Cost estimate drops for Arctic mining prospect

The company that has led exploration in the Ambler mining district is now shifting to develop its primary prospect after many years of work.

Trilogy Metals released a pre-feasibility study for its project at the Arctic prospect in Northwest Alaska with a higher initial capital estimates k;lcost but a lower overall cost Feb. 20.

Formerly NovaCopper Inc., Vancouver-based Trilogy Metals changed its name in 2016 to reflect the multi-metal deposits the company holds.

Located in the middle of the large Ambler mining district that stretches along the southern face of the Brooks Range in Northwest Alaska, Trilogy leaders project the high-grade Arctic deposit to be the first of several mines in the area.

The Arctic prospect holds an estimated 2.4 billion pounds of indicated copper resources at a 3.07 percent grade; 3.3 billion pounds of indicated zinc at 4.23 percent; and precious metal resources estimated at 55 million ounces of indicated silver and 730,000 ounces of gold, according to the Feb. 20 report.

Estimated costs to develop Arctic have grown 9 percent since a 2013 preliminary economic assessment and are now pegged at $780 million. However, a 60 percent drop in expected annual operating and 20 percent decrease in closure and reclamation costs — to about $65 million each — cut the all-in cost for the mine by 5.5 percent from $964 million in 2013 to $911 million today.

Trilogy executives said during a call with investors that the drastic drop in operating costs is due to changes in the plan for waste rock and tailings management, fuel and federal tax reform.

The original high-level Arctic design called for potentially acid-generating waste rock to be comingled with mine tailings, which resulted in the need for a larger tailings facility and dam, according to Trilogy CEO Rick Van Nieuwenhuyse.

The current revised design has mine tailings and wastewater behind a dam with waste rock and an associated collection pond directly in front of and below the tailings dam at the head of the Subarctic Creek valley that will hold the mine waste.

Additionally, switching from diesel to LNG as a fuel source to power the mine facilities equates to a 41 percent reduction in the cost of power at Arctic, according to the pre-feasibility study.

"We've worked hard over the last several years to confirm that we can use LNG that's available in Alaska — and they're trucking it up to Fairbanks now," Van Nieuwenhuyse said, referencing Fairbanks Natural Gas' use of LNG trucked north from Point MacKenzie in the Mat-Su Borough to supply its customers. "We can haul LNG just as easily as diesel."

Utilizing LNG should also make obtaining an air quality permit for the project from the state Department of Environmental Conservation much easier, he noted.

The natural gas could be sourced from Cook Inlet as the Fairbanks utility currently does or from a large gas line off the North Slope if the state's Alaska LNG Project materializes.

Van Nieuwenhuyse also said Trilogy has settled on using enclosed cubed containers for trucking metal concentrates from the mine — with a higher upfront cost than open trailers — that should eventually pay for themselves through no lost concentrates during transport.

"I think more importantly by not losing concentrate as fugitive dust you're not contaminating the environment. This is a win-win for the overall project," he said.

Developing the Arctic mine — or any project in the Ambler district — is predicated on the state-owned Alaska Industrial Development and Export Authority being successful with its effort to permit, finance and construct a 220-mile road west from the Dalton Highway to access the region. The federal Bureau of Land Management is currently drafting the first version of the environmental impact statement for the $300 million-plus road.

Van Nieuwenhuyse said Trilogy has tried with its work at Arctic to keep pace with AIDEA's work on the Ambler access road. A permit decision on the road is expected in early 2020, according to AIDEA, with two subsequent years of construction. The state's plan is to pay for the road through tolls from the companies mining and exploring the Ambler region.

Accordingly, Trilogy hopes to start applying for its environmental permits in 2019 and embark on a full feasibility study in 2020, Van Nieuwenhuyse said in an interview.

Ideally, it would all lead to a completed road and the start of Arctic construction in about five years, he said.

This summer Trilogy will be doing $4 million to $5 million worth of water management studies and geotechnical evaluations of the tailings dam site.

The company is also preparing for another $10 million exploration program at its Bornite prospect to the south of Arctic. Overall, Van Nieuwenhuyse said the company will be employing about 80 people at its projects during the summer work season as it has in recent years.

Trilogy's financials at Arctic are based on a minimum 12-year mine life. It's a small but very prospective deposit.

The company is estimating it can recover pre-tax development costs within two years of operations based on an average market price of copper at $3 per pound. Even at $2 per pound copper, Trilogy estimates after-tax payback within three years. Copper has traded in the $3 per pound range of late.

Annual production from the mine is planned at about 160 million pounds of copper, 200 million pounds of zinc, 33 million pounds of lead, 30,600 ounces of gold and 3.3 million ounces of silver over its life.

While Arctic holds and is expected to produce more zinc, copper generally sells for significantly more than zinc, which has traded between $1.20 and $1.60 per pound over the past year.

Total costs for mine development, operations and access road tolls are pegged at 63 cents per pound of payable copper, according to Trilogy.

"At current prices your cash flow is well over $500 million of free cash flow so this thing is really crunching out a lot of cash," Van Nieuwenhuyse commented.

As a result, Trilogy leaders aren't nearly as worried about metal prices as the proponents of other remote mines — with extremely high costs — in Alaska.

"If we've got the kinds of commodity prices that would shut down this mine we've got other things to worry about," Van Nieuwenhuyse said in an interview.

"We certainly envision here for the future a central milling facility at Arctic that is conveniently located smack dab in the middle of this 100-mile long (Ambler) belt."