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C1 Cost Analysis for the Storm and Motheo Copper Projects

Understanding the C1 cost structure is crucial when evaluating the economic viability of copper mining projects, particularly for those at different stages of development or with varying operational conditions. This analysis compares the C1 costs of the proposed Storm Copper Project, located in Canada’s Arctic region, and the established Motheo Copper Project in Botswana, with the goal of highlighting the cost-effectiveness and production efficiency of each.

The C1 cost refers to the direct cash cost of producing copper per pound, which includes expenses related to mining, processing, transportation, and other operational expenditures directly tied to the production of copper metal. It is a key metric for assessing the profitability and sustainability of mining operations, particularly in the context of fluctuating copper prices and evolving market conditions.

The Storm Copper Project, with its high-grade deposits and innovative ore-sorting technologies, has demonstrated a strong potential for low C1 costs. The Cyclone and Chinook ore bodies at Storm are particularly noteworthy for their high copper recoveries and low operating costs, thanks to efficient processing methods such as XRT ore sorting and inline pressure jigging.

Steinert Modular Ore Sorter layout, sea-container concept

In contrast, the Motheo Copper Project, though larger in scale and more established in its operational phase, faces higher C1 costs due to its diverse ore types and larger infrastructure requirements. However, Motheo’s size and increasing economies of scale suggest that its C1 costs could improve as operations ramp up.

This analysis presents a comparison of C1 costs for each project, considering factors such as mining methods, ore grades, processing technologies, and overall project size. In the case of Storm project, a 20% Arctic premium increase in OPEX & CAPEX was applied to previously quoted values offered by AW1. In the case of the Motheo Copper Project, Sandfire's AGM today provided FY24 actual C1 information. Hence, by examining both projects, this analysis aims to provide valuable insights into the economic competitiveness and long-term sustainability of these copper assets.

1. Production and Recovery Rates at Storm (base case)

For both the Cyclone and Chinook deposits within the Storm project, the following production rates apply:

• Ore Feed Rate: 1.5 Mtpa
• ROM Feed Grade: 1.5% Cu
• DSO Product Grade: 18% Cu
• Copper Recovery:
  • Cyclone: 61% recovery from ROM, yielding ~13,700 tonnes of copper annually.
  • Chinook: 69% recovery, yielding ~15,500 tonnes of copper annually.

2. Operating Costs (OPEX)

Storm Copper Project (Arctic Adjusted)

• Mining Cost: $5/tonne × 1.20 (Arctic premium) = $6/tonne
• Processing Cost: $10/tonne × 1.20 = $12/tonne
• G&A Cost: $12/tonne × 1.20 = $14.4/tonne
• Total OPEX per Tonne: $6 + $12 + $14.4 = $32.4/tonne

Annual Operating Costs:

• Total Storm Operating Cost: $32.4 × 1.5 Mt = $48.6 million per annum

3. Capital Costs

The Storm Project requires an initial capital investment in ore sorting and jigging technology, with cost estimates between $18M and $23M. Assuming a 20% Arctic adjustment:

• Arctic-Adjusted Capital Cost: $18M × 1.20 to $23M × 1.20 = $21.6M to $27.6M

For this analysis, we’ll take the midpoint:

• Estimated Capex: ~$24.6 million

An Ore Sorting system in a weatherproof building by Tomra

4. Revenue Projections

Using a copper price of $3.85 per pound (or $8,487.90/tonne), we can estimate annual revenue:

Cyclone Deposit (Base Case)

• Annual Copper Production: 13,700 tonnes
• Revenue: 13,700 tonnes × $8,487.90 = $116.3 million

Chinook Deposit (Higher-Grade Case)

• Annual Copper Production: 15,500 tonnes
• Revenue: 15,500 tonnes × $8,487.90 = $131.6 million

5. Profitability Analysis

Using the calculated revenue and operating costs, we estimate profitability:

Cyclone (Base Case)

• Operating Cost: $48.6 million
• Revenue: $116.3 million
• Operating Profit: $116.3M - $48.6M = $67.7 million

Chinook (Higher-Grade Case)

• Operating Cost: $48.6 million
• Revenue: $131.6 million
• Operating Profit: $131.6M - $48.6M = $83 million

6. Storm Copper Project Summary (Arctic Adjusted)

Metric	Cyclone	Chinook
Ore Feed Rate (Mtpa)	1.5	1.5
Copper Recovery (%)	61%	69%
Annual Copper Production (tonnes)	13,700 (or 30,208,500 lbs)	15,500 (or 34,177,500 lbs)
Revenue (US$)	$116.3 million	$131.6 million
Operating Cost (US$/t)	$32.4	$32.4
Total Operating Cost (US$)	$48.6 million	$48.6 million
Operating Profit (US$)	$67.7 million	$83 million
Capital Expenditure (US$)	~$24.6 million	~$24.6 million
Net C1 Cost (US$/lb)	$1.61/lb	$1.43/lb

Note: Net C1 Unit Costs Formula: Net C1 Unit Costs (USD per pound of copper) = (OPEX per tonne treated × Ore treated per year) ÷ Annual copper production (in pounds)

7. Comparison with Motheo Copper Project

For context, Motheo's projected C1 cost is $1.51/lb based on a 5.2 Mtpa processing rate (FY24 actual). Storm’s adjusted C1 cost with the Arctic premium is estimated at:

• Cyclone: $1.61/lb (or $3,548/tonne of copper)
• Chinook: $1.43/lb (or $3,154/tonne of copper), benefiting from the higher recovery rate.

Key Insights

• Storm Project’s Profitability: The Arctic location increases OPEX but remains profitable with robust processing efficiency and recovery rates. Cyclone yields a $67.7M operating profit, while Chinook, with higher copper recovery, yields $83M.
• Cost Comparison: Storm’s adjusted C1 costs are comparable to Motheo’s, despite the Arctic conditions. Cyclone’s C1 cost is slightly above Motheo’s, while Chinook’s is more favourable due to better recovery.
• Investment Potential: With initial capital costs of approximately $24.6M and high DSO concentrate grades (18%), the Storm Project offers a strong return on investment, contingent upon efficient Arctic logistics and infrastructure setup which is being investigated by AW1 management.

In summary, while the Storm Copper Project’s Arctic location incurs a 20% cost premium (in my analysis), the innovative DSO processing technologies (non-flotation circuit) and high-grade copper production allow it to achieve competitive operating costs and significant profitability potential, especially at the shallow higher-grade Chinook deposit.

Both the Cyclone and Chinook deposits at the Storm Copper Project are economically viable under the current copper price of US$3.85 per pound.

The C1 costs for both deposits are significantly lower than the price at which copper is being sold, ensuring that the project can generate a profit per pound of copper produced.

• For the Cyclone deposit, the profit margin per pound is US$1.89.
• For the Chinook deposit, the profit margin per pound is US$2.43.

This indicates that Storm Copper Project is well-positioned to be economically viable under these conditions, with substantial margins for profitability. Of course, these margins could fluctuate depending on variations in copper prices or unforeseen cost increases (such as fuel, labour, or equipment costs), but with the current data, the project is profitable and should continue to attract interest for development.

Reference:

FY24 actual costs - Sandfire Resources Limited’s 2024 Annual General Meeting, 15/11/24