VANCOUVER (miningweekly.com) – TSX-listed base metals company Capstone Mining has agreed to sell its Kutcho copper/zinc/gold/silver project to TSX-V-listed Desert Star Resources for C$28.8-million in cash.
The payment will also include a scrip portion to give Capstone a 9.9% stake in Desert Star upon closing.
Desert Star on Friday also announced the results of an updated prefeasibility study (PFS) for the Kutcho project, representing a base case after-tax net present value (NPV), at an 8% discount rate, of C$265-million and an internal rate of return (IRR) of 27.6%, based on metal price assumptions of $2.75/lb copper, $1.10/lb zinc, $17/oz silver and $1 250/oz gold and a currency exchange rate of 0.75 for the greenback against the loonie.
“We believe Kutcho is an exceptional opportunity, with significant near-term upside potential in both the project economics and expansion of the existing mineral reserves and resources," stated Desert Star president and CEO Vince Sorace.
The Kutcho project is located in northern British Columbia, about 100 km east of Dease Lake and Highway 37, and comprises one mining lease and 46 mineral exploration claims encompassing 17 060 ha.
Mineralisation at Kutcho comprises three known ‘Kuroko-type’ volcanic massive sulphide deposits aligned in a westerly plunging linear trend. The largest deposit, Main, comes to surface at the east end of the trend, with Sumac followed by Esso down plunge to the west.
Based on a compliant probable mineral reserve, at a 1.5% copper cutoff grade, of 10.4-million tonnes averaging 2.01% copper, 3.19% zinc, 0.37 g/t gold and 34.61 g/t silver, the PFS envisions a 12-year mine life with a 2 500 t/d production rate, for a total life-of-mine payable output of 378-million pounds of copper and 473-million pounds of zinc, plus by-product gold and silver.
Output will average 33-million pounds of copper and 46-million pounds of zinc, plus by-product gold and silver every year.
Initial capital costs, including 15% contingency, for a 100% owner-operated mine scenario are estimated at C$220.7-million, excluding sunk capital to the start of construction. The project has seen more than C$50-million of historical project expenditures, which provided the basis for the 2017 updated PFS.
The mine would operate at C$73.72/t of material milled, with unit operating costs of $1.60/lb copper, excluding by-products, and $0.59/lb copper net of by-products.
Desert Star has developed plans to advance the Kutcho project from the 2017 PFS to a fully permitted project with a feasibility study completed by the end of 2019. The company plans to significantly strengthen its management team and board members with a number of new appointments including Midas Gold president and CEO Stephen Quin, former BC Mines Minister Bill Bennett and former Kaminak Gold VP of sustainability Allison Rippin Armstrong, with more appointments to follow.
The transaction is subject to financing and other customary closing conditions and is expected to close in the third quarter of this year. Capstone intends to use the net proceeds from the sale primarily to reduce outstanding borrowings under its revolving credit facility.