Deep-value copper call option in Montana’s rolling hills
2015 will be remembered as a period when investors could buy world-class natural resource assets for pennies on the dollar.
Tintina Resources (TAU:TSXV, TINTF:OTCQX) owns one of the highest-grade undeveloped copper deposits, in an excellent location — and trades for less than its cash in the bank.
The company is also backed by one of the most successful miners in the world right now:Sandfire Resources (SFR:ASX), in addition to hedge fund titans including George Soros and Thomas Kaplan.
Here’s the quick spiel on Sandfire: In early 2009, they discovered what is now the high-grade DeGrussa copper-gold mine in Western Australia on a property they had owned for a decade. DeGrussa was built in three years, an incredible feat for a junior company.
SFR shares were A$0.05 in Nov ‘08 and A$8.00 by Dec ‘10. The high was A$8.99 in October 2012, an almost 18000% move from the 2008 bottom. Throughout this period of immense wealth creation, Sandfire earned a solid track record of positive community relations and environmental stewardship. SFR shares trade at A$5.31 today, which means they are holding up far better than their peer group amid the current mining depression.
The Australian-American geologist tasked with finding the next DeGrussa is Bruce Hooper, Chief Business Development Officer at Sandfire.
After four scouting trips to Montana between 2012 and 2014, Hooper — and Sandfire’s senior executive team — became convinced Tintina’s Black Butte Copper project near White Sulphur Springs (population 970) was economic and permittable for a 2020 production start. Sandfire acquired a 36% stake in Tintina for $16 million in Sept 2014 to help progress its studies. Sandfire can increase its ownership to 53% by exercising warrants with a strike price of approximately six times Tintina’s recent share price.
To make sure Sandfire had on-the-ground, “hands-on” participation in their investment, Hooper became CEO at Tintina last year. Hooper had championed Black Butte Copper within Sandfire, so CEO Karl Simich gave him a chance to eat his own cooking. Hooper and his family moved to Helena, Montana from Perth, Australia to be closer to the project.
Tintina Resources’ 100% owned Black Butte Copper project primarily consists of approximately 12,000 acres of long-term mining leases on private ranch lands. High-grade copper mineralization there was first discovered in the mid-1980s by a joint venture between Cominco and Utah Mining.
Geologist Jerry Zieg led original exploration efforts. Zieg grew up on a ranch in the area and researched local geology while attending university. He was able to get Cominco and later Utah Mining to fund the testing of some of his early exploration ideas.
But copper prices were at decade lows when Cominco and Utah made the original discovery while looking for zinc and lead. Despite significant intercepts of high-grade copper, including some of the broadest massive-sulphide intersections ever recorded, the project was abandoned in the early 1990s and Zieg was told to get rid of the drill core because storing it would cost money. Zieg wisely made an arrangement with a nearby university to store and preserve the drill core, and the project sat idle for the next 15-plus years.
Zieg moved on to a successful mining and exploration career including as senior geologist for NovaGold Resources, where he helped develop major copper and gold discoveries in B.C. and Alaska.
As copper climbed throughout the 2000s, more than a dozen mining groups interested in the asset approached Black Butte Copper’s rancher owners, according to Tintina’s Public Relations Director Nancy Schlepp, a native of White Sulphur Springs. But the ranchers insisted that only local geologist Jerry Zieg could be trusted to develop the deposit.
Talks between the ranchers and Zieg were stalled by the 2008 financial crisis, but eventually Zieg and some innovative colleagues cut a deal to explore Black Butte Copper. The ranchers retained a royalty with Tintina holding the right to buy down the royalty to 2%.
Zieg worked with NovaGold’s CEO Rick Van Nieuwenhuyse and appreciated his focus on working closely with local communities to earn their support, as well as his ability to finance exploration projects. Zieg thought he would be a good fit for the project. Together they talked to local ranch owners and eventually penned a deal. The duo were involved with another small “junior” exploration public company, TintinaGold Resources, which acquired the Black Butte Copper project in 2010. TintinaGold then dropped the “Gold” from its name and Van Nieuwenhuyse became Tintina’s chairman.
Tintina Resources invested over US $25 million between 2010 and 2013 to prove up a very high-grade and low capital-intensity project. Black Butte Copper contains 15.7 Mt @ 3.4% Cu (533,600 tonnes) Measured & Indicated, 2.3 Mt @ 2.8% Cu (63,500t) Inferred, according to a July 12, 2013 PEA. That’s about 1.3 billion pounds of copper at grades far above industry averages.
