Junior braces for life without Kennecott at Whistler project
Investors can expect to see a flurry of reports on Kiska Metals Corp. (TSX: T.KSK, Stock Forum) as the junior gears up for some key developments that will influence the pace of exploration at its flagship Whistler copper-gold project in Alaska.
Last week, Stockhouse joined a group of investment newsletter writers on a helicopter tour of a 527 square kilometer exploration site that is located in the heart of bear-hunting country about 150 kilometres northwest of the city of Anchorage.
In the coming weeks, it will be the turn of analysts from Canaccord/Genuity and Union Securities Ltd. to take the 40-minute float plane ride from Anchorage to a 60-person camp site, which is not accessible by road.
Kiska President and Chief Executive Officer Jason Weber is playing host in a bid to prepare the market for two key milestones.
One is the possibility that Kennecott Exploration Inc. – a subsidiary of Rio Tinto Plc NYSE: RTP will elect not to exercise back-in rights that would allow the U.S. company to earn a 60% stake in the project, leaving Kiska with the other 40%.
The second is planned financings that Weber hopes will raise up to $15 million for exploration at Whistler.
In an interview, Weber said he believes the lack of clarity concerning the ownership structure has been an overhang on Kiska’s stock price – which traded at 85 cents on Tuesday. It is why the company is waiting anxiously for Kennecott to make its intentions known.
“The direction of the decision is less important than the actual decision itself,’’ said Weber, adding that he can see the merits of continuing to have a strong partner with deep pockets.
“But if they walked away, I see a tremendous opportunity for us to build value at the project,’’ he said.
When Stockhouse visited the Kiska camp last week, the company was focusing on a cluster of targets, all of which lie within 25 kilometres of Whistler, the project’s only defined deposit so far.
Essentially, Kiska is exploring the same geological belt as the giant Pebble copper-gold discovery, which is being developed in southwestern Alaska by Northern Dynasty Minerals Ltd. TSX: T.NDM and Anglo American Plc OTO: AAUKY
Pebble has an estimated resource of 5.94 billion tonnes in the measured and indicated category, containing 55 billion pounds of copper, 66.9 million ounces of gold, and 3.3 billion pounds of molybdenum. A further 4.84 billion tonnes is listed in the inferred category, containing 25.6 billion pounds of copper, 40.4 million ounces of gold. and 2.3 billion pounds of molybdenum.
By comparison, Whistler has an indicated resource of 30 million tonnes, grading 0.87 grams per tonne gold, 2.46 grams per ton silver, and 0.24% copper as well as an inferred resource of 134 million tonnes, grading 0.64 grams per tonne gold, 2.18 grams per tonne silver, and 0.20% copper).
That amounts to an estimated 5.75 million gold equivalent ounces.
However, with a new Whistler resource estimate due in November the company is working on a theory that the property is host to a number of gold-copper porphyry systems, of which Whistler is just one example.
For instance, it has a drill rig set up on the steep slopes of its Island Mountain discovery, which is located 23 kilometres to the south of Whistler and hosted within a 4.5 by 3.0-kilometre area of anomalous gold-copper soil and rock geochemistry.
In early July, the company said a drill hole located about 50 metres from the discovery hole intersected two zones of gold mineralization. The upper zone averages 0.70 grams per tonne gold; 2.5 grams per tonne silver and 0.16% copper over 129.8 metres, starting at a depth of 31.2 metres.
A lower gold-only intersection averaged 0.78 grams per tonne gold over 151.6 metres, beginning at a depth of 23.5 metres.
“We still have a lot to learn about this area,’’ said Weber, who is hoping to build inferred tonnes and ounces through continued drilling.
In order to fulfill its obligations to Kennecott, Kiska has spent about $8.5 million to complete 23 holes along what is known as the Whistler corridor area.
Aside from drilling on Island Mountain, the company has been probing targets in an area known as Round Mountain about 10 kilometres north of the Whistler deposit and in the Raintree East area about three kilometers northeast of Whistler.
Inside the camp, speculation is rife that the mineralization in the main Whistler deposit and other nearby discoveries is not sufficiently rich in copper to attract the interest of Kennecott, which retains a 2% net smelter return royalty stake in the project, even if it walks away.
However, the project will remain in limbo until Kiska senior geologist Mike Roberts delivers a final report to Kennecott, likely in early August.
If Kennecott opts to back in, it will need to reimburse Kiska for 200% of its exploration expenses, an amount that is expected to reach a minimum total of $25 million. Should it decide to stick around, the U.S. company would also be required to advance the project to the production stage in order to earn a 60% stake in the property.
But with Kennecott out of the picture, Kiska would look to bolster its treasury by doing another round of financings, possibly in the fall. “I’m thinking $10 to $15 million, and likely bigger,’’ said Weber.
Meanwhile, it is clear that project geologists will have to come up with a lot of metal to justify the cost of developing a road and power infrastructure in what is essentially a pristine wilderness area, comprised of mountains, lakes and wetlands.
Kiska officials say the chances of Whistler being developed may improve if partners NovaGold Inc. TSX: T.NG and Barrick Gold Corp. TSX: T.ABX proceed with a plan to build a 525-kilometre natural gas pipeline in a bid to deliver power to the proposed Donlin Creek gold mine in northwestern Alaska.
It is expected that the pipeline would run from upper Cook Inlet on Alaska’s southwest coast to the project site, possibly crossing an area near the Whistler claim block along the way.
By using natural gas instead of a combination of wind power and diesel, NovaGold says it expects to reduce the cost of power, which accounts for about 25% of the project’s total operating costs.
“If that goes through, that changes the whole picture,’’ said Weber.
If it doesn’t, the company would look to other options including potential connections to a proposed power generation at Chakachamna Lake, which is located the southwest of the exploration site.
If Whistler proves to be economic, Kiska would need to build a 55-mile road, allowing concentrates to be shipped to the natural gas port at Tyonek. However, it would appear that Kiska still has a lot of work to do before it can start to think about developing infrastructure.
For the time being, the company will focus on expanding the main Whistler deposit and other nearby discoveries. “We want to see how big that these things really are,’’ said Weber.