Categories: Base Metals
Topics: General Base Metals

Kutcho Copper (TSX-V: KC)(OTC: KCCFF) CEO Vince Sorace on Release of Landmark Feasibility Study on Kutcho Copper-Dominant Project, British Columbia, Canada

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president & CEO of Kutcho Copper — Mr. Vince Sorace. Vince, how are you today?

Vince Sorace: I'm doing great, Gerardo. Always a pleasure to be back with you.

Gerardo Del Real: It's great to have you on. You just announced the results of your long-awaited Feasibility Study. Congratulations! Let me go over some of the numbers.

At today's metal price, using US$4.50 a pound copper and US$1.57 a pound zinc, you have an after-tax net present value of C$931 million with an IRR of 41%. 

For the skeptics out there that want to use lower spot prices, let's bring that down to US$3.50 a pound copper and US$1.15 a pound zinc. 

You still have an after-tax net present value of C$461 million and an IRR of 25%. 

Anyone that follows my work — and knows, kind of, what I foresee for the copper price — knows that I am extremely bullish on the copper price. I think US$4.50 is conservative. Let's leave it here. 

Congratulations on an excellent Feasibility Study. I know that the market sold off a bit yesterday. It seems like people actually read it today because the stock is up on pretty good volume. 

Give us some context on the Feasibility Study. I know a lot of work went into it.

Vince Sorace: And, Gerardo, to the point you just made, we included this: There's another sensitivity chart that we included. 

And for those skeptics that say… well, in the spot prices, it's US$1.57 zinc and that kind of stuff… well, we did that other sensitivity analysis leaving all of the other metals the same. 

So we left zinc at US$1.15. We left gold and silver at their prices. But we just moved the sensitivity up just on copper. So people who are just copper believers… that's the other sensitivity table. 

And at current spot prices, with copper at — well, let's say at US$4 copper, everything else being the same — it's over a C$600 million post-tax NPV and a 30% IRR. 

At US$4.50 copper, everything else being the same, it's a C$764 million NPV at a 35% IRR. So if you're just a copper bull — the numbers are amazing!

Gerardo Del Real: Agreed! Now, let's go over some of the intangibles that I think make this a clear takeout target because I think that's where it's headed.

I had a couple of comments regarding the capex. And I said, why are you worried about the capex? You go and let the company that's going to come in and buy this worry about that, right? 

Let's go over some of the reasons why I believe this now becomes a clear takeout target. You are in a top-notch jurisdiction, right? You have great infrastructure. You have a clear permitting process. 

I haven't even gotten into the exploration upside, which I'm going to ask you about again here in just a little bit because it's substantial. And oh yeah, by the way, you also have the financial backing of companies like Wheaton Precious Metals, Capstone Mining. 

And I'm assuming that your phone's been ringing, Vince?

Vince Sorace: Yes, of course it has. And you touched on it. So if people are worried about the capital numbers, pay attention to the low-cost production numbers. Cash costs of US$1.11 a pound copper-equivalent; all-in sustaining costs of US$1.80 a pound copper-equivalent. 

Those come into play as well. The cashflow on the company. I mean, all of these metrics are important. And as far as the capital costs, as well, listen, this is a Feasibility Study. We're being conservative. 

We also put this into the perspective of… we're not hiding anything here. We could have adjusted the capital numbers. We could have delayed development down to the Esso lens for a year or two and had that capital number come lower by, probably, a hundred million dollars.

But it's the optimized project. It's the way that a miner is going to want to mine it. And so we're putting this out there; full disclosure. I think this report was done with extreme confidence; very robust. 

And again, there's lots of other metrics to look at with respect to the viability of the project, which I think is already extremely viable. And on the capital side, it's a Feasibility Study. There's lots of opportunity there. We'll be discussing the opportunity more. 

But some low hanging fruit: we're talking about the ability to bring the capital cost of the road and bring it out of the equation to a third party, which would bring some of our costs into OPEX. That would be C$30 million dollars. 

There's a number of other things that we can do in the future to even lower the capital from where it is today. But again, I don't think it's a big impediment. There's every other metric on this including that is fine for a robust, high-margin and a project that, at this point, looks like it will go into production.

Gerardo Del Real: You envision an 11-year open-pit and underground mine life that will produce 533 million pounds of copper; people can do the math. 841 million pounds of zinc; people can do the math. 10.6 million ounces of silver; same on that. And nearly 130,000 ounces of gold. 

Let's talk about the exploration upside. This is a VMS-style deposit. We know these tend to happen not in isolation. They tend to happen in clusters. When are you going to get back out and start poking around and seeing if you have multiple deposits?

Vince Sorace: The exploration upside potential for this project has become even more, I would say, viable given our transition to this open-pit scenario. 

The open-pit is low-cost production. Anything we can add to that goes very quickly to the economics of the project. And what we've been working on for the last couple of months is what that exploration program would look like and where the opportunity for that is. 

So primary, first and foremost, the lowest hanging fruit is… how can we expand the size of that open-pit? And there are lots of opportunities. 

And especially, the biggest opportunity that we're looking at right now is expanding it to the west to the Main and Sumac lens… there's a big gap between those two lenses… and how big we can make that pit. Again, low-cost production. So that's primary. That's our first look at this.

The Sumac lens, entirely; 10 million tonnes at 1.5% copper. None of that value was brought into this Feasibility Study. None! That will be extended mine life, I believe, somewhere between 5 and 7 years potential just on that lens. Converting that lens from its Inferred into, let's say, M&I… all of this potential, let alone the greenfields potential. 

As you mentioned, these districts tend to get bigger. So we've got greenfields targets. I intend to attempt to hit all of this next year. So part of what we're planning, right now, would be an extensive exploration program next year to hit this low hanging fruit, which could then, very quickly, be relayed to market in its value because we've finished this Feasibility Study now. 

We have all of the metrics. We can do things like a sidecar PEA or a sidecar study that would show how this would integrate into the current operations. And so we're very excited about that — and the potential there is big.

Gerardo Del Real: Again, you have an after-tax net present value at current spot prices of approximately C$931 million. The market cap for Kutcho is C$100 million.

Subscribers of Junior Resource Monthly that bought at the C$0.22 level — the 52-week low — obviously, are happy and content. But there is a lot of runway left. 

So I would say for newer subscribers or people that are looking to the stock feeling like they missed out… A LOT of runway between C$100 million and C$931 million!

I'm looking forward to the exploration. And I'm looking forward to the optimization that you plan on taking on. 

Vince Sorace: And I would say… for people who want to understand what's happening in the market these days… look at page 17 of our new slide presentation where we've done a very good consensus — or a P/NAV analysis — on what's happening in the market and the evaluations that companies in our space are getting. 

And that average P/NAV, right now, is about a 0.56x. Right now, at current prices on base case, we're trading at a 0.22x. On a spot case, we're trading at a 0.11x. 

What people can deduct from that is that, on a base case, we're probably trading 2.5 times less in price than our peers. And on a spot case, probably about 5 times less in price than our peers. 

So in a closing remark, Gerardo, I think with those comps out there, I believe we are one of the most advanced production, feasible, undervalued stocks in this space right now.

Gerardo Del Real: I fully agree! Vince, congrats again. Thanks for coming on. I appreciate it. 

Vince Sorace: Thanks, Gerardo.

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