CUU - an open letter

Posted by Generaledger and worth repeating

Open letter to Management

posted on Jan 07, 13 11:45AM Use the IP Check tool ^[?]

I'm sure the NR has already been written for tomorrow's (this week's - fill in the blanks) announcement that the BFS has been delivered to Teck and the 120 day clock has started. However, we all know that by management's nature or by design, the public relations for our share price has been very conservative and less than sterling, resulting in the dismal .80 cents range we are currently enjoying. So I think it is time for broader enlightenment of our Company's position and potential. If our AG board has trouble with all the Teck option intricacies and what the BFS means, then the average retail investor will have even less of a clue and be wary of investing at all. Whether we have EE making the decision or not, we need our share price higher and more reflective of our potential. So here, before the release, for management and our lawyers' consideration, are some points I hope we more fully explain in the News Release. I'm sure others will add to this list, and I hope Jason will at least pass it on as representative of our concerned and loyal retail investors.

- Fully explain the impact of our new ownership in the Liard shares, what it means to us in terms of a direct net profits interest in the Schaft Creek going forward - my goodness you might want to even go so far as to say it is 24.+whatever percent of the 21 year expected mine profits as an example

- Fully explain the effect on converting the 171 million waste tons (and $1.2B cost) to a reasonable M+I based on conservative grading and what that might do to the mine life extension and the IRR

- Fully explain that the resource deposit the BFS is based on is still open for mineral expansion to the east, north and at depth, plus there may be a further 5-6 deposit extension targets in the Schaft Creek deposit alone, plus there appears to be a new and possibly separate Discovery zone deposit

- Mention that the BFS is based on less than 2% of the lands held by CUU, and that we own additional lands outside of the Teck Option Agreement which also include the proposed Mess Creek road access to Schaft Creek that we are free to sell at a negotiated price as part of the Option Agreement, or retain in our Company for further exploration or to be included in a third party sale - and why not mention what has already been stated - management prefers to sell it's interests for a fair and reasonable rather than retain it

- Fully explain that Teck now has 60 days to form a Joint Venture with CUU to manage the Schaft Creek mine. Now it's always assumed that Teck would be the operator, but if Teck chooses 20% or 40% - why would we automatically let them control the mine, when a Third Party major might be in the driver's seat by buying us out. It appears Teck will have to make their decision within the 60 day timeframe, because I can't see us giving control away in the JV if the 20/40% options are exercised. It hinders the sale value of our 80/60 remaining interest. So realistically, Teck's decision will come within the JV timeline.

- Mention the huge insider ownership and continued support of the Board and management - always a great sign to the retail investor - follow the money.

Management is conservative by nature, but it may be time for a more promotional approach to the information disemination, perhaps less detailed geology. The market clearly doesn't get us at the moment, and needs to be shown the potential upside. There should be no problem including some of the great positive statements and "management's speculation" that were made during the public conference call. We don't owe Teck anything at the moment. This is about Company value and showcasing our potential.

I think they need an open discussion with Vette or some of the other informed shareholders as to what they think is required in this next NR - a very important one. Feel free to add to this list!

It's worth noting that based off WRN's new royalty buy back that our 6.6% retained royalty (Teck chooses the max buy back of 75%) is worth about $60 million per %. 1. This is an adjusted figure. 2. The deposits are nearly equal. (CUU has a much larger potential but WRN has a much lower strip ratio etc.) 

Cooper Fox BFS better than it looks

What does $3.2 billion buy?

Project infrastructure will include:

1. A secure single-lane access road with double-lane sections to support the construction and operation of the Project. This road will include, and extend from, the partially constructed (approximately 40 km) existing Galore Creek Access Road. The road will follow the Galore Creek access road/route for the first 65.2 km from Highway 37. At Km 65.2 it turns north from the Galore Creek Access Route. Approximately forty (40) km of new road will be constructed north through the Mess Creek Valley to the mine site;
2. A 287 kV power line from Bob Quinn to the site covering a total distance of approximately 81 km;
3. 105.26 kilometre fuel pipeline from Tahltan Depot Highway 37 to site including diesel fuel supply and distribution;
4. TSF complete with diversion channels including a reclaim water system;
5. site haul roads;
6. new on-site airport, capable of receiving aircraft with a capacity of up to 78 passengers;
7. a depot located at the juncture of Highway 37;
8. water supply and distribution system;
9. sewage disposal plant;
10. lay down area;
11. process and ancillary facilities;
12. power distribution network;
13. communications infrastructure.

