Frequently Asked Questions (FAQs)
Q. Does the current Copper Fox stock price accurately represent the net asset value of the company?
A. No it does not. The commodity prices have been in a down trend for approximately five years. As commodity prices decline, market valuations for resource companies generally follow this trend. This combined with other market forces and macro issues tend to distort the values assigned to advanced stage projects. Copper Fox currently has five properties of merit of which three properties have had National Instrument 43-101 Technical Reports completed. The three properties contain a combination of measured, indicated and inferred resources being identified. Included in the three projects is the Schaft Creek project which contains measured, indicated and inferred resources. A significant portion of the measured and indicated resources at Schaft Creek has been upgraded to proven and probable reserves as a result of a feasibility study.
The Technical Reports on the Van Dyke and Schaft Creek projects confirm that both projects have positive net present value ("NPV") and internal rate of return ("IRR"). Based on these study's input parameters, Copper Fox's 25% share of Schaft Creek equates to a NPV (discounted at 8% and 5%) ranging from $C128 to $C424 million, or $C0.31 per share to $C1.04 per share and Copper Fox's 100% share of Van Dyke equates to a NPV (discounted at 8% and 5%) ranging from $US213 to $US282 million, or $US0.52 per share to $US0.69 per share. These per share values are substantially higher than the current share price of Copper Fox.
Q. Do the above noted NPVs and associated per share values reflect current copper and gold price and foreign exchange scenarios which would have been used as input parameters?
A. No they don't. The lead time to develop the Van Dyke and Schaft Creek projects range from 3.0 to 5.0 years into the future. The copper and or gold prices as well as the foreign exchange rates used in these studies are industry consensus forecast to that future point of time. The foreign exchange value used in the feasibility study completed in 2012 for the Schaft Creek project was $1 US: $C was 0.97 whereas the current foreign exchange is $1 US: $C = 0.764; a significant positive difference in terms of Canadian dollars. By way of example, the base case analysis in the 2012 feasibility study used a copper price of US$3.25/lb ($C3.35/pound) and a gold price of $US1,445/oz. ($C1,489/oz.). Currently the spot copper and gold prices quoted on the London Metal Exchange ("LME") was in the order of US$2.20/lb ($C2.87/pound) and $US1,350/oz. ($C1,767/oz.) at the foreign exchange 0.764 $C/$US. As one can see, the metal prices used in the feasibility study are reasonably close for copper but are considerable higher for current gold prices due to the effect of the foreign exchange. The Van Dyke project used only $US in its economic projection. If expressed in $CAN, the economic parameters would have been considerably higher.
Q. What keeps your largest shareholder interested in the company and what is his long term objective?
A. Our largest shareholder, an insider and director, Mr. Ernesto Echavarria, holds approximately 55% of the company's common shares and has been a shareholder since 2009. Over the last six years, Mr. Echavarria has continued to accumulate shares in Copper Fox by participating in all the equity financings since he first became involved in Copper Fox. He fully understands the merits of investing in copper and gold for the longer term and the compelling logic of the Copper Fox story. Of course, Mr. Echavarria's reasons underlying his investment is being further reinforced by knowing just how limited the number of quality assets there are in the copper space, not to mention other factors such as, foreign exchange, metal cycles, market volatility and geopolitically risks as seen in other jurisdictions throughout the world are subject to. Mr. Echavarria's long term objective is to continue supporting Copper Fox in its growth and in seeing the market value of the company more in line with its net asset value.
Q. Do you have the necessary capital resources to continue in 2016?
A. Yes we do. Of the five projects we have working interests or equity interests in, three are operated by Copper Fox. The Schaft Creek project is 100% funded by Teck Resources Limited ("Teck") while the Eaglehead budget is funded 100% by Carmax Mining Corp. Work completed on the Van Dyke, Sombrero Butte and Mineral Mountain projects are funded by Copper Fox. Our 2016 capital budget requirement for Van Dyke, Sombrero Butte and Mineral Mountain is minimal. Our strategy for 2016 is to complete as much low cost meaningful work as possible while at the same time seek partners to fund completion of the pre-feasibility study on the Van Dyke project and exploration on the Sombrero Butte and Mineral Mountain projects.
