SOURCE:[Resource News Report] - December 2012 imports of copper into China surged 47.7% from the previous year hitting an all-time high of 509,000 tonnes.
According to International Copper Study Group (ICSG) China’s copper usage grew 19% in 2012 to represent 43% of the world’s consumption. This growth rate more than offsets the copper usage decline of 3.7% in Japan, Europe and the USA. World-wide copper mine production increased approximately 3% in 2012.
A survey of Qualified Domestic Institutional Investors (QDIIs) in Beijing indicates that they are shopping for assets primarily in Europe and North America. Due to a widespread pullback in resource equities the market for copper acquisitions and off-take agreements has never looked better. This is good news for junior copper developers who have a NI 43-101 compliant resource of over a billion pounds, and are operating in mature mining jurisdictions.
The list of companies meeting these criteria is surprisingly small.
Catalyst Copper (CCY-TSX.V) is one such company. CCY is a copper and base metal developer focussing on the La Verde copper property situated about 320 kilometres west of Mexico City in Michoacán State. It consists of two claims comprising approximately 16,900 hectares.
As of December 2012 Catalyst had completed a minimum of $10 million in expenditures and completed all required work commitments laid out in the option agreement with Teck Resources (TECK-NYSE) by which Catalyst will have earned a 60% interest in La Verde.
Within 60 days of receiving notice by Catalyst that all requirements of the option agreement have been met (and confirmation by Teck), Teck must choose one of the following two options:
- To earn back a 20% interest in the La Verde property, so as to hold a 60% interest by incurring expenses of $20 million within the next three years.
- Form a Joint Venture with the parties’ interests being 60% Catalyst and 40% Teck.
If Teck elects to form a Joint Venture, Catalyst will have a 60-day window to purchase Teck’s remaining 40% interest in the La Verde Property.
Either option will create a path forward for Catalyst. The size of the resource, the economics of the project, and experience of the management team should create traction to production.
Utilizing US$3.64 per pound copper (3-year trailing average), the December, 2012 NI 43-101 Preliminary Economic Assessment (PEA) projects $5.58 billion Pre Tax undiscounted cash flow, an internal Rate of Return (IRR) of 41.9% and a 20-year Life of Mine (L.O.M.) based on a 100% interest in the La Verde project.
For the first 7 years, the Mining Costs are estimated to be $1.17 - 1.20 per tonne mine. Over the Life of Mine, the cost will rise modestly to $1.70 per tonne. The Pre-Production Capital required is about $1,160 million. The Pre Tax undiscounted cash flow is $5.579 billion. Pre-tax NPV@8%: $2.342 billion. Pre-tax IRR: 41.9%.
The La Verde project currently contains 4.4 Billion lbs of Measured and Indicated copper and a further 3.7 billion lbs of Inferred copper. Although it still requires a feasibility study and typical permits relating to water and environmental issues, La Verde is largely de-risked.
- 4.4 Billion lbs M & I copper resource (43-101 compliant) (@ 0.1 % Cu COG)
- 3.7 Billion lbs. Inferred copper resource (43-101 compliant) (@ 0.1 Cu COG)
- Gold plus silver by-product credits
- 35,000 metres of recent diamond drilling completed (2010-2012)
- Excellent infrastructure – power, water, rail, roads, port
- Conventional open pit & metallurgy (concentrate with Au & Ag credits)
- NI 43-101 resource report (September, 2012); Preliminary Economic Assessment (December, 2012)
- Proven Management Team ~ taken copper asset in Mexico from staking to Feasibility & raised $1.1 billion for construction.
The mine plane is planned as a conventional truck and shovel open pit mining operation, with a Life of Mine average strip ratio of 2.3:1.
Services such as power, water and rail essential to the La Verde project are in close proximity of the site. Excellent road and rail access to the port of Lazaro Cardenas are within a few kilometers of the site.
The PEA recommended advancing the La Verde project to a Pre-Feasibility study stage.
According to HSBC's Emerging Market Index for the final quarter of 2012, the Chinese GDP is expected to rise from 7.8% to 8.6% in 2013 - much more aggressive than the 5.4% growth rate anticipated for emerging markets overall.
HSBC's Chief Global Economist Steven King stated that there are now two tiers in the global economy – that of the "old world" of North America and Europe and the "structurally dynamic" emerging markets dominated by China.
This fall, Catalyst Copper CEO John Greenslade attended meetings in Nanning, China. The 4.4 billion pounds of 43-101 Measured and Indicated Copper in Mexico may be too much for the Chinese to resist.
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