February 15, 2007
Wolfden Resources Makes More Strides Towards Production At High Lake
By Our Canadian Correspondent
Making the transition from exploration company to a producer is never an easy task but with metal prices traded near historic highs, Canadian-listed Wolfden Resources has the assets to do just that.
Grey Wolf
You see, Wolfden is armed with preliminary economic assessments of the Izok, Ulu and High Lake deposits in Nunavut, all of which have positive economics when the three projects share infrastructure and the Lupin mill. None of these deposits are recent discoveries with the High Lake deposit kicking around since 1956 and the Izok deposit being found in 1975. However, development has been plagued by a notable lack of infrastructure in the area and unfavourable metal prices. Fast forward to today and by consolidating the deposits under a single ownership, Wolfden has found synergies that make development look more like a ‘when’ scenario and not an ‘if’ scenario. First off, the new assessment\'s capital cost figures include an all-weather road connecting Izok and Lupin to Gray\'s Bay, on Coronation Gulf, passing by both Ulu and High Lake. It also costs out a port at Gray\'s Bay.
Developing costs are not cheap, the Izok deposit would ring in around US$504 million but with an indicated resource of 14.4 million tonnes grading 12.94% zinc, 2.52% copper, 1.28% lead and 71 g/t silver, based on a 2% zinc-equivalent cutoff grade, and using metal prices about half of their current value, the project would have an internal rate of return of 18.6 per cent and a net present value of US$339 million based on a 5 per cent discount rate. Operating costs at Izok are calculated at US$0.36 per lb. of zinc, plus there is another 370,000 tonnes of inferred resources graded 6.4% zinc, 3.79% copper, 0.27% lead, and 54 g/t silver. Interesting, but by plugging in US$1 per lb. for zinc, US$2.25 per lb. for copper, US$0.50 per lb. for lead, US$550 per oz. for gold and US$9.50 per oz. for silver, the net present value soars to $1.4 billion with an internal rate of return of 47 per cent.
The mine would be an open pit operation with ore trucked to the Lupin mine, where it would be processed in a conventional flotation mill. The existing Lupin mill, which could handle 4,000 tonnes per day, would need separate copper, zinc and lead flotation circuits added to it, in parallel to the existing gold recovery plant. There is also potential upside in a second deposit, known as Inukshuk, which has an indicated resource of 1.3 million tonnes grading 7.38% zinc and 3.01% copper that would need to be an underground operation and is not included in the study.
Moving over to High Lake, higher fuel and transportation costs along with lower grades makes this one less robust. Here, using the current indicated resource of 17.3 million tonnes grading 3.35% zinc, 2.25% copper, 0.31% lead, 0.95 g/t gold and 69.7 g/t silver, the underground mine would make a net present value of US$99 million and generate an 11 per cent internal rate of return using the same metrics. But High Lake is highly leveraged to metal prices. By using the higher metal price scenario, the net present value jumps to US$936 million with a rate of return of 51 per cent. Capital costs ring in at US$333 million and its cash cost of production would be US$0.50 per lb. of copper.
On the gold front, the Ulu deposit with an indicated resource of 720,000 tonnes grading 11.7 g/t gold and an inferred resource of 410,000 tonnes at 10.7 g/t, would produce gold at about US$210 per oz. Its capital cost is estimated at $61 million and the base-case cash flow analysis puts its return at 20.9 per cent and its net present value at US$33 million.
So clearly, Wolfden has the right assets at the right time. That said, its share price has been plagued by the usual lack of interest as the boring yet time -consuming permitting process and land access agreements get into place. Investors recently responded when Wolfden announced the signing of an Inuit Owned Lands Access Agreement with the Kitikmeot Inuit Association . This deal is pivotal because it allows access to and use of Inuit Owned Land paving the way for the construction of camp facilities at Wolfden\'s High Lake project, an airstrip at Sand Lake, and an all weather access road between the High Lake Project site and the airstrip located north of High Lake. Additionally, the KIA has granted the licenses for the winter trail route on Inuit Owned Lands between High Lake and Ulu, and High Lake and Grays Bay. Construction of the camp, road and airstrip will enable the company to operate year-round at High Lake.
Add this to last years submittal of the Comprehensive Project Proposal for the High Lake Project to the Nunavut Impact Review Board (NIRB) and Federal and Territorial regulatory authorities, and I think you get the idea that progress is being made. Wolfden’s President, Ewan Downie put it best by stating: "Filing of the Project Proposal with NIRB is the next step in the permitting process for the proposed High Lake Mine, bringing the company one step closer to its goal to become a base metal producer at High Lake."
In other words, exploration, development and permitting news should be flowing much faster for Wolfden over the next year, a crucial factor to maintaining investor interest. So while shares in Wolfden have risen steadily off their September lows and now fetch C$3 per share, continued strides on the project should make for continued share price appreciation.
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