Propose that I offered you an option on billions of pounds (maybe more) of copper with a delivery date six to ten years from now. What would that be worth?
For Crown Mining (V.CWM) and its CEO Stephen Dunn the answer to that question is driven partly by a presently strengthening copper price and partly by the forecast demand for copper in the coming years. Because, as I write, Crown has a 43-101 compliant resource of over a billion pounds of copper ( one billion indicated and another billion inferred), 750,000 ounces of gold, and 25 million ounces of silver at its Moonlight-Superior Copper Project in Plumas County, California. And it has the data from Placer Amex exploration of the property from 1960-1972, drilling over 400 holes and estimating a resource (non NI:43-101 compliant) of over 4 billion pounds of copper.
By any standard that is a lot of copper. But what would the option be worth?
To answer that question Dunn takes a look at the copper market. “For the large producers a $2.00 a pound copper price is breakeven,” he said. “At $3.00 a pound, they all make a lot of money. After drifting down until 2016, copper seems to be consolidating around $3.00 a pound.”
But Dunn hastens to point out that there are upward pressures on that price. “Right now there are 20 million tons of copper produced each year,” said Dunn. “However, there are 24 million tons sold. The difference is made up with recycling.”
The demand for copper is not in balance. Each year it increases about 2.5% to 3%. Gradually, demand for copper is pulling away from refined capacity. That demand is driven by the world’s need for electricity and the formation of middle-class households in previously underdeveloped nations. For the last two decades China has been driving demand and while Chinese demand is slowing as that nation’s infrastructure is built out, India is just at the beginning of its own electricity revolution. Not to mention other Asian nations such as Indonesia, Malaysia, and Viet Nam.
“Right now, China consumes 10,000,000 tons of copper per year,” explained Dunn. “India consumes 700,000 tons.”
If we think of this as the “conventional” demand for copper, then things like electric vehicles and large-scale batteries represent “unconventional” demand. Currently, the average internal combustion engine car uses about 20 kilograms of copper. An electric vehicle is estimated to use 80 KG.
All of which strongly suggests that the price of copper is ready to head higher. No less a mining luminary than Robert Friedland has suggested that copper could reach $8.00 a pound in the not too distant future.
For Crown Mining the objective is to have a substantial copper project ready to go when the price of copper increases.
“We have the historic data going back to when the property was in production in the 1920’s,” said Dunn. “One mine went down 1700 feet and we have the drill logs from the old days. A company, California Engles Mining, which has its head office in Greenville, kept all the data from the old days including the period when Placer and then Starfield Mining owned and explored the property. They had long intercepts. In 2007 Starfield did a 43-101 compliant Resource estimate on the Moonlight and we did a 43-101 on Superior in 2014. This historic data has made it easier for us.”
Crown Mining is working with this historic data to de-risk the project for a potential joint venture partner. “We’ve built a new block model and we have created a modern data room,” said Dunn. “Now we want to do a Preliminary Economic Assessment, a PEA, which would include an updated Resource Estimate and the results of the metallurgical work we’ve done.”
Dunn is very committed to the project. He personally owns roughly 20% of the shares in Crown Mining and a group of his friends own another 30%.
“I’ve always liked the mining business,” said Dunn. “In the mid-2000s I decided to have some fun and that meant starting a mining company. I looked at gold but it is tough to give shareholders a story about why gold is good in the long term. But copper is critical to modern society for its role in delivering and using electricity which makes life so much easier and better.”
“I started looking for copper properties and I saw that Starfield, which owned the Moonlight-Superior Copper property had gone into receivership. I called the receiver. At the time there was no data and it was a very bad time in the market. I bought the property out of bankruptcy but Starfield had given up half the property. It took two years to get an option on that half.” said Dunn.
Now Crown is setting itself up to take advantage of what Dunn believes will be a rise in the price of copper. “Historically, large copper companies have paid between 5 and 10 cents a pound for copper reserves in the ground,” said Dunn, “If you use our 43-101 reserves of just on 1 billion pounds indicated and another billion inferred that would work out to $4.00 per Crown share. Right now we are trading at $0.15 to $0.17 a share.”
If, as Dunn suspects it will, the copper price gets to $4.00 a pound, a derisked, ready to mine deposit in the safe jurisdiction of California, will be awfully attractive either as a joint venture or as a straight buyout.
Crown Mining is an option on two billion pounds of copper: the only question is when that option will be “in the money”.