Great stock trades based on fundamentals and technical analysis.
As we pointed out in our initial article on Copper Fox Metals
(CUU in Canada, CPFXF in the U.S.) in August, Teck Cominco, one of the largest mining companies in the world, is a partner with Copper Fox on the Schaft Creek project, a neighbor to NovaGold's Galore Creek project. Today’s news of Teck Cominco partnering with NovaGold on Galore Creek
is great news for Copper Fox. We believe Teck Cominco partnering with NovaGold on Galore Creek means they really like the area and are likely to buy out Copper Fox upon completion of the feasibility study, or at least exercise their option to buy out 75% of Schaft Creek by paying Copper Fox 4 times all prior expenditures and arranging production financing. Teck being involved in both projects also means that Schaft Creek should have an easier time piggybacking on the Galore Creek infrastructure (power, roads, etc.) to go to production, greatly reducing costs.
As this Metals Place article from earlier this year
pointed out, Schaft Creek is arguably a better project than Galore Creek for a variety of reasons:Another Galore Creek neighbor is the Schaft Creek project being developed by Copper Fox [CVE:CUU]. Schaft Creek is only 36km from Galore Creek, but it is on the BC side of the mountains, thus no tunnel or Alaskan environmentalists. The deposit is every bit as big as GC and they have a top notch CEO. The life of mine strip ratio is a much cleaner 0.7:1. The gold grades are higher and it also has molybdenum. The 2004 capital costs were $600MM. While the cost is sure to increase it will still be much less than GC. Copper Fox optioned the property from Teck Cominco in 2002, but Teck retained a back in right for up to 75%. Teck would have to contribute 4 times all prior expenditures and arrange financing after CUU delivers the feasibility study. A preliminary feasibility study and an updated resource estimate were ordered last month. At $2 copper and $500 gold the NPV is $1.2B discounted at 8%. So CUU has arguably a better project and a strong partner already in place. They will undoubtedly have to dilute shareholders to complete the FS, but then they get four times their expenditures to help pay for their 25% of capital costs. The entire market cap of Copper Fox is currently about $40MM. Twenty five percent of Galore Creek would run about $600MM.
Two weeks ago, Copper Fox shares rallied to a new all-time high of C$1.64 in anticipation of a resource estimate update. After the resource upgrade came out, a sell-the-news reaction in combination with a sector correction and the unlocking of shares from a private placement four months ago caused the stock to lose over 40% in a week. As Lawrence Roulston remarked
about this selloff, "The fall-off in the share price after the announcement of the resource suggests that some investors don’t fully understand the figures... There is still considerable upside potential as the company advances toward a pre-feasibility study over the course of this year. An updated scoping study expected in the coming weeks should provide greater insight into the economic outlook for the project."
We believe today's news of Teck Cominco becoming the dominant player in the area means the risks for the Schaft Creek project have just been dramatically reduced, which, combined with the recent share weakness, has created a great investment opportunity for Copper Fox.
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