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:
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,
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.
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 professional qualified to offer investment advice. Nothing in any report, commentary, this website, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation or advice to buy or sell stock or any asset or investment. All of my presentations should be considered an opinion and my opinions may be based upon information obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. My opinions are based upon information believed to be accurate and reliable, but my opinions are not guaranteed or implied to be so. The opinions presented may not be complete or correct; all information is provided without any legal responsibility or obligation to provide future updates. I accept no responsibility and no liability, whatsoever, for any direct, indirect, special, punitive, or consequential damages or loss arising from the use of my opinions or information . The information contained in a report, commentary, this website, interview, and other content is subject to change without notice, may become outdated, and may not be updated. A report, commentary, this website, interview, and other content reflect my personal opinions and views and nothing more. All content of this website is subject to international copyright protection and no part or portion of this website, report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, MercenaryGeologist.com LLC.
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