When Lumina Copper announced this week that, amid a strategic review process initiated mid-year, it was also going to put together a scoping study, some interpreted it as meaning progress on the road to selling its massive Taca-Taca copper-gold-moly project was slower than expected.
Using a few more words, I posed the headline question to David Strang, Lumina Copper’s president and CEO, in an interview on Friday for his take on the matter. If the response wasn’t a direct “Yes it is going slower than expected” or “No it isn’t,” it still didn’t sound like Strang was trying to be obfuscatory.
Strang’s position was that no strategic review can be expected to have a firm timeline. Or, as Strang put it: “The hardest thing in our business is not finding something (e.g. a deposit). It is having someone find your something and buy it.”
In response to the question of pace of the strategic process, Strang quickly turned to the history behind Lumina. “The first thing is: as a group we have sold six companies in six years,” Strang said, referring to enterprises largely founded by mining-preneur Ross Beaty. He added, chuckling lightly afterward, “So we have had some experience in this.”
From those sales, Strang drew this conclusion: “No two processes have been the same.” As examples, he noted the sale of the Regalito copper project back in the mid-2000s took a “very long time,” while other projects, such as Global copper, left the stable in much shorter order.
“As much as we like it to be formulaic, we can’t get into thinking that,” Strang said of strategic reviews.
In selling Taca-Taca (or finding a compelling partner, or merger, or whatever else it could end up being) he pointed to the economic and political environment – outside Lumina’s control – that has come to bear in an “evolving process”. As an example he pointed to “challenges” in Argentina, a reference to the YPF-oil fiasco in which the Argentine government expropriated energy assets that also called into question Argentina’s commitment to foreign company’s in non-energy sectors. (As far as mining goes, these seem to be overblown.) Strang also agreed that generally speaking majors are reviewing their capital expenditures in light of softening global demand.
“I don’t blame them,” he said.
Yet Strang pointed out that despite such challenges beyond Lumina’s control, “what is great is we still have companies interested in the (Taca-Taca) project.”
A key theme in the copper sector is declining grade and the ever present need to replenish supply in a world where big new copper deposits just aren’t being found, at least not often enough. To that point, Strang concluded. “Mining destroys value every day.” He was speaking to the base concept for miners, that every blastful of ore it trucks out from the ground is a blastful that needs replacing (all other things being equal).
With that as context, he said, “We’re certainly comfortable we can get the project to the finish line.”
Strang also spoke at length about the decision to go ahead with a scoping study of Taca-Taca. He put it this way, when it comes to drilling Taca-Taca, Lumina is faced with the “law of diminishing returns.” It’s a question of “how big do we want to make this thing,” Strang said. Lumina might keep on drilling and drilling, but the added size in terms of return on investment, for instance, added minelife to already extensive minelife, becomes less compelling as the deposit grows.
Lumina has reached the point, in terms of deposit expansion, where Strang asks, what value would a ton more drilling create for shareholders? The answer is that Taca-Taca is more or less big enough now and the time has come for Lumina to concentrate on developing a mining scenario, strategic review or no.
While Strang, ever cognizant of the regulatory devil that may be peering over one’s shoulder, was hard to pin down on specifics about the scoping study, he still had a few interesting points to make. Suffice it to say, with existing resources, Taca-Taca will be big. Yes, likely north of a 100,000 tonne per day operation drawing from already massive resources that may yet grow.
Lumina so far estimates Taca-Taca’s indicated resources at 824 million tonnes grading 0.59 percent copper, 0.12 g/t gold and 0.018 percent molybdenum. Inferred, it has a bit more: 938 million tonnes 0.48 percent Cu, 0.08 g/t Au and 0.014 percent moly in inferred resources. But Lumina is pulling in 65,000 metres of new drilling into a resource update, which will form the basis of the coming scoping study. While most of the drilling was focused on bringing inferred up to indicated resources, it does also include step-out drilling beyond existing resources and, as such, it is not unreasonable to think Lumina might make Taca-Taca bigger.
By how much?
As noted, Strang wouldn’t say much on resource expansion, but he did note: “65,000 metres is a lot of drilling.”
In devising the mining project, Strang said that Lumina would “certainly look” at a staged approach, which can help keep projected capital costs down at the outset of construction. But he sounded keen on heft. He followed his thoughts up about the staged approach by saying the project might handle something of a “big size.”
Of course, Strang’s caveat about all this was that it was still “too early” to say precisely what will be in the scoping study.
Interestingly, it would appear that initial oxide gold at Taca-Taca (1.7 million ounces gold @ 0.27 g/t) within the much larger sulphide and supergene enriched resources, will not be a core focus of the scoping study. At first delineating the oxide resource nearer to surface was an important way for Lumina to make mining the project more attractive by giving value to near surface rock.
But, “as we continued to drill, that issue has become less important,” Strang said. Pre-strip requirements have declined thanks to expanding resources, he said, and also because a higher grade core to the wider deposit now factors larger than it did before. The oxides should serve more as a way of helping to defer costs of removing the cap to underlying resources, Strang said.
Then again, talk of all these details may end up being, all for not. This scoping study may never sees the day of light. This was as wise as any philosophy about what might happen in the next few months as regards the strategic review: “Things come out of left field you never thought were there,” Strang said.