Part 2
Cloncurry
Overview
The Cloncurry Copper Project (CCP) is Exco’s strategic long term play in
Queensland. Exco have grown the CCP significantly over the past 18 months
and we anticipate further additions to resources.
The Cloncurry Copper project is within a 100 km radius of the town of Cloncurry
in NW Qld, Australia. It is made up of numerous tenements and mining leases
including the E1 Camp, Great Australia, Monakoff, Kangaroo Rat, and Mt Colin
deposits.
CCP is well positioned geologically, to infrastructure and to a permanent work
force. The main deposit is the E1 camp which is 8 kms from Xstrata’s Ernest
Henry mine.
The deposit consists of sulphide copper-gold mineralisation occurring mainly in
magnetite, pyrrhotite, and chalcopyrite-pyrite mineral assemblages.
The project sits in proximity to Ivanhoe Australia’s Cloncurry deposit and
Xstrata’s Ernest Henry mine.
Cloncurry - Ivanhoe Australia (IVA.AX) – Resource containing; 3.6mt Cu,
6.1moz Au, 23moz Ag, 91kt Mo and 152kt Re.
Ernest Henry – Xstrata (XTA.LN) – Resource containing; 1.3mt Cu, 2.3moz
Au, 27mt Fe3O4.
CCP – Exco Resources (EXC.AX) – Resource containing; for 457kt Cu,
367koz Au.
Cloncurry feasibility
Exco completed a pre-feasibility in June 2008 on a standalone basis. The
company has since undertaken a DFS based on a 2.5-3mt pa plant that
would produce 25kt of Cu pa @ US$1.5/lb for 10 years. Exco’s indicative
estimates value the project at A$256m using a 8.5% wacc.
Notes from the pre-feasibility
Mining operations will be from 6 deposits located at 3 separate areas.
Operations will centre on the E1 Camp and will utilise open pits using
conventional blast, excavate and haul mining techniques with a waste to ore
strip ratio of 4.5:1.
Pit shells were estimated at US$2/lb Cu with a total Mine Plan Inventory
(MPI) of 22mt @ 0.92% Cu, 0.25 g/t Au.
A 2mtpa plant is expected to utilise conventional methods of crushing,
grinding and flotation to produce a sulphide concentrate to be sold to third
parties for smelting and refining. Test work demonstrates recoveries of 92%
for Cu and 80% for Au. Tailings and waste rock will be placed in surface
dumps close to the processing plant. Water will be sourced primarily from
pit dewatering.
Projected plant output ~20kt pa Cu, 13koz pa Au (~500kt pa Fe3O4)
Total capex of A$208m. Exco have re-iterated that the DFS should return a
similar capex estimate.
Changes to the inventory
Exco has just moved part of the E1 Camp inventory to measured status.
The total tonnage at the E1 camp has increased by 7% to 48mt and grade
has declined slightly to 0.72%.
Exco has recently expanded the CCP inventory by adding the Mt Colin
underground deposit. This deposit is located between Mt Isa and Cloncurry
and is within an 80km radius from the E1 Camp. The deposit contains 1.5mt
@ 2.47% for 37kt Cu. Exco has commenced a study into the economics of
the deposit which has the potential to significantly enhance the economics
of the CCP. The haulage distance from Mt Colin to the planned E1 Camp
plant is the primary outstanding issue.
The resource at the time of the pre-feasibility was 35mt @ 0.92% Cu, of
which, 22mt was to be mined. This implies resource to MPI conversion of
60%.
Applying a similar conversion to the current resource at CCP of 55mt @
0.85% Cu, and assuming no increase to the copper price used in the cut off,
we infer an MPI at CCP of 33mt @ 0.85% for 280kt Cu. This is slightly
above managements expectations of a minable reserve of 25-30mt.
Scenarios for advancing CCP
1) Standalone development – Develop the operation independently,
targeting 10 year mine life with first production from 2012.
2) JV – Develop the operation in conjunction with a partner. Given the
Chinese appetite for investment in resources, it is our view that a Chinese
partner could likely assist in funding the development capital in exchange for
off take agreements.
3) Utilise existing infrastructure – Supply Xstrata’s Ernest Henry mill.
We see three primary reasons for Exco to send ore to Xstrata’s plant, 1) the
plant is within 10km of the E1 Camp, 2) the plant at Ernest Henry processes
similar ore and thus requires minimal modification and 3) the current open
pit at Ernest Henry is close to depletion and the underground production
profile will not be able feed the current mill to full capacity..
Milling at Ernest Henry would bring production forward and save Exco
significant development capital. Xstrata’s CEO Charlie Sartain, recently
spoke at the Austmine conference in Brisbane and gave the strongest
indication to date of the possibility of a junior supporting the Ernest Henry
Mill. Mr Sartain stated that Xstrata was looking at opportunities to partner
with juniors in the region to help increase throughput during the operation’s
transition to underground production. The underground at Ernest Henry
contains 90mt @ 1.2% Cu, 0.68 g/t Au and 25% Fe3O4. Production from the
underground will be materially lower than the previous open pit operation
thus potentially leaving capacity for a junior to partner.
Exco has just added measured resources to the CCP inventory. We
look forward to further increases in resource confidence as the
company moves towards completing the DFS later in the year. In
addition, we eagerly wait for a commitment to a development scenario
at the CCP.
The E1 camp contains large tonnages at modest copper grades.
Mining at less than 1% copper does not preclude positive economics.
Our view is that mining from multiple pits, coupled with the haulage
distance from Mt Colin and Monakoff to the E1 Camp could potentially
reduce the overall economics of CCP.
Exco are hopeful that a successful DFS will see the company
transition into a junior copper producer by late 2012.
Recent drilling at CCP
Drilling activity in the December quarter was limited due to seasonality.
Drilling has since re-commenced and Exco are now targeting further
deposits at CCP. Initial results have returned;
34m @ 0.7% Cu, 0.22 g/t Au from 22m at Eight Mile Creek East
6m @ 1.62% Cu, 0.44 g/t Au at Tanbah Prospect
6m @ 1.56% Cu, 0.71 g/t Au at Salebury Prospect
Joint Ventures
Ivanhoe JV – Exco 100%, Ivanhoe option to earn in 80%
Ivanhoe Australia is expected to earn-in its 80% share by May 2010.
The Ivanhoe JV was formed in May 2007 and covers 560km² of Exco
tenements in the Soldiers Cap and Tringadee Project areas. The tenements
are contiguous with Ivanhoe’s Cloncurry Project tenements in the Selwyn
district just to the south.
The initial option agreement required
An initial investment of A$7.92m for 12.2% of Exco’s issued capital, the
funds were directed to the company’s other projects.
A minimum of A$600,000 during the first 12 months, and
A further A$4.6m over 3 years to earn in 80% of the project.
Total investment at the project level of A$5m.
Liontown JV
The Liontown JV covers the Fort Constantine South Project which is
adjacent to Exco’s E1 Camp at CCP.
Exco has passed the first stage of the JV by spending A$200,000. Exco can
now earn-in up to 70% by spending A$1m over the next 18 months to earn
51%, followed by a further A$2m to earn an additional 19% to take total
interest in the project to 70%.
Four targets have been drilled with only low level intercepts. Exco is
planning further geological and geochemistry testing, to assess the level of
follow up required.