A Special Alert Musing from Mickey the Mercenary Geologist
For Subscribers Only
Contact@MercenaryGeologist.com
February 24, 2018
In my last missive on
Trilogy Metals Inc (TMQ.MKT; TMQ.TSX)
,
I wrote that the next catalyst would be its much
anticipated Arctic project pre-feasibility study in Q1 2018 (
Mercenary Alert, December 22, 2017
).
This major milestone was
delivered right on schedule this week and the economics are quite robust.
Here’s a link to the news release:
Arctic Project Pre-Feasibility Study, Alaska
.
The PFS for the Arctic project
describes the technical and economic viability of establishing a conventional,
open-pit, copper-zinc-lead-silver-gold mine-and-mill complex for a 10,000
tonne-per-day operation.
Trilogy’s base case
parameters include long-term metal
prices of $3.00/lb for copper, $1.10/lb for zinc, $1.00/lb for lead, $18.00/oz
for silver, and $1,300/oz for gold. The economic study was prepared on a
100% ownership basis with a 1% net smelter return to NANA Corporation. It did
not consider NANA’s option to purchase from 16 to 25% of Arctic with a 15% net
proceeds royalty. It did not consider South 32 Ltd’s option to form a 50-50
joint venture with TMQ on its entire Alaska asset base for total consideration
of $150 million.
Highlights
of the Arctic study include:
-
Base case after-tax NPVat an 8%
discount rate estimated at $1,413 million with an after-tax IRR of 33.4%.
-
Initial capital expenditure of $780 million and sustaining
capital of $66 million for total estimated capital expenditures of $846
million over a 12-year mine life; closure and reclamation costs estimated
at $65 million for an all-in capex of $911 million.
-
Estimated after-tax payback of initial capital within
2 years.
·
Probable mineral
reserves of 43.0 million tonnes grading 2.32% Cu, 3.24% Zn, 0.57% Pb, 0.49 g/t
Au, and 36.0 g/t Ag with a life-of-mine strip ratio of 6.9 to 1.
-
Minimum 12-year mine life supporting a maximum
10,000 tonne per day conventional grinding mill-and-flotation circuit to
produce copper, zinc, and lead concentrates containing significant gold
and silver by-products.
-
Average annual payable production projected at 159
million pounds of copper, 199 million pounds of zinc, 33 million pounds of
lead, 30,600 ounces of gold, and 3.3 million ounces of silver.
This positive economic study means
the Arctic project is ready to advance to permitting and feasibility. Since I
last reported, the public scoping phase of the Ambler road access project was
completed and a draft environmental impact statement is now underway.
In my opinion, the base case
economic study is conservatively done in its assumptions: it uses metals prices
below current spot levels (except for minor by-product Ag) and calculates an
after tax net present value with an 8% discount rate.
I found none of the usual red
flags that plague most economic studies tabled by mid-tier juniors. That said,
I did not critically assess most of the study’s cost inputs and will leave that
task to engineers and analysts who are experts in these areas.
The Arctic project is
arguably the largest, highest grade, undeveloped volcanogenic massive sulfide
deposit in the world. It grades more than 5% Cu equivalent with total projected
production of 1.9 billion pounds Cu, 2.4 billion pounds Zn, 400 million pounds
Pb, 367,000 ounces Au, and 40 million ounces Ag.
With an estimated NPV at more
than 1.5 times its all-in capex, Arctic appears to be a robustly economic
deposit. In addition, the project has strong support from Alaska state
government. However, as with all projects situated in remote, infrastructure-
and climate-challenged regions, Arctic carries significant development,
permitting, and financing risk.
That said, the
pre-feasibility study documents the deposit’s superb economic value and is a
huge step forward for Trilogy Metals.
Trilogy Metals’ share price
has been quite volatile over the past nine months and I expect that to
continue.
I picked the stock at 66
cents on May 25. It went to $1.35 just 11 weeks later, dropped to 69 cents
during tax-loss selling in December, touched an intraday high of $1.64 in
mid-January, and closed Friday at $1.45. With 106.4 million shares, TMQ’s
current market capitalization stands at $155 million.
Trilogy Metals Inc was my top
pick in copper space in the spring of 2017 and it remains exactly that today.
The company is strongly leveraged to the price of copper and is not always
especially liquid. That said, I think the upside for TMQ is good as the bull
market for copper plays out and the company continues to advance its two
flagship projects with most of the funding in 2018 provided by partner South 32
Ltd.
The opinions expressed herein
are mine and are skewed by my shareholdings in the company and its sponsorship
of this website. As always, I encourage you to do your own due diligence by
digging deeper into this economic study.
Ciao for now,
Mickey Fulp
Mercenary Geologist
The
Mercenary Geologist Michael
S. “Mickey” Fulp
is a Certified
Professional
Geologist
with a B.Sc. Earth Sciences with honor from the University of Tulsa,
and M.Sc. Geology from the University
of New Mexico. Mickey has
35 years experience as an exploration geologist and analyst searching for
economic deposits of base and precious metals, industrial minerals, uranium, coal,
oil and gas, and water in North and South America, Europe, and Asia
.
Mickey worked for junior explorers, major
mining companies, private companies, and investors as a consulting economic
geologist for over 20 years, specializing in geological mapping, property
evaluation, and business development. In
addition to Mickey’s professional credentials and experience, he is
high-altitude proficient, and is bilingual in English and Spanish. From 2003 to
2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British
Columbia.
Mickey is well-known and highly respected throughout
the mining and exploration community due to his ongoing work as an analyst, writer,
and speaker.
Contact
:
Contact@MercenaryGeologist.com
Disclaimer
and Notice
: I am a
shareholder of Trilogy Metals Inc and it pays a fee of $4000 per month as a
sponsor of this website. I am not a certified financial analyst, broker, or
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information believed to be accurate and reliable, but my opinions are not
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