Kutcho Copper (TSX-V: KC) CEO Vince Sorace on Positive Permitting & Metallurgical Developments at the Kutcho Project in British Columbia

September 18, 2019

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Kutcho Copper (TSX-V: KC)(OTC: KCCFF), Mr. Vince Sorace. How are you, sir?

Vince Sorace: I am doing great, Gerardo. Always a pleasure speaking with you.

Gerardo Del Real: Vince, it's good chatting. I would say it's good catching up, but let's be frank, we had an opportunity to catch up at the Beaver Creek Precious Metals Summit last week. It was great to catch up with you there.

I got a lot of the updates that we're going to be able to talk about today. The big one, that came out on the 11th of September, was your copper recovery's up to 92.3% and your zinc recovery is now up to 84.2% in metallurgical locked cycle test, which is a big deal because that improves on already pretty solid results from the prefeasibility study. And of course, the importance of this is that this work will go towards supporting the feasibility study for the Kutcho project.

So first off, congrats on that front because met work is something that is so critical for a project, and frankly, a lot of speculators and analysts really don't pay it the attention that it deserves. You've done it the right way, Vince, you and the team have, so congrats.

Vince Sorace: Thank you. Yeah, it is. Metallurgical work is key to any project in our industry. Whether it's copper or gold, it's something that you really need to pay attention to because, essentially, that's the metal you're getting from the process, and that's what you're getting paid on. So the better you can do on met, the more metal you're getting out and getting paid on it.

And yes, these results were outstanding. Outstanding from, I'd say, Kutcho's perspective where we've beat anything that's been done historically on this project. We've exceeded what we had in the prefease.

You spoke to what does this really mean. Well, this means dollars. The prefease, we're still showing very robust economics on this project at $265 million post-tax and NPV and at 28% IRR. Well, any more metal we can get – and when you're talking about 4 or 5% difference in copper recoveries – it's significant as far as increasing margins and increasing the value of the project. All that will get reflected in the feasibility study.

Gerardo Del Real: And another important aspect of the metallurgical work is that you selected copper and zinc concentrates produced from the cycle test, the new ones. And then you analyze those for trace metallic elements and then the impurities that typically attract smelter penalties. Right? You want clean metal. Can you speak to that a bit because that's important?

Vince Sorace: Yeah, it is another important one because these days clean concentrates are trading at a premium. The world has been kind of more subject to a lot of these dirty cons [concentrates] these days. You called them dirty, meaning with a lot of the nasties in them, like the arsenics or the cadmiums, and all those kinds of things that either make it unsalable or come with penalties. And you're not getting paid premium prices on that concentrate.

There was recently an article, I think this last month, where Glencore's setting up a facility, a blending facility, now because there's so much of this dirty cons coming out in the industry, where they'll look at capitalizing on taking some of the better cons, blending them, and having a more marketable products.

So definitely, we were very happy with respect to those analysis where all the nasties are well below penalty limits. So from that perspective, I think we're going to end up here – and so we've got a little more work to do and more's coming out – but we're heading down the path of a very, very good marketable premium concentrate from this project.

Gerardo Del Real: The market has responded well to your latest news releases, and despite that you still have a market cap of sub-$16 million Canadian. Can you remind people, and I know you set it off the top, but can you remind people again the net present value of the project?

Vince Sorace: Net present value of the project that we put out a year and a half ago, $265 million Canadian after tax, with almost a 28% IRR. And if I took those numbers and equated them to where we're trading at a $16-million – one-six million – dollar market cap, which is about a 0.05 times P to NAV, it's ridiculously cheap. It just doesn't make any sense. And with a project of this quality – and I'll step out on a limb here and say that with what we've seen and the data and especially around the met moving into the feasibility study – our goal is going to be to beat those economics into the feasibility study. And I think we can. I think we can add additional value to this from the economics perspective.

And here's an interesting point, and this just plays into the sentiment here right now in North America. Down at Beaver Creek, a lot of the Australians are up here looking to pick off deals because there's massive valuation gaps. And I would say the Australian resource market is a more normalized market. We were looking at an asset down there that is almost a direct comp to Kutcho. But I was told by a number of people that our asset is still better on a number of fronts, and they're trading at a $50-million market cap all day long down there. A $50-million market cap, to us that's about a 0.2 P to NAV, that's where I think we should be, 0.2 to 0.3. That would peg us at $0.75 to $1.00, and that's where we should be trading.