Initial Capital Costs
	$ Millions
Direct Costs
Overall site	251.06
Mining	483.47
Primary crushing	179.62
Grinding, flotation and regrind	594.68
Tailing management facility	212.23
Site services and site utilities	23.86
Ancillary buildings	202.15
Plant mobile fleet'	8.88
Temporary services	5.2
Off-site infrastructure and facilities	202.34
Total Direct Costs	$2,163.49
Indirect Costs
Project indirects	601.24
Owner's Costs	118.04
Total Indirect Costs	719.28
Total Direct and Indirect Costs	$2,882.77
Contingency @11.5%	373.8
Total Initial Capital	$3,256.57

We have to ask ourselves how much Galore Creek would benefit by this?

It promises to bring a fuel line and a power line right past Galore. Then there's the road and near by air strip. And what about all the ground work with First Nations? This certainly amounts to the taming of the wild north alpine country.

The power line is 81km long and $200 million was budgeted for it. The NTL line is expected to cost $400 million so despite the terrain the budget is generous. I think it's not going to exceed $180 million. 

A word about the waste rock. They need to put 10-20 holes in it to convert it to paydirt. We saw some of the results and they were excellent. How wide spread those will be is what is keeping people guessing. Consider that if the removal cost was neutralized by what it contains how that would impact the BFS numbers. Even if 1/2 the removal cost was taken off by high grading the mineralized areas of the waste that would make for a large improvement. I looked at the low case of 10% being economic to remove and lowered the mineral prices and even that kept the profit close to the same.

At 30% mineralization at .25% copper you can lower the price of eq copper by 20 cents with little impact. What's even more surprising to me is that we've known about this long before the BFS came out so why act surprised now? This was a choice the company had to make. Dilute more or get Teck to agree that it has a value. Obviously, Teck said ok now show us a profitable BFS with it as waste. Clearly the company did just that.

It's interesting to note that the total waste expected is 1.89 billion tonnes and they plan to use a portion for roads and bedding. It's pretty obvious that this will have to change. I plan to ask them why they would indicate that knowing this is not the case. Is a revised BFS on the way?

Smart people will pay attention to the seven step plan of mining outlined in the BFS. Look at the map while you read it. Stock pile from the North toe of the East face of the mountain. Here there is construction waste and high grade below. Then take the low strip ration from the South end of the Liard. Then attack the North face push backs. Once the bottom is reached "The final phase is 4N which extends to the ultimate pit bottom, which, based on the resource block model would end in mineralization."

In case you forgot, look at the picture. Root Zones! These are also not in the BFS! We only know the drills ended in mineralization. Due to pit width there was no point drilling deeper. It's up to Teck to mine it. The blisters below the main blob are not reflections they are in fact more copper.

How this escapes people is beyond me.

One last thing. The break even eq of 0.15% was based off much lower prices. This is why I'm telling you there's a lot of room to fiddle with the prices and waste being converted to payable dirt.

Notes to Mineral Resources Tables

1. Mineral Resources are inclusive of Mineral Reserves;
2. While the terms "measured (mineral) resource", "indicated (mineral) resource" and "inferred (mineral) resource" are recognized and required by National Instrument 43-101 - Standards of Disclosure for Mineral Projects, investors are cautioned that except for that portion of mineral resources classified as mineral reserves, mineral resources do not have demonstrated economic viability. Investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded into mineral reserves. Additionally, investors are cautioned that inferred mineral resources have a high degree of uncertainty as to their existence, as to whether they can be economically or legally mined, or will ever be upgraded to a higher category;
3. A 0.15% CuEq cut-off was selected for the base case resource estimate. A 0.15% CuEq cut-off was the minimum grade of CuEq estimated by Tetra Tech required (using the estimated copper recovery rate, the milling and sales cost) to break-even on an operating cost per tonne basis;
4. CuEq grade cut-offs were used to report the mineral resource estimation as a function of copper, molybdenum, gold, and silver. The CuEq is based on Tetra Tech's long-range metal prices of US $2.97/lb for copper, US $16.80/lb molybdenum, US $1,256.00/oz gold and US $20.38/oz for silver and metal recoveries of 60.90% for molybdenum, 70.6% for gold and 43.4% for silver. No copper recoveries were applied to the copper equivalent grade;
5. Rounding as required by reporting guidelines may result in apparent summations differences between tonnes, grade and contained metal content; and
6. Tonnage and grade measurements are in metric units. Contained copper and molybdenum are reported as pounds and contained gold and silver are reported as troy ounces.