittable high-grade copper deposit Ruby Creek zone at Bornite, then the economics of both operations could be enhanced through this cooperation.

Ambler road

One of the biggest synergies for the Upper Kobuk Mineral Projects is the shared infrastructure. While these copper-rich deposits have been known for decades, they have remained un-mined primarily because they are isolated in Alaska's Arctic. Multiple projects in this remote region would help ensure the repayment of building a 211-mile- (340 kilometers) long road, extending west from the Dalton Highway to the project area.

In recent years, the State of Alaska has invested nearly US$10 million towards defining an optimal corridor to the Ambler Mining District; establishing a right-of-way; and beginning the environmental and permitting work to build the road to Ambler. The 2014 state budget includes another US$8.5 million for AIDEA to continue this work.

In April, NovaCopper and AIDEA entered into a memorandum of understanding that formalizes the roles of each party as they relate to permitting the Ambler Mining District Industrial Access Road and developing one or more mines at the Upper Kobuk Mineral Projects.

"The completion of the MOU with NovaCopper is beneficial, not just for NovaCopper, but for all Alaskans because the development of the Ambler mining district is expected to produce significant economic benefits for the state and, most importantly, for the communities of Northwest Alaska," said AIDEA Executive Director Ted Leonard.

The MOU also allows AIDEA to investigate various ways to fund the construction and maintenance of the Ambler Road.

The working assumption in the Arctic open-pit PEA study is that AIDEA would arrange financing in the form of a public-private partnership to construct and maintain the road to Ambler. AIDEA would charge a toll to multiple mining and industrial users (including NovaCopper's Arctic Project) in order to pay back the costs of financing the road to Ambler.

"AIDEA is the lead proponent for the permitting, financing and construction of an industrial access road to the Ambler mining district and the completion of this PEA provides further impetus for AIDEA to move forward on the permitting and construction of the Ambler access road," said Van Nieuwenhuyse.

With the Ambler Road complete, the synergies will likely spread to the multitude of rich deposits and prospects previously isolated in this remote region of Northwest Alaska.

Author Bio

Shane Lasley, Publisher

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Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.


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