JV Article: Kutcho Copper a New Player in BC's Golden Triangle

Vancouver-based development company Kutcho Copper Corp. (TSX Venture: KC) is closing out 2017 on a high note and looking ahead to a busy year at its Kutcho high-grade copper-zinc project in northern British Columbia.

In mid-December, the company changed its name to Kutcho Copper Corp. from Desert Star Resources Ltd., and its ticker to "KC" from "DSR".

Location map of Kutcho Copper’s Kutcho copper-zinc project in northern British Columbia. Map credit: Kutcho Copper.

The rebranding dovetailed with a milestone $117-million financing package and the closing of Kutcho Copper's acquisition of a 100% interest in its flagship Kutcho copper-zinc-gold-silver property, located 100 km east of Dease Lake, within the territory of the Tahltan and Kaska First Nations.

Mineralization was first discovered on the property in 1968, and since then the property has had several owners including Sumitomo, Homestake Mining, Barrick Gold and most recently Capstone Mining.

Over the past year Kutcho Copper has moved quickly to build up the company and fast-track development of the property, highlighted by the tabling of a strong prefeasibility study in June.

Geologically, the property sits within the King Salmon Allochthon - a narrow belt of Permo-Triassic island-arc volcanic rocks and Jurassic sediments - nestled between two northerly-dipping thrust faults.

Vince Sorace, President and CEO of Kutcho Copper Corp.

"The Kutcho formation is fairly old," says Kutcho Copper’s President and CEO, Vince Sorace. "We're inheriting some exceptional geological work carried out over the years, and we don't expect we'll be re-inventing the geological model."

Some of that work was carried out by Western Keltic Mines, which drilled in 2004-05, before selling the property in 2008 to Capstone, which drilled another 10,000 metres the same year and released a preliminary economic assessment in 2009 and a prefeasibility study in 2011.

Kutcho Copper's revised prefeasibility study of mid-2017 envisions a 2,500 tonne-per-day underground mine producing an average of 33 million lb. copper and 42 million lb. zinc annually over 12 years. The initial capital expenditure is estimated at $221 million, while the after-tax net present value is calculated at $265 million using an 8% discount rate, and the internal rate of return at 27.6%. These project economics were generated using prices of US$2.75 per lb. of copper and US$1.10 per lb. of zinc, which are much lower than current spot prices.

Mineralized material in the "probable reserve" category stands at 10.4 million tonnes grading 2.01% copper, 3.19% zinc, 0.37 gram gold per tonne and 34.61 grams silver per tonne (or 2.92% copper equivalent).

By dropping the resource cut-off grade to 1% copper from 1.5% copper for all the zones, Kutcho Copper increased the measured and indicated tonnage by 50% to 16.9 million tonnes grading 1.89% copper, 2.87% zinc, 0.36 gram gold per tonne and 32.8 grams silver per tonne. Another 5.8 million tonnes at slightly lower grades lie in the inferred category. The additional tonnage has not yet been considered in the project economics.

Examining rocks at Kutcho Copper Corp.’s Kutcho copper property in British Columbia. Photo credit: Kutcho Copper Corp.

A closer look at copper-zinc mineralized material at Kutcho Copper Corp.’s Kutcho copper property in British Columbia. Photo credit: Kutcho Copper Corp.

"One of the key aspects of Kutcho, and most volcanogenic massive sulfide systems, is its polymetallic nature," says Sorace. "Approximately 60% of the value is in copper and 32% is in zinc, while the rest is the precious metals. We realized that a net smelter return cut-off value had not been established including all the by-product metal values."

The largest portion of the latest financing package is a US$65-million streaming agreement with Wheaton Precious Metals (TSX: WPM; NYSE: WPM), including a US$7 million advance to help Kutcho Copper fund a feasibility study. In exchange, Wheaton will receive up to 100% of the payable gold and silver production from Kutcho which declines to 66.6% once the company has delivered 51,000 ounces of gold and 5.6 million ounces of silver.

Wheaton will make ongoing production payments to Kutcho Copper equal to 20% of the applicable spot prices of gold and silver delivered. An additional payment of up to US$20 million will be payable to Kutcho Copper should the mine's processing capacity increase to 4,500 tonnes per day or more within five years of attaining commercial production.

"We recognized this structure would help us finance the acquisition while minimizing share dilution," explains Sorace. "Kutcho is well suited for selling a gold-silver stream as those two metals only constitute about 8% of the revenue from the project. We knew we wouldn't be encumbering the economics of the project."

In December 2017, Kutcho Copper also closed a $20 million subordinated secured convertible term debt loan with Wheaton and a $14.7-million private placement of shares and warrants.

Those funds allowed Kutcho Copper to acquire 100% of the Kutcho project from Capstone on Dec. 15 for $28.8 million in cash plus 4.6 million shares.

Kutcho Copper recently signed a communications agreement with the Tahltan Central Government in relation to the Kutcho project.

The camp at Kutcho Copper Corp.’s Kutcho copper-zinc property in British Columbia. Photo credit: Kutcho Copper Corp.

Meanwhile Kutcho Copper has strengthened its management and board by adding several key members over the past year.

"It's extremely important to have the right people filling the correct roles to drive a project like this and get it to the finish line," comments Sorace. "That's why we assembled premier people in their fields, namely Allison Rippin-Armstrong to head our environment, permitting and community relations efforts and Rob Duncan and Rory Kutluoglu to drive the feasibility along with the considerable experience and oversight of Stephen Quin on the board of directors."

Over the next 12 to 18 months, Kutcho Copper plans to explore and expand the resource, optimize the metallurgy, update the resource and reserve numbers and complete a feasibility study.

"You will see us embark on new environmental and community work and an extensive drilling program to convert all the inferred resources on the project to the indicated category," says Sorace.

As of Dec. 15, and taking into account the latest deals, Kutcho Copper had 46.9 million shares outstanding, with the largest shareholders being Capstone Mining (16%), Wheaton Precious Metals (13%), and management and directors (10%).

- The preceding Joint Venture Article is promoted content sponsored by Kutcho Copper Corp. and written in conjunction with The Northern Miner. Visit www.kutcho.ca to learn more.