Along the way Tintina attracted some prominent backers including Electrum Strategic Resources LLC (Thomas Kaplan), Quantum Partners LP (George Soros), and Sandfire Resources NL.
Engineering and Permitting
Engineering plans for the underground mine are being finalized but Black Butte Copper’s footprint is quite small. The deposits are situated under low, rolling hills. The Johnny Lee deposit, named for the rancher who owned the property a century ago, will be accessed with an underground decline. The project will have its own on-site water treatment facility. Waste rock mixed with cement will be re-deposited underground in the mine tunnels. Excess dewatered tailings will be contained in a state-of-the-art double-lined facility. Any exterior drainage water will be pumped back through the water treatment plant.
Black Butte’s opponents say its sulphide copper could release acid-laden waters when the sulphide is exposed to the elements, a contention Tintina does not dispute. However, this is not allowed under Montana’s strict environmental laws. Tintina believes, if managed properly, a modern mine can be built that will not release any toxic metals into the environment, and is designing its mine accordingly.
A detailed Environmental Impact study with Montana’s Department of Environmental Quality (DEQ) oversight will commence shortly and Black Butte Copper will not be permitted if any surface or groundwater is vulnerable as a result of the mine. The proposed underground mine will be developed below the water table and accessed by a decline, so no water will “leak” out from it, the company says. The deposit is also surrounded by miles of dolomite limestone, a natural buffer to potentially acidic waters. Tintina believes these two factors eliminate the risk of potential acid groundwater contamination.
Early Montana miners operated before the environment was a focus of the mining industry and left an unfortunate, but real, environmental legacy requiring cleanup. Several environmental groups in and outside of Montana have embraced these legacy issues and worked to brand Tintina’s Black Butte Copper project as the “Smith River Mine”. These groups have been effective in raising money with “Save Our Smith” campaigns describing the potential mine as an environmental disaster waiting to happen (Sheep Creek is a tributary of the Smith River 19 stream miles away.)
Today, Montana has some of the strictest environmental standards anywhere and Montana’s DEQ ensures no project that degrades water quality will be permitted. In addition, Tintina is committed to the community, embraces the need to earn a social license, and is totally focused on transparency, environmental and otherwise.
Tintina’s headquarters in White Sulphur Springs is a converted hardware store on the main street. Anyone who walks in is offered a free hat and a presentation from Zieg, Schlepp, or another equally passionate Tintina employee. Visitors are invited to visit the proposed mine site about 20 miles from town on the first day of each month.
Tintina thinks they have almost full support in the community of White Sulphur Springs, which badly needs the economic boost. The 11- to 14-year mine life could bring 200 full-time jobs to the area.
Tintina is focused on engineering and permitting a mine at the Johnny Lee deposit, which is located completely on private land, which means the project will only involve state permitting, with no federal nexus.
Tintina’s Value Drivers
There is also potential for a much longer mine life on the property. All exploration since Tintina began exploring Black Butte Copper has been focused on proving up Johnny Lee. The nearby Lowry deposit, for example, is not factored into the current mine plan. Both Zieg and Hooper are explorationists and believe there is tremendous potential for further discoveries in the district. Sandfire has recently proven how valuable brownfield discoveries can be.
Tintina has a $8.9 million market capitalization and $10.9 million in the bank as of June 30, 2015, which means the market is valuing the company at approximately negative 2 million. If all goes according to plan, Tintina has enough cash to fund operations until about mid-2016. Development capital is pegged at US$218 million, according to the July 12, 2013 PEA. Zieg said the ultimate budget may increase slightly.
Copper prices have fallen hard, from US$4 per pound to roughly $2.30 today, and that has weighed on Tintina’s recent share price of 4 cents, near all-time lows. Black Butte Copper’s 2013 PEA shows US$1.80 cash costs but management is more focused on where copper prices will be in 2020 and beyond. Hooper and his colleagues believe supply deficits will become the norm later this decade, with no new mines opening at current prices.
Tintina has over 10 major studies ongoing to develop the project. The company will submit its Mine Operating Permit application in late 2015 with completion of the Environmental Impact Statement expected in the fourth quarter of 2017. A Feasibility Study is planned for 2017, and mine and decline construction is projected to begin in early 2018 for mining in 2020. The timelines depend, of course, on feasibility, financing and potential legal challenges.