Gerardo Del Real: Well, that's the opportunity. And you had more good news today, frankly. You filed the project description, and you entered into the environmental assessment and permitting process. I think it's important to understand that the passing of Bill C-69 and the regulations that are associated with that bill make it to where the Kutcho project is not required to undertake the federal environmental assessment.

Can you speak to that a bit? And again, congrats are in order again, because you're not resting on your laurels with the met work. You're frankly advancing the project to the point where I got to believe your partner, Wheaton Precious Metals, has got to be happy with the work that you're doing, despite a very tough bear market for copper.

Vince Sorace: Yeah, yes they are. And on the permitting process, yeah, that was definitely some good news for us. Not having to submit federally really helps streamline a number of the activities required to get a project permitted in Canada, costs, etc. So that's a good win for us, with respect to Bill C-69 and us moving this forward.

I think one of the things that people really need to pay attention to, that we put out in this press release, and because there's always a lot of question marks around permitting in BC and First Nations, is we have a really good relationship and partnership with our two First Nation partners on this project. I cannot emphasize how much these guys are pro-mining.

You saw it in the quotes in the press release that both Chief and President of Tahltan and Kaska put out. They liked this project. They want to advance the project. Now listen, we're still doing the right thing and we're all moving forward taking care of our First Nations partners. But the willingness and the desire and them working on this project description in a room together with us is something that's somewhat unprecedented as well. So it speaks to that side of the asset here, that it's got a pretty clear path forward to get into production here.

Gerardo Del Real: Excellent. You also have a lot of exploration upside that you have tabled a bit, frankly, because of how tough the copper market is right now. And of course, as a CEO, you're faced with two decisions. Do you dilute and raise some capital so that you're able to demonstrate that exploration upside? Or do you bide your time a bit, do the met work, get the permitting process underway and further along, and hope that the market recognizes the value so that you don't have to dilute at depressed, depressed prices, which you're coming out of, right? What does the next quarter or two look like for Kutcho?

Vince Sorace: So you're right. I'm always mindful of dilution. And you always have to pay attention to what your cost of capital is and what you're going to get back for it. Kutcho's got lots of exploration upside, and its got it in two different categories. We've got a lot of brownfields exploration potential.

We've outlined that in our presentation you can get off the website, where we've got four or five near-resource-around-lens, if you will, targets that we think can quite easily boost the resource on this. And then we've got district-wide potential for blue sky. But the near resource exploration potentials is fantastic, but again, it comes down to cost to capital. And I think you'll see us in a bit healthier market here, at the right time, if I can raise money at the right prices for that work, we'll do it. And that will add additional value to the project.

Gerardo Del Real: Fantastic. Anything else you'd like to add, Vince? I'm a copper bull. I believe I'm a contrarian by heart. I believe that the short-term whims and pullback because of the trade war with the US and China has provided just a spectacular opportunity for the better copper names for advanced-stage assets with quality teams. Obviously, the Kutcho project falls within that. Anything you want to add before I let you go?

Vince Sorace: No, I think you're bang on. I think there's been a lot of headlines, obviously, for a long time now that are centered around the trade war between the US and China. Those headlines are a very negative sentiment about the impact on global economies, which doesn't play well in the base metals. But we've seen a little reprieve to that in the last couple of weeks where China and the US are starting to be nice to each other.

It sounds like the sentiment has shifted, that they want to do a deal. And what's happened, just around that sentiment, you've seen copper go from $2.52 to almost $2.70 pretty quickly. So I'm a believer that if they can get this rectified, I think copper is kind of coiled up and ready to bounce off of that. And we got a little tailwind back into the base metal space and maybe a little sentiment shift here, so looking forward to that. And we're always looking at different opportunities within Kutcho, strategic initiatives that we're exploring all the time. So combine a few things here, and I think we can do some good in Kutcho and with this asset.

Gerardo Del Real: Well, I said in 2018 that I thought you had negotiated the deal of the year that year. That was, of course, the deal with Wheaton Precious Metals. I'm biased. I'm a shareholder, so take that how you will, but I eat my own cooking. I believe in the company. I believe in the asset. I absolutely believe in the management team and in the commodity being copper. So I appreciate the time, Vince. I'm looking forward to more updates.

I know that you've been busy behind the scenes, and I get the feeling that you probably got some more news up your sleeve here in the near future. So looking forward to chatting with you again.

Vince Sorace: Thanks, Gerardo.

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