Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me is president and CEO of Kutcho Copper Corp. (KC:TSX.V), Mr. Vince Sorace.
You know it's been quiet as far as the share price goes, until recently. And it's not a coincidence that news flow is really picking up. You had some news yesterday. And it's an important piece of news because you've now commenced field mobilization, and this includes the mobilization of heavy equipment, camp facilities, and as important as anything, the drill rigs. Let's talk about the 2018 field program and what you're trying to accomplish, Vince.
Vince Sorace: We're getting to work. There's been a lot of planning going on in the last four months. And so at this point we are going to start executing on everything that we said we were going to. That's going to involve a number of exciting aspects with respect to the project. As we've talked to you in the past, the real potential behind this project is that it's already a very highly economic, high-margin project with a manageable capex. We see the potential to expand the size of this and make it even more robust.
That'll be our plan of attack this year and what we're going to capture during this field season. The drill rigs will be looking to capture a lot of upside potential and that resides in converting a bunch of the inferred resources—there's a lot of low-hanging fruit there—and potentially some new stuff on the exploration side. All this will feed into the feasibility study in Q2/2019. But the results of that will be apparent coming throughout the summer. There'll be lots of news flow this summer with respect to the drilling that we're doing, with respect to optimized metallurgical programs that we're advancing, with respect to restating our resources in the fall. As a result of this field season, we're targeting a 65–70% increase in reserves heading into the feasibility study. And all this will have a significant positive impact on the already robust economics of the project.
Gerardo Del Real: You mentioned how robust those economics are, and let me just provide a bit on context. The base case estimate of the last prefeasibility study gives an after-tax net present value, at an 8% discount rate, of CA$265 million and an internal rate of return (IRR) of 27.6%. And that's using metal prices way below where they're at right now. That's using metal prices of $2.75/pound copper, $1.10/pound zinc, $17/ounce silver, and $1,250/ounce gold.
Also, you're basing that on reserves from a Measured and Indicated resource that is 49% smaller than what's currently stated in the 2017 preliminary feasibility study. So I think that should provide some context as to what the upside is. You are starting this drilling program with two diamond drill rigs. Is that correct, Vince?
Vince Sorace: Yes, that's correct.
And just to add to that previous comment. It doesn't take much. We've done a lot of this work at $3.10 copper and with some higher zinc prices—you can see this in our presentation—it already has a $100 million impact to NPV. So very sensitive to copper prices. I think the sentiment out there is very bullish on copper, now and in the coming years. So just the commodity price alone has a substantial impact on what the project economics are going to look like. And I'll also say we've identified a lot of opportunities, even in opex and a few other areas, that I think we'll be capturing in the feasibility study that can also help feed into the project economics as well.
Gerardo Del Real:Excellent. Who do you have leading the feasibility study?
Vince Sorace: We chose Ausenco Engineering. A great outfit, they've got lots of experience in doing this, a very practical shop. We believe the guys are very good at what they do and we think they're going to deliver a great product to us at the end of this that will recognize the potential of the project.
Gerardo Del Real: You executed a deal in 2017 with Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) that I think was one of the best, if not the best deals in the junior space. How is the support from the Wheaton group coming along?
Vince Sorace:Wheaton's commitment is firm and strong. They are very big supporters of this project. They believe and want to see this project into production. They've just been an outstanding, and will continue to be a great partner for us. We recently received the first tranche of the upfront money that they committed to us, that was US$3.5 million, I guess about a month ago. And we're expecting to receive the second tranche of that, similar amount, in the coming couple of months. I'm in constant communication with them. They are an outstanding group of individuals and fully supportive of our efforts moving forward.
Gerardo Del Real: You also recently signed an Exploration and Communication Agreement with the First Nations group. Can we talk about that? Because we know how important the social license is.
Vince Sorace: We have put a lot of emphasis with respect to the social license and this project moving forward. That's reflected in the permitting team we've put together on this project. We have, and we will continue to, put a lot of emphasis on that. I would say that the relationships that we've formed already with respect to the First Nations are fantastic. At this point we're all on the same page. It seems like it's going to be a joint effort for all parties involved to move this forward. I think we're lucky to have the First Nations partners that we do on this project and we look forward to a great relationship with them.
Gerardo Del Real: You know the last time we spoke, Vince, I talked about how impressed I was with the board of directors and the management group. I believe it's Allison Rippin Armstrong that's leading that effort with the community and environment relations.
Vince Sorace: Yes, it is. And she has a lot of experience with this and I believe that that will pay off in spades moving forward.
Gerardo Del Real: Well I know she led the charge for Kaminak, which of course was acquired by Goldcorp Inc. (G:TSX; GG:NYSE) in 2016 for $520 million. So it looks like you're in good hands, Vince. Lots of new flow the rest of the year. I hope you can come back here in the next month or two as those drills start turning. Thank you so much for your time today, Vince.
Vince Sorace: Thank you very much.
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. He brings his extensive experience to the public through Outsider Club, Resource Stock Digest, Junior Mining Monthly, and Junior Mining Trader.
Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.
1) Vince Sorace: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Kutcho Copper. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: Kutcho Copper.
2) Gerardo Del Real: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Kutcho Copper. My company currently has a financial relationship with the following companies mentioned in this article: Kutcho Copper is a sponsor of Resource Stock Digest.
3) The following companies mentioned are sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
4) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.