Q. Your projects are located in the province of British Columbia ("BC") in Canada and in the state of Arizona in the USA. Are these geopolitically stable areas and are there any environmental issues of concern?
A. Both the province of BC and the state of Arizona are geopolitically stable areas that are pro-mining and derive a considerable amount of funding from the mining industry through taxes, etc. Both jurisdictions have rigorous environmental and permitting processes which are well defined, manageable and achievable. Regarding specific environmental issues, there are none of concern. Both BC and Arizona have well defined rules and regulations that are in place to ensure sustainable development of either the province or state resources while protecting environmental values, preventing pollution, promoting and restoring environmental quality and restoration of the site to its natural state. Copper Fox works with the appropriate environmental authorities to ensure that these laws are adhered to.
Q. Aside from environmental issues, don't you have to deal with aboriginal issues in both BC and Arizona?
A. In BC, Copper Fox has developed a strong relationship with the Tahltan First Nation over the past 13 years since Copper Fox first became involved in the Schaft Creek project. We engage the Tahltan First Nation and discuss issues such as work plans, wildlife and environmental assessments, employment opportunities and participation in community and social affairs. Through our ownership in Carmax this relationship has been introduced to Carmax as they continue exploration of their Eaglehead project located within the traditional territory of the Tahltan First Nation. In Arizona we have made a considerable effort to engage the people living around the Van Dyke project as well as the local community leaders. This social engagement and involvement forms the basis of Copper Fox's social and community relationship policies. As the Sombrero Butte and Mineral Mountain projects are only in the early stage of exploration, our relationships with the people in those areas are continuing to develop.
Q. How would you describe the exploration potential of your five properties beyond the billions of pounds of copper resources currently identified?
A. I would like to mention that in addition to the approximately 4.3 billion pounds of copper, Copper Fox also owns approximately 2.9 million ounces of gold, 185 million pounds of molybdenum and 24 million ounces of silver in all resource categories.
We believe that all five projects have excellent potential to locate additional resources. At Schaft Creek; the mineralization in the deposit is open in three directions and the project has excellent exploration potential to locate new zones of mineralization. The mineralization is characterized by a chargeability signature that extends for a distance of at least four kilometers ("kms") and possibly up to seven kms north of the Schaft Creek deposit, depending on the interpretation of the survey results. So far; four large areas of mineralization the Discovery zone, the LaCasse zone, the ES zone and the GK zone, have been located within this chargeability signature north of the Schaft Creek project. Drilling on the Discovery zone in 2012 and the LaCasse zone in 2015 located broad intervals of mineralization and the current interpretation is that these two zones are part of the same mineralized system.
At Van Dyke, the modelling completed after the 2014 drilling program suggests that there is excellent potential to considerably increase the size of the deposit to the west and to the southwest. In addition to this, a second zone of oxide copper mineralization is exposed in outcrop approximately two kms southwest of the Van Dyke deposit which has not been explored.
We feel that the Eaglehead project is similar to the Schaft Creek project in terms of size and resource potential. At Eaglehead a modest resource of copper-gold-molybdenum has been defined. Although silver occurs in the mineralization, due to "legacy date issues" its concentration has not been included in the resource estimate. The resource in the Eaglehead deposit occurs within a six km long chargeability signature of which a very small portion has been tested by drilling. To date 122 diamond wide spaced drill holes containing variable concentrations of copper-molybdenum-gold-silver mineralization has been completed over a four km strike length of the chargeability signature. The work completed in the Pass zone in 2015 located widespread copper-molybdenum-gold-silver mineralization over a horizontal distance of at least 1,000m. The objective of the 2016 work program is to demonstrate the continuity of the mineralization between the East-Bornite-Pass zones which, if successful, could indicate a 3 km long mineralized zone.
