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Marc Davis

It’s shaping up to be one of the most prolifically­-sized, high-grade copper discoveries in North America in recent memory.  

Kodiak Copper Corp’s (TSX.V: KDK) (OTC: KDKCF) latest round of drill results at its MPD copper-gold project in southern British Columbia suggest that a world-class mineral asset is beginning to emerge – one that could eventually be valued in the hundreds of millions of dollars. 

And for Kodiak’s increasingly lustrous story, the magic is in the metrics. How this large-scale discovery is beginning to measure up to proximal mines and comparable big-league deposits around the world makes for some very compelling comparisons.

This investment analysis will evaluate how these dynamics appear to tilt the scales in favour of a very sizeable and lucrative copper-gold mine coming into existence.  

So what’s ultimately up for grabs? 

According to Cormark Securities capital markets mining analyst Stefan Ioannou, a prospective mine at MPD may be worth around US$673 million, based on an assumed 300-million-tonne open pit mine with an annual output of 131 million pounds of “copper equivalent” (CuEq), which refers to copper enriched with precious metals co-existing in the host rock. A projected mine life of at least 19 years is also envisioned by Cormark.    

These rosy predictions are predicated on such impressive results as the recently-announced hole #5 that returned such highlights as 192 metres of 0.74% copper, 0.48 g/t gold and 2.75 g/t silver (1.21% CuEq) from 308 to 500 metres down-hole. These stellar results follow on the heels of hole #4 which returned such dazzling highlights as 282 metres of 1.16% CuEq. 

Outshining Canada’s Copper Giants  

Here’s where Kodiak’s high-grade MPD discovery takes on a heightened significance: the grades encountered so far in what appears to be in a high-grade porphyry centre are almost triple those that are mined at the other copper giants in Canada. Keep this in mind:  most porphyries have high grade centres surrounded by a larger envelope of lower grades. It is the combination of these two dynamics that typically makes for a viable deposit. 

According to Kodiak’s Chairman of the Board Chris Taylor, “These drill results are quite phenomenal," says Taylor. "The grades we are seeing here are three to four times better than the neighbouring deposits in this mining district."

These regional rivals include nearby Copper Mountain, currently mining with reserve grades at 0.24% Cu, as well as Mount Milligan at 0.23% Cu, Highland Valley at 0.31% Cu, Mt Polley at 0.34% Cu, and Red Chris 0.36% Cu. Collectively, these Canadian copper-gold mines average 0.35% Cu, while copper mines in the USA average a very comparable grade of 0.33% Cu. 

A further 30,000 metres of exploratory drilling is scheduled for the final months of 2020 and well into next year. This should go a long way towards outlining the lateral and vertical parameters of this prospectively large tonnage, high-grade mineral asset. 

Such stellar drill results also outshine the average grade for the rest of the world’s copper mines, which is only 0.59% Cu. In spite of their relatively modest grades, some of BC’s copper mines rank as world-class operations due to their large tonnage and operational efficiencies. 

As an illustration of their growing appeal in a copper-hungry world, Australian miner Newcrest paid a staggering US$ 840 million to acquire a 70% interest in the Red Chris mine in Northern BC in 2019. Another strong selling point for miners and end users alike is that these mines are located in one of the safest, most politically stable mining jurisdictions in the world. 

Indeed, MPD also benefits from such key de-risking political dynamics. And it stands to benefit from the cost-cutting synergies of being in the same copper-gold belt as the nearby Copper Mountain, Highland Valley, and New Afton mines. This provides the assurance of plenty of robust regional infrastructure, a skilled labour force, and mining-friendly communities.  

A Disturbing Dearth of Discoