Base Metals

Copper Investing News had the chance to talk with Maurice Gannon, CEO of Australia-based Coppermoly, about the company’s current projects and focus on Papua New Guinea.

There has been plenty of speculation over the future of copper from news outlets of late, from suggestions of a looming copper shortage to fears that a surplus could unwind from China. However, Coppermoly (ASX:COY) CEO Maurice Gannon is confident about copper.

In a recent interview with Copper Investing News (CIN), the CEO cited the red metal’s ubiquitous use in the construction sector and elsewhere as just one reason why ASX-listed Coppermoly is focusing on high-grade copper projects in Papua New Guinea (PNG). Specifically, the company is concentrating on a potentially large copper deposit on PNG’s New Britain Island with a view to meeting international demand for copper.

Currently, Coppermoly is in the advanced exploration stage at both its Nakru and Simuku projects on the island, making it an asset-rich junior resource company. Below, Gannon talks about Coppermoly’s projects and how its copper deposits compare to others around the world. In addition, he discusses several important aspects of mining in PNG in general.

CIN: Just to start off with, I don’t believe we’ve covered Coppermoly extensively on our network before. Could you tell our readers a little bit more about your company?

MG: Coppermoly floated in January 2008 on the Australian Stock Exchange on the strength of two projects in particular. These are our copper-gold porphyry projects on New Britain Island, which is part of PNG, although it’s an island to the northeast of the mainland. The exploration projects are quite advanced. One in particular, Nakru, which is towards the south coast of the island, has a high-grade copper resource of 38 million tonnes at close to 1-percent copper equivalent. The other, Simuku, is a larger, lower-grade system at this stage with 200 million tonnes at about half a percent copper equivalent. We’re currently actively exploring Nakru in particular, and we’re quite confident that we will upgrade the size and the quality of the resource by the end of this year. We’re hoping to be at the stage of going into the early stage of a scoping study and advancing the resource to an indicated resource under the JORC code.

On top of that, we’ve got four other exploration licenses, all of which are on New Britain Island. Three of them are in West New Britain, neighboring the other projects that we floated the company on, and one other project that was only recently granted is in East New Britain. So we’re quite asset rich for a junior explorer, and we’re just on that point on the curve where we’re looking to advance our key project, Nakru, to a mineable resource.

CIN: What have you found to be the biggest benefits and challenges of mining in PNG?

MG: Well, it’s a very interesting country. First of all, it’s incredibly mineral rich; there are huge mines, very well-known, world-class deposits in PNG. Pretty much any discovery that happens there tends to be notable on a global scale. It’s very amenable to mining. Some people are quite fearful of the logistics of PNG and the apparent sovereign risk, but frankly I think that it’s reasonably stable, and because it is so favorable to mining, it’s quite a comfortable regime to work in, in my opinion. The community affairs aspect is an issue for some companies, but since all of our projects are in one geographical region I believe we’ve really set a benchmark in community affairs and we’re very strongly supported by the communities that we work in.

The other thing in PNG, or on New Britain Island in particular, is the logistics that support our project. The island itself is only 140 kilometers across from north to south, and Simuku, the large 200-million-tonne inferred resource, is actually within an hour-and-a-half drive from Kimbe, which is a very well-advanced deep sea container port. It’s been exporting forestry and oil palm products for decades. There’s also a jet airport, heliport and light industry. So the logistics really are second to none once we get to the stage of actually producing.

CIN: That’s interesting that you mention community support. I noticed that Coppermoly has outlined a specific environmental policy and uses local labor. Why is that sort of social responsibility important to your company? How will it influence the development of your PNG projects?

MG: It’s important not just in an operational sense; it’s simply good insurance to have good support from the communities that we work with because land ownership is really central to the culture of PNG. If you don’t have the support of the local communities you can really find yourself in strife no matter how big or small a company you are.

But more than that, we’re developing, or aiming to develop, resources that are PNG resources, so I believe it’s fundamental that all stakeholders, and hopefully as many actual shareholders as you can have in PNG, should have a positive role to play in the project. I mean, to some extent, or to a large extent as a matter of fact, any economic development that happens in these areas is extremely important to these local communities, and not just in providing employment. The fact is, it’s on their land and we need to be culturally aware so as not to create cultural issues. They’re good people, they deserve due respect.

CIN: Getting back to your copper deposit, press releases this year have stated that you have intersected “exceptionally” high grades. How does your copper deposit compare to grades found around the world? Are there many copper projects with high grades like this?

MG: There’s not a lot really. Anything over 1 percent intersected in a drill core these days starts to attract attention. What we actually have is quite high grade, ranging from above 1 percent to up to 4 percent in places, and it’s near the surface, so that obviously lends itself to very significant savings on the economics of the project once we get to development. Also, what we did on Nakru in particular was to apply a surface geophysical technique called three-dimensional induced polarization, referred to as 3DIP. The results that generated really tell us where to drill so we can be very precise with our drilling.

Let me put it this way: at Nakru, the indications are that there will be a significant strike length of high-grade copper starting close to or at surface, so that is really unusual. It’s not that unusual for good copper grades to be found, but they’re often at a couple hundred meters or greater depth, which obviously means that you’re clearing overburden for a good part of the mine life before you get to “paydirt,” as we call it. Our projects are not like that. The economics are going to stack up for sure. We’ve just got another year or two to prove up the resource and there’ll be no doubt that there’s excellent economics in taking this to a mine.

