Article from The Financial Post...
iday, January 9, 1998
Western Copper could be sitting on a
gold mine
By PETER KENNEDY
Vancouver Bureau The Financial Post
If massive sulphides are any indication
of a large base metal find, then
Western Copper Holdings Ltd.
(WTC/TSE) could be sitting on a large
one in Mexico.
That is the theory behind the rapid rise
in the price of shares in Western
Copper, a mining junior exploring the
El Salvador property in the Mexican
state of Zacatecas with another Vancouver company, Teck Corp.
Formed by volcanic activity, massive sulphides are considered in mining circles to be strong
indicators of the presence of metals like copper, silver, lead and zinc.
Western Copper shares doubled to more than $5 in early December, after the junior said
drilling in the San Nicolas zone of the El Salvador property had returned a rock section
hosting 175 metres of massive sulphides.
The top 28.4 metres of that intersection contained an average of 0.64% copper, 5.53% zinc,
1.2 grams a tonne of gold and 47.6 grams silver a tonne.
Since then, Western Copper's 10.7 million shares outstanding have continued to seesaw,
hitting a 52-week high of $6.20, Jan. 2, before closing down 9› at $4.66 yesterday.
Analysts say what happens from here depends on assays results, due next week, from the
first five drill holes on the San Nicolas zone.
They add that Western Copper is getting attention because massive sulphide sections of the
magnitude reported so far are extremely rare.
"Based on the apparent size of the sulphide body, we believe the volume of a potentially
economic deposit could also be large,'' said Doug Leishman, an analyst with
Vancouver-based Yorkton Securities Ltd. in a recent report.
However, analysts agree that massive sulphides alone do not make a mine. Some argue that
shareholders are paying a lofty premium for a company which has so far released assay values
from only one drill hole.
"I hate to see people get involved in these stocks so early on,'' said Dorothy Atkinson of
Whalen Beliveau & Assoc. in Vancouver.
"This may be a world-class deposit, but let's get some more numbers out before we start
paying these kinds of prices,'' she said.
Leishman, who recently visited the property, agrees with that view.
"There is a certain risk involved, that's for sure,'' he said. However, he attributes the stock's
performance to a number of key factors:
Western Copper is exploring in the historic Zacatecas mining belt, that has produced 1.8
billion ounces of silver.
Large quantities of massive sulphides exist in the San Nicolas zone, which covers 225
square kilometres.
Because massive sulphides tend to occur in clusters, there is a good chance that similar
deposits will be found on the rest of the El Salvador property.
Teck is acting as Western Copper's joint venture partner and the project operator.
One of Canada's largest mining companies, Teck has a 55% stake in the project, with
Western Copper holding the remaining 45%.
Teck can increase its interest by another 15%, while Luisman SA de CV, the Mexican
vendor of the property, has a back-in option that would give it 25% if it elects to finance its
share of production costs.
"Teck's involvement adds a lot of credibility to the project,'' said Andrew Muir, analyst with
Canaccord Capital Corp. in Vancouver. Analysts say investors also take comfort from Teck's
involvement -- directly or indirectly -- with other high-flying Canadian juniors like Donner
Resources Ltd. and Cross Lake Minerals Ltd.
While drilling the San Nicolas zone, Western Copper is also doing preliminary exploration on
a property north of the El Salvador property under an agreement with Utah resource giant
Kennecott Corp.
About two weeks ago, Western Copper said Thomas Patton had agreed to become its
president and chief operation operating officer.
A former senior vice-president of exploration and development at Kennecott, Patton
succeeds Dale Corman who remains as Western Copper's chairman and chief executive.
The Kennecott deal enables Western Copper to earn a 100% stake in an area covering
300,000 hectares by spending $3 million over the next three years.
However, Kennecott has back-in rights to acquire a 51% stake on any find that reaches the
pre-feasibility stage by paying Western Copper roughly half its total exploration costs.
"We are getting to the point where we should be starting to drill [on the Kennecott property]
within another couple of months,'' Corman said.
Western Copper's other chief asset is the Carmacks copper project north of Whitehorse, in
the Yukon. Estimates show it will cost $66 million to develop a mine capable of producing
about 32 million pounds of copper cathode annually.
However, estimated operating costs of US63› a pound over the life of the Carmacks mine
would make profits skinny in the present economic environment. Copper would have to trade
around US$1 a pound before Western Copper would consider bringing the project into
production. Copper traded this week near a four-year low US75› a pound on the London
Metals Exchange.
Meanwhile, the focus remains on San Nicolas, where Teck is expected to complete 40 drill
holes as part of a program to determine the project's potential.
"The real key is whether this is a high-grade underground mine or an open pit,'' Corman said.
Western Copper has about $1.3 million cash to finance exploration in Mexico. It will be
raising money within the next couple of months to fund its share of exploration costs on
Kennecott's portion of the El Salvador property.
"We need to raise between $3 million and $6 million,'' Corman said, adding that warrants and
options outstanding could net the company another $4.5 million if exercised. Those warrants
have the potential to increase to 13.7 million the amount of fully diluted shares outstanding,
from 10.7 million.
Corman said he would not make any commitments regarding financing until results from the
next batch of holes are released.
Leishman believes the stock will go higher if assay results match the ones announced in early
December. "But to what extent, I don't know.''
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