The Sombrero Butte project is located within the Arizona porphyry copper belt close to several other large copper deposits. This project exhibits many parameters/characteristics suggestive of a porphyry system. The chargeability/resistivity signature, alteration and mineralization in outcrop combined with the numerous mineralized breccia pipes suggest the presence of a porphyry system underlying the Sombrero Butte property. In 2015, a large (4,000m long by at least 600m wide) chargeability/resistivity signature was located toward the center of the property, south of the cluster of mineralized breccia pipes. The large chargeability signature is underlain by the Copper Creek granodiorite, the main host rock for the copper mineralization in the Copper Creek deposit located approximately 2 kilometers north of the Sombrero Butte property. Recent work has demonstrated that the breccia pipes contain distinct styles of mineralization being: copper-molybdenum-gold-silver, copper-silver and copper mineralization.
The Mineral Mountain project is located between the Florence and Resolution copper deposits in Arizona. The property is underlain by Laramide age Quartz Monzonite and granodiorite that intrudes older Pinal schist. The work completed by Copper Fox in late 2015 and early 2016 indicates that considerable areas of mineralized rock are exposed in the Quartz Monzonite intrusive. The presence of chalcocite indicates that supergene processes have been active and may suggest the possibility of a high grade "chalcocite blanket" at depth.
Q. Your premier project, Schaft Creek, is a Joint Venture with Teck whereby Teck holds 75% and is operator. Will they continue to aggressively invest in the Schaft Creek project given the current challenges facing large corporations such as Teck?
A. Only Teck can answer that question, however, Teck like all other copper producing companies have seen significant decreases in their operating cash flow which has resulted in either reduced or no capital investment in new projects. That being said, copper producers like Teck also require an ongoing supply of copper to sustain its copper business. This copper could come from the Schaft Creek project should the current work demonstrate the economic viability of the project.
The 2016 work program for the Schaft Creek project consists mainly of a remodel of the 2012 resource estimate by incorporating the drilling completed in 2013 and the extensive re-logging program completed in 2013, 2014 and 2015. This work is expected to better constrain the resource block model for the Schaft Creek deposit. Over the past three years, Teck as Operator of the Schaft Creek Joint Venture has looked at the major components of the 2012 Copper Fox feasibility study on the Schaft Creek project and found no material differences from that set out in the feasibility study. The Schaft Creek project has many positive features including a low estimated cost (net of other metal credits) to produce a pound of copper and is in the politically stable province of BC.
Q. Why did Copper Fox Complete the PEA on the Van Dyke Copper Deposit?
Copper Fox wanted to know if the project warranted further investment. There is a rich history of mining in the Miami-Globe area and the Van Dyke deposit. The deposit was mined using underground mining and on two occasions the ISL method was used to extract the copper from the bedrock. In the 1970s Occidental Minerals completed a considerable amount of work on the Van Dyke deposit including several ISL tests, one of which lasted for almost two years. Occidental concluded that the project was technically sound and that ISL was a viable production method for the Van Dyke project. Kocide Chemicals also used the ISL method for a two year period to produce copper from the Van Dyke deposit in the late 1980's. The results of the PEA demonstrated that further expenditures were warranted and that a number of economic enhancements were identified that could have a significant positive impact on the project economics.
Q. What is your long-term view on the price of copper?
A. We believe that within the next two -- three years, the price of copper will appreciate. The cut backs in copper production announced in 2015 and 2016 combined with low commodity prices, mine closures, production declines due to lower head grade and the forecasted 2.0% increase in global demand for copper should be positive for future copper prices. Low copper prices and lack of investment in new projects is expected to have a positive effect on future copper prices. Many people believe that the copper supply will slip into a deficit position in 2017. China continues to increase imports of copper on a year over year basis as seen in the first six months of 2016. Consumption of copper per capita in developing countries such as India and China is only about one tenth that of copper consumed in developed countries such as Canada.
The copper head grade of operating mines continues to decline with copper ore now yielding 30% less than just 20 years ago. Yearly supply disruptions, low commodity prices and higher than projected yearly copper mine losses adds to our thesis as to why there is only one direction to the long term price of copper, and that's up!