Credence Copper Revival: Junior Teaches Old Arizona Mine New Tricks
ANALYSIS—ProspectingJournal.com—Despite the effects of erratic markets, now driven by debt headlines and reports of cooling Chinese demand , copper is holding steady. The reason is simple: the commodity with the “PhD in Economics” plays an integral role as our wired society’s nervous system. One look at cu’s five-year spot price illustrates this resilience, not to mention the possibility for future growth:
Of the companies competing for copper, one miner has taken a unique, historical-to-modern approach. Oracle Mining Corp. [OMN – TSX] has entered Arizona as the sole owner and operator of the Oracle Ridge Copper Mine. Located 24km northeast of Tucson, the mine operated from 1991 to 1996 at a rate of 800 tons per day until it was shut down due to low copper prices and mismanagement. As a formerly producing, underground mine, it offers immediate benefits: high-grade copper drill results have been delivered since May 2011, infrastructure is already established and environmental impacts are minimal due to the host rock being primarily limestone (non-acid generating).
Oracle plans to bring the mine into production by Q4/2013 through an extensive capital expenditure of approximately $100 million to construct a new processing plant and develop stopes for mining, which will enhance the estimated $40-$50 million of infrastructure already in place. This plan includes ongoing drilling, along with the production of an NI 43-101 compliant resource by Q3/2012. By 2013, Oracle anticipates an estimated throughput rate of 2,000 tons per day.
As for how much copper is left in the ground, Oracle has taken an ambitious approach of comparing historical data to current results. The historical resource calculation (not NI 43-101 compliant, the Proven, Probable resources) is 8.1 million tons, grading 2.33% copper.
A recent news release correlates well with historical data, as seen in the following highlights: hole ODH-19 covering six zones of greater than 1.0% copper mineralization, including 27 feet of 3.57% copper and 1.07 oz/ton silver; ODH-15 reporting 25 feet of 4.34% copper and 1.11 oz/ton silver, as well as ODH-17 with 59 feet of 2.32% copper. These holes will allow the Company to render its NI 43-101 resource estimation compliant. So far, current results from two mobilized drill rigs compare favourably to historic data, which consists of 500+ drill holes with 163,000 feet of surface and underground exploration.
Promising drill results, a past-producing mine, a recent financing and strong management make Oracle Mining a good pick for anyone looking to get in on a company that could make a rapid transition to producer status. With no royalties in place and minimal debt, Oracle is well-funded and can thus focus on financing the capital expenditure needed to bring the mine back to life. The Company is a near-term producer with a high-grade project, an experienced management team and a lower capital expenditure than 95% of the copper projects now in the planning stage. Oracle has also recently signed a term sheet with Credit Suisse AG for up to US$70 million in order to advance the Oracle Ridge project.
As is the case with other commodities, investors may be reluctant to invest in copper projects far from home due to global economic uncertainty. Fortunately, the United States is the world’s second biggest producer after Chile. The largest copper mine in the US is Kennecott Copper’s Bingham Canyon Mine in Utah. Known as “The Richest Hole on Earth,” the mine has yielded more copper than any mine in the world, though will soon close as it is running low on resources. As well, the renowned San Manuel copper mine helped put Arizona on the map. The mine processed 85,000 tons of ore per day, produced 500 million pounds of copper per year, and was one of the largest underground copper mines in the world before it closed in 2003.
The closure of San Manuel and the dwindling resources at Bingham Canyon highlight an emerging issue: the big mines are slowly running out. A look at the global copper warehouse stocks shows that inventories are on the decline. This decline puts an enormous strain on the supply side, as established miners feel the pressure to keep up with future demand.
In response, exploration and development miners have been quick to step up and provide the expertise needed to discover new deposits and refurbish past-producing mines. The junior and mid-tier players are placing educated bets, based on market fundamentals, that copper will face increasing demand from developing nations in the medium to long term. On top of this, copper miners also enjoy the possibility of attaining molybdenum, gold and silver as byproducts because these metals are commonly found in the same mineralization. With the modern gold rush now flooding the headlines, this is a welcome bonus.
As copper warehouse stocks decline and large mines deplete, it’s smaller projects like Oracle Ridge that could be the future of the industry. Oracle’s mine shares some of the characteristics that produced the San Manuel: a highly prolific copper mining region with solid infrastructure and strong investment activity. Arizona is the 5th largest copper producer in the world and is home to vast, unexplored deposits that the junior sector is keen to acquire. For Oracle, the task at hand is to revive an old mine that closed due to a low copper price and not a lack of resources. And for investors, the question is not whether copper will emerge from the financial turmoil unscathed, but rather what companies will help meet future copper demand.
Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of the ProspectingJournal.com may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. Oracle Mining is a sponsor of the Prospecting Journal.