The company also plans to ramp up investor relations activities. CEO Bruce Hooper will be presenting at the Subscriber Investment Summit on October 8, 2015 in Vancouver. He plans to engage the investor community actively in the coming year to address Black Butte Copper’s long-term financial needs. Having smart money in the form of Sandfire and a couple of major hedge funds in at higher prices and on-side should help.
Some patience will be required, and the path through environmental opposition will need to be carefully navigated, as trust towards a social license is built. But Black Butte Copper is shaping up to be a copper call option unequalled in the next up-cycle. It’s a story that Montanans and investors can embrace.
Forward-Looking Statements: This publication includes certain disclosure which constitutes “forward-looking information” or “forward looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities legislation. Forward looking statements are often identified by words such as: expects, plans, anticipates, believes, intends, estimates, projects, assumes, potential, or will, would, may, could or should. These forward-looking statements include statements regarding plans and intentions with respect to exploration and development of Tintina Resources (“the Company”) properties, including timelines, anticipated results, the Company’s operations and financial condition in future periods, anticipated completion of feasibility and other studies and their impact on project economics and scope, timing of approvals and permitting and other milestones and sufficiency of funding to complete planned activities. Estimates of mineral resources are also forward-looking statements in that they involve estimates of the mineralization that would be encountered, based on interpretation of drilling results and certain assumptions, if a deposit were developed and mined. Forward looking information relating to the Company’s Black Butte Copper Project also includes the Preliminary Economic Assessment (PEA), including estimates of capital and sustaining costs, anticipated internal rates of return, mine production, estimated recoveries, mine life, estimated payback period and net present values. In making the forward-looking statements, the Company has applied certain factors and assumptions that the Company believes are reasonable, including those set out in the PEA, that the Company is able to obtain required government or other regulatory approvals and permits and any required financing to complete the Company’s planned activities, that actual costs of planned activities will be consistent with management’s expectations, that the Company is able to procure equipment and supplies in sufficient quantities and on a timely basis, that actual results of exploration activities are consistent with management’s expectations, that the proposed mine plan and recoveries will be achieved, that capital costs and sustaining costs will be as estimated, that the assumptions underlying mineral resources estimates are valid and that no unforeseen accident, fire, ground instability, flooding, labor disruption, equipment failure, metallurgical, environmental or other events that could delay or increase the cost of development will occur. However, the forward looking statements are subject to numerous risks, uncertainties and other important factors that may cause actual results to differ materially from those expressed or implied in such forward-looking statements, including any of the assumptions and factors set out in the PEA proving to be invalid or varied, actual results of the Company’s exploration activities being different than those expected by management, uncertainties involved in the interpretation of drilling results and geological tests and the estimation of mineral resources, that the future price of copper will decline, the need for cooperation of government agencies, native groups and other stakeholders in the development of the Company’s properties, risks related to mineral properties being subject to prior unregistered agreements, transfers or claims and other defects in title, risks of operations such as accidents, equipment breakdowns, inadequate insurance or inability to obtain insurance, bad weather, potential litigation, non-compliance with environmental and permit requirements, unanticipated variations in geological structures, grades or recovery rates, unexpected cost increases, fluctuations in metal prices and currency exchange rates, delays in obtaining or inability to obtain required government or other regulatory approvals or permits or required financing, and the inability to procure equipment and supplies in sufficient quantities and on a timely basis. Readers are cautioned not to place undue reliance on forward-looking statements. The Company does not intend, and expressly disclaims any intention or obligation to, update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. This presentation is not, and is not intended to be, an offer to sell or the solicitation of an offer to buy any security of Tintina in any jurisdiction. This presentation is not an offering memorandum.
Disclaimer: At the time of publication, the author owns no shares of any of the companies mentioned in this publication. He intends to purchase shares in Tintina Resources in the open market in the near future. Tintina Resources is a sponsor of the upcoming Subscriber Summit co-produced by CEO.CA which makes CEO.CA and the author very biased in its coverage of Tintina Resources. Please see the technical report entitled “Updated Technical Report and Preliminary Economic Assessment for the Black Butte Copper Project, Montana” dated July 12, 2013 (the “PEA”), which is available on SEDAR, for more information. The PEA is preliminary in nature, it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.