I couldn’t disclose names, but I’ve had quite a bit of attention since we’ve announced those results from some really major companies, and, of course, Barrick Gold (NYSE:ABX,TSX:ABX) was previously attracted to our projects and was also heavily involved in exploration at one point. The interest of those companies speaks volumes for the quality of the assets that we have. The main reason Barrick exited was due to corporate decisions and the fact that they pursue an exploration paradigm of “Barrick-sized deposits,” and they decided that our projects were not of sufficient size for their model. That’s fair enough. Of course, I’d debate it, but that’s the decision that they made. Nakru is a potentially outstanding project, and we intend to prove that. It’s too early a stage to really say that it’s going to compare to any of the giant mines on the planet, but what we already know for sure is that it’s a very nice resource with obvious excellent economic potential.

CIN: Although there was talk of a copper surplus earlier this year, analysts are now forecasting a copper deficit. Given that you have a high-grade copper project, what is the importance of bringing projects like this online in the current copper market?

MG: I mentioned a point on the development curve earlier, and I’ve been telling people for several years now that we’ve got a project here that will be coming onstream just when China in particular is going to have very high demand for copper, around 2017 to 2018. For sure it’s an industrial metal with a huge breadth of applications, so the demand’s not going to go anywhere but up. With production of some of the big mines on the planet tapering off and with us bringing this resource up to mining stage at that time, right next to a deep sea port and within a short sea trip to Southeast Asia, we have to be one of the prime candidates.

CIN: So in terms of production, what sort of timing are you looking at?

MG: I’d say that during the 2014 and 2015 calendar years we will be deeply involved in exploration, subject to the capital markets being kind to us, although they’re not kind to anybody right now. I would fully expect that we would be at least at the indicated JORC code stage at that point, with something between 70 to 100 million tonnes at least of greater than 1-percent copper. That’s more than sufficient for us to be entering into prefeasibility, and I would almost bet that by that time, and most likely well before, we would have a large partner or probably a number of large partners as suitors, so I would think that we’d be in production by 2016 to 2017, or at least in mine development stage.

CIN: It seems like you’re mainly looking to sell to China. Are you looking at markets anywhere else?

MG: What Chinese companies like to do is negotiate offtake agreements. In fact, I would think that if an Asian party comes in to finance mine development there would be a secure market regardless of the origins. If it was a Chinese partner, they’d be funding the development so that they could have the product. If it was an American partner I’d expect the same, and if it was a Canadian partner it would probably be an existing producing company, I would think. Overall that’s part of the strategy that we don’t have to think too hard about, thankfully. I would imagine that whoever comes up with the money would be taking the product, but it’s a secure market anyway, so if we ultimately end up capitalized sufficiently, we could produce ourselves; however, we’re expert PNG explorers, so I think we’ll stick to what we do best. In any case, there will be no trouble selling the product, and I would expect copper prices to be substantially higher at that time than they are at present.

CIN: It seems like you have more of a global scope, but since you’re Australian, I also want to ask what you think Coppermoly’s PNG projects will mean for the copper market in Australia?

MG: That’s an interesting question. Our shareholders are PNG-o-philes. They love PNG, so we’ve remained not just PNG focused, but singularly focused on one geographical region on one small island in PNG. When it comes to production, of course the focus becomes global, but when it’s in exploration I’m required pretty much by our shareholders and our corporate strategic plans to stay zeroed in on that one spot. Australia is not lacking copper resources, there’s no question about that. I’ve always had a fancy for South Australia, which is referred to as “the copper kingdom” by some people. The Olympic Dam is in South Australia, and the South Australian government has just opened up a new territory called Woomera, which was a nuclear test area back in the 1940s and 1950s. It is almost undoubtedly copper rich as it’s right next to the Olympic Dam site. I think there will be quite a lot of heavy exploration going on there, and almost inevitably discoveries, I would imagine. I think that with the resources we have, Coppermoly will become a fairly significant player amongst copper-focused Australian companies. That’s certainly the plan.

CIN: Great. Did you have anything else to add?

MG: The big challenge for companies of our type at the moment is the equity markets. Whilst it’s speculative at some points, it also requires a degree of patience, particularly for companies like Coppermoly because we’re just on that point on the curve where we’re going to change character, so patient capital is the key to companies making that transition. I really would urge all of our existing shareholders and anybody else who’s interested to check out the story and hang in for the medium term at least, and preferably for the long haul, because I’m confident that Coppermoly can produce capital gains and long-term wealth for shareholders. Certainly two of the directors have just taken up larger shareholdings, me included.

The other thing I’d say is that we have a really interesting “fly through,” as we call it, that interlaces all of the different ways of visualizing the resources and the geography of the part of the world in which we are operating. I’d encourage people to jump onto our website and check it out. It’s a 12-minute “movie” that streams on YouTube.

CIN: Well it was great to meet you. Thank you for taking the time to speak to me about Coppermoly today.

PR: Thank you.


Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.


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