Copperbank: a Perpetual Call on Copper
Back in 1993 silver crashed as low as $3.52 in late February/March. A silver company based in Canada was faced with a serious business decision. What kind of business model do you use when the price of your commodity is sitting at 5000-year lows? A decision was made by the company that they would attempt to put together a portfolio of silver projects that they would pick up for pennies per ounce in the ground.
They would do no exploration or attempt to advance any of the projects or go to mining on any of the projects. All they would do is complete deals on projects with the hope of riding the price of silver higher someday. They could pick up unwanted and unloved silver projects for $.02 an ounce in the ground. The company was named Silver Standard.
Silver Standard was worth about $1.35 US a share or $2.00 Kanuk in December of 2001 a few days after silver hit an all time low for 5000 years of $4.01 an ounce. Given the inflation between 1993 and 2001, $4.01 silver in 2001 was cheaper than $3.52 silver almost nine years earlier.
The price of silver started higher as did the price of Silver Standard shares. I wrote about the company and called it a perpetual call on silver. Eventually with silver at about $13.50 an ounce in early 2007 Silver Standard hit an all time high of just over $45. Patient and wise investors had the ability to exercise their calls for a 3000 per cent return.
A week ago I visited a copper project in Nevada owned by a company that intends to use exactly the same business model as Silver Standard did 20 years ago. Copperbank (CBK-C) is a bank for low priced copper projects. It’s a perpetual call on copper.
The website is simply the very best website I have ever seen in the mining business. The company explains their philosophy in a simple text box on the home page that pokes you in the eye when you go to the page. They intend to hold well-situated copper projects and not spend money. If you really like copper and want a perpetual call on copper, they offer it. All you have to do is buy their stock.
I went to see the Contact copper project in Northern Nevada recently. In 2013 a PFS was completed on the Contact Copper Project. It says the project has 213 tons of 0.20% copper containing 831 million pounds of copper at a 0.07% copper cutoff. That seems like a really low cutoff grade and probably misrepresents the amount of copper in the M&I category. There is an additional 52 million pounds of 0.20% copper in inferred. All of the numbers were based on $4 copper. Those numbers were for the pit. A global resource based on the same 0.07% cutoff shows over 1.5 million pounds of copper. The visit showed to me that the project certainly could use more drilling which presumably would expand the resource.
The Contact copper district was mined between 1880 and middle 1940s. It produced some 5.8 million pounds of copper before fading away. Several companies have completed work on the project in the last 20 years before Copperbank bought it this year.
A mine plan called for production of 49.2 pounds of copper a year over a 9.4-year mine life generating a 25.9% return using an 8% discount rate. That would be pre-tax. Costs were estimated at $1.73 per pound of copper and the project needs a capex of $181.9 million and $331 million over the life of the mine.
Copperbank has another copper project in Alaska they are just sitting on as they are with the Contact project. The Alaska project is called the Pyramid Project. SRK completed a 43-101 on the Pyramid project in 2013. Using a cutoff grade of 0.21% copper and a copper price of $3.54 SRK suggested an inferred resource of 1.338 billion pounds of copper at a 0.35% grade.
Neither Contact nor the Pyramid project is either large enough or high enough grade to be economic at today’s copper price of $2.76. That is of little concern to management and it shouldn’t be to an investor. Management wants to pick up more low hanging copper fruit from companies unable to move the projects forward or to keep paying obscene management fees in a dismal market.
In addition to a great website, Copperbank has an unusual asset in the form of Gianni Kovacevic. He is a passionate, fluent in four languages, published author who takes no money for salary, only shares.
His book is titled "My Electrician Drives a Porsche?" and can be had through Amazon. It is the story of two different investors set in the background of how the world will change our consumption pattern for energy related investments in the future.
As of now, fossil fuel moves via pipelines, road and rail. In the future as we move to more green energy, it will be in the form of electricity generated via solar power farms and wind farms. It’s going to move via copper. Gianni makes a convincing argument that we will be increasing the need for copper by 4-8 times over the copper required with the use of fossil fuel. He says with great passion that if you embrace the use of green energy, you also will need a lot more copper. And while he agrees that while China dictates the price and demand for copper today, that will change with increasing demand and regulation of green energy.
I had a lot of fun on the trip. One of the other participants was Mickey Fulp and I always enjoy seeing him on a trip. He showed our group how to test oxide copper samples using acid and a rock hammer. If you drop the acid on a specimen when you want to determine if it contains copper oxide, it will immediately plate the iron rock hammer. I had seen the demonstration before and it’s always interesting.
A purchase of Copperbank today means you are buying copper in the ground at less than $0.0015 a pound. That’s two tenths of a cent a pound. Their peers get from $0.001 to $0.086 a pound. A move to a tiny penny a pound would be a 600% profit. Did I mention Copperbank is a perpetual call on copper? It’s also a very cheap call on copper.
When Gianni pitched the company to me a month ago I went out and bought some shares. I like the concept, I like the execution, I love the website. It’s simply brilliant that someone in the mining industry has actually taken the time to write a book explaining the very real contributions mining makes to our civilization.
Copperbank may advertise. I do own shares, I am biased and you need to be responsible for your own due diligence.