WESTERN COPPER HOLDINGS (WTC : TSE : $6.35 : Issued 12.6M; 14.0M f.d.)
The Teck/Western Copper joint venture has announced that the San
Nicolas zinc-copper-silver-gold deposit, located in Zacatecas State of
central Mexico, could be an open-pit mine. The positive statement
comes after several months of exploration and engineering work.
Canaccord has provided regular analysis of the discovery, including a
major report on April 2, 1998. San Nicolas is a massive sulphide body
with zones of high-grade zinc and copper. Teck's resource estimate for
the deposit is 85Mt. Of significant value in these results is that
Teck will consider San Nicolas as an open pit mine with 45 degree
walls and a waste to ore stripping ratio of 7.8:1. The mining scenario
lowers the operating cost possibly to less than $10/t. The
joint-venture will need to pre-strip about 100M t of waste at a mining
cost of approximately US$0.70/t. Teck may be interested in buying the
depleting Real de Angeles mine, located only 15 km from San Nicolas.
Real de Angeles has a flotation plant capable of processing 18,500 tpd.
Such an acquisition would accelerate the project, save on the capital
expenditure, and provide a used pit for a disposal site for the tails.
We noted in a previous comment that the value from silver and gold may
be less than expected if the metals occur within the useless pyrite
mineral. Teck has completed preliminary metallurgical work and found
that the precious metal recoveries achieved to date are less than 20%
for silver and gold. Furthermore the copper recovery in the high-grade
zinc and mixed zones is estimated to be in the 60%-63% range. However,
these estimates are based on experiments involving a very small sample
size. Teck will undoubtedly conduct further metallurgical tests to
optimize the metal recovery. We have revised our models to consider
the new results. Using industry average costs and optimum mining rates
we estimate that the project imparts a $6.00-7.00/share base-case NAV
to Western Copper (refer to April 2 report for more information on
assumptions and error). We note that WTC currently owns 45% of the
project, however, it can be diluted to 22.5% with a payment of 5% of
the project's discounted NPV at feasibility. The Teck engineering
report gives Western Copper a foundation of value. The Company has
considerable upside potential with the further step-outs and
optimization at San Nicolas, positive exploration results at
Penasquito, ongoing exploration and defined targets with the RTZ joint
venture, and new prospects in central Mexico. We rate the stock a BUY
and maintain our target price of $12.75. Canaccord Research Glenn
Brown, Ph.D., Richard Gray.
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