Prime Meridians – A $40 Million Copper Exploration Deal For An Unlikely Target

This week in Pierce Points:

India’s gold plan appeared to fizzle. Officials say monetization schemes have attracted less than 1 tonne of bullion so far.

A new number-one lead consumer emerged. Korea Zinc is now the world’s top buyer, after a recent smelter expansion.

175 energy and mining firms were warned. Moody’s and S&P have placed a big slate of companies on watch for downgrades.

Argentina looked to double natgas prices. A new plan could increase conventional field prices to $5.80 per MMBtu.  

A giant new copper mine got even bigger. China’s MMG says Las Bambas will grow 2016 production up to 50% faster than expected.

A $40 Million Copper Exploration Deal For An Unlikely Target

Further to the last item above, copper supply is looking more and more crowded these days.

With mines like Peru’s Las Bambas now expected to ramp up faster than thought, buyers in 2016 could have up to 100,000 tonnes more metal than originally expected. And there are a host of other projects — particularly in South America — that could add to the situation over the next few years.

In some ways, what we’re seeing is the cream rising to the top. With a world-class operation like Las Bambas expected to run at upper-quartile cash costs — around $0.80 to $0.90 per pound copper. Showing why such an operation can thrive even as others globally are struggling.

As always, today’s lower prices in the copper market don’t mean things are stopping completely. Rather, developers are simply refocusing on projects that make the most economic sense.

And we got an interesting indication last Wednesday of where such targets might be when it comes to the exploration segment of the market.

Namely, sediment-hosted copper deposits.

That’s the target of a new investment announced for world-leading miner BHP Billiton. With the company said to be looking at a big spend of up to C$40 million on a target in Canada’s Arctic.

The Storm project owned by junior developer Aston Bay Holdings.

Aston Bay this week announced the signing of a letter of intent with BHP — for what would be one of the biggest mining exploration deals done during the period of more-subdued metals prices that’s prevailed recently.

Under the new letter of intent, BHP would have the right to earn up to 75% in the Storm project — which is located on Somerset Island, Nunavut. The pricetag for the earn-in is significant, with BHP to spend C$40 million in order to gain this share of the project.

That’s a lot of cash for a major to be laying out when copper prices are hovering around $2/lb. Not all of it is coming immediately — with the deal spaced out over 9 years. But the earn-in does involve a firm spend of C$2.5 million during the first two years, which is a very decent commitment for the current market.

So what is BHP seeing in the Storm project?

In a word, grade. 

That’s because Storm is a unique type of target — sediment-hosted copper ore. Broadly similar to the African Copperbelt or the Polish Kupferschiefer. 

Such deposits haven’t gotten a lot of attention outside of those two locales — largely because they’re not well understood by many geologists. In fact, most of the attention in the copper world beyond Africa has shifted over the last decade to porphyry deposits, which are considered easier to explore for. 

But sediment-hosted copper ores have something that porphyries lack: high grades. With historical drilling at a project like Storm having yielded results like 110 meters of 2.45% copper — where many porphyry targets show mineralization at grades an order of magnitude lower. 

BHP obviously likes the potential for high-grade mineralization here. And sediment-hosted copper deposits also have proven potential for scale — with Africa’s deposits in the DR Congo and Zambia representing one of the largest copper accumulations on Earth. 

The attractiveness of such deposits is underscored by one of the few other big deals done in mining recently: for the Kamoa sediment-hosted copper project owned by Ivanhoe Mines. 

Last month, China’s Zijin Mining ponied up $412 million to buy 49.5% of Kamoa from Ivanhoe. With the firm braving the current downtrend in copper in order to grab a stake of this world-leading project — which contains nearly a billion tonnes of mineral resource grading in excess of 2% copper. 

And Kamoa looks to be far from done in terms of exploration potential. With Ivanhoe last week announcing a superb exploration hole of over 24 meters grading 3.48% copper — at a completely new target located five kilometers southwest of the currently-defined resource here. 

With results like that, it’s little wonder that Zijin is putting up big cash to get into this project — $2 copper or not. There just aren’t many places on the planet we’ve found mineralization at that scale and richness. 

Both of these projects — Storm and Kamoa — may be on the leading edge of a new trend for today’s copper market. With the world’s biggest miners looking to top-tier grades — which can make projects viable even at lower metals prices.

Watch for more exploration dollars being spent on high-grade targets like sediment-hosted deposits. Which just may yield some surprising results — enough to get attention even amid the current downturn.

Here’s to going for grade,

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Dave Forest 

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