DRC Resources taking another good look at Afton
Diamond drilling began in late January from the first portion of a new underground decline being developed by Vancouver-based DRC Resources Corp. at the Afton copper-gold project near Kamloops, B.C. The company has acquired a 100% interest in the property through claim-staking.
An open pit mine shuttered by former operator Teck Corp. since 1987, Afton’s deeper mineralization is shaping up as a potential underground project. The southeastern British Columbia property could provide DRC Resources with an opportunity to transition from an exploration company to its first development and producing mine.
“Given where it is, with outstanding infrastructure and location, the grades are robust and the size is robust. This project has a real shot,” said Chris Bradbrook, president and CEO of DRC Resources. “We’re doing what we need to figure out whether it will be an economic operation.”
DRC Resources plans to spend roughly Cdn$1 million per month throughout 2005, part of the total $18 million required to complete a bankable feasibility study in early 2006.
Included in the feasibility work is completion of a 2-km decline, a job begun in November 2004 by mining contractor Procon Mining & Tunneling Ltd. In a late January interview, Bradbrook said crews had completed 290 m of that decline, allowing drillers to go underground to start a 20,000-m diamond drill program. F.Boisvenu Drilling Ltd. landed the underground drilling contract at Afton.
Afton’s existing pit is roughly 700 feet deep. Mineralization almost adjoins the old workings, but dips away sharply from the pit, precluding access by enlarging the closed mine.
“We discovered the deposit by drilling from surface,” Bradbrook said. “We did as much as we could, but we can’t convert [resources to reserves] unless we go underground.”
Drilling to upgrade to reserves and explore
Drilling work this year has two objectives. Primarily, the work is designed to better delineate the orebody and upgrade it to reserves. “We also want to do some additional exploration work, to see how big the deposit is and to look for extensions. We definitely believe in the potential to find more through exploration,” Bradbrook said. “Grades for a copper-gold porphyry don’t get much better than this.”
Mineralization at Afton is continuous over 1,000 m in length, 80 to 100 m wide with a vertical height of 300 m. The deepest mineralization is roughly 775 m below surface.
In addition, the company plans work this year at the nearby Pothook pit, also previously mined. For the first time, surface drilling will test for mineralization between Pothook and Afton. “We don’t want to make the mistake of stopping exploration because there may be more there,” Bradbrook said.
DRC Resources also plans to drill in 2005 at the Ajax property, located 10 km east of Afton, another previously-mined open pit mine. Three drill holes completed in 2004 indicated substantial near-surface low-grade sulphide mineralization. The largest is a 278-m intercept that graded 0.233% Cu and 0.159 g/t Au, according to a July 15, 2004, release.
Drilling to date on Afton, excluding Ajax and Pothook, has identified a measured and indicated resource of 68.7 million tonnes, grading 1.68% Cu equivalent or 2.61 g/t Au equivalent. Mineralization contained is approximately 1.63 billion lb of copper and 1.86 million oz of gold, as well as significant and recoverable amounts of silver and palladium.
An inferred resource of 7.4 million tonnes, containing an additional 151 million lb of copper and 188,000 ounces of gold, has also been identified by prior drilling work completed from 2000 through 2003. About 55,000 m of core samples were taken from 110 holes, according to John Kruzick, board chairman at DRC.
DRC Resources acquired Afton in 1999 after Teck dropped the mining claims, despite some positive intercepts from beneath the pit. “To get some of it below, they would have had to push the pit back, which requires a lot of capital,” Bradbrook said. “It wasn’t worth it for what they thought was there, but they didn’t realize the shape of it…back then, people were not thinking about underground mining in a copper-gold porphyry.”
Between acquiring Afton and starting feasibility work last November, the company has spent $5 million on the property. “It’s a decent amount of money,” Bradbrook said. “Considering what was found with that money, it is quite a spectacular use of exploration funds.”
Scoping study indicates feasible underground project
In addition to drill work, the company commissioned an advanced scoping study completed in February 2004 by Behre Dolbear and Co., Ltd. That work indicates that panel cave mining and conventional flotation are viable methods for mining and processing a 51.5-million-tonne mineral resource grading 1.72% Cu equivalent. Estimated mine life is 17.8 years, based on the mineral resource.
At a mine and mill production rate of 9,000 tonnes/day, average annual production is estimated at 29,000 tons of copper, 71,000 oz of gold, 178,000 oz of silver and 7,700 oz of palladium.
Initial capital costs are estimated at $150 million, with cash costs of US$0.15 and total operating costs estimated at US$0.40/lb of copper. Estimated internal rates of return are nearly 27% pre-tax, and 20% after tax, with a payback period estimated at 3.7 years.
Estimates are based gold and copper recoveries of 90% each, 75% for silver and 74% for palladium. Assumed metal prices are US$0.85/lb of copper, US$375/oz for gold, US$5.25/oz for silver and US$200/oz of palladium.
Development of Afton would be aided by the existing mine infrastructure and its location near the Trans-Canada Highway, 10 km west of Kamloops. “It’s definitely a plus for us,” Bradbrook said. “Some projects can be hardship assignments for people…we’ll never have a problem getting people to work (at Afton).”
Water and power are available at the site, as well as an experienced labour force in the area. A mine operating permit may be available from the former owner (now Teck Cominco), although the two companies would have to come to an agreement about usage.
“The existing permits would have to be updated,” Bradbrook said. “To the extent we can use them and upgrade them to make adjustments as needed, we are not starting from scratch on permitting.”
All of these factors could play into an accelerated development schedule for the brownfield property. Depending on the progress of financing, construction and permitting, Bradbrook said, “…if everything lines up and works on a good pace, within three years of starting the feasibility study we would like to start up production.”
DRC preps for solo development
At this point, DRC Resources is not looking for partners on the project. The company has cash available to cover feasibility costs.
“I think you have to look at these projects with the intention of building them,” Bradbrook said. “We will do what we need to build the company and team and to develop the skills to assess the orebody. If we believe it is economic, we’ll gradually build that team up to operate it.”
Should that happen, DRC Resources will look very different, he said, a sort of hybrid between a copper company and a gold company. Of the existing resource, 65% of its estimated US$3-billion value comes from copper. “There is so much gold in such a high proportion to the copper,” Bradbrook said. “Diversity is good, because weakness in one price can be offset by strength in another. From a marketing perspective, we have leverage in two bull markets.”
Bradbrook joined DRC Resources last October, after last serving as vice-president of corporate development at Goldcorp Inc. DRC’s capital base, share structure, cash position and the Afton asset drew him in. “I view this as an excellent platform to build a serious company,” he said. “It’s chasing a
dream to build something from scratch.”
Patricia Liles is a freelance business writer based in Fairbanks who specializes in mining, oil and gas and alternative energy reporting; she can be reached at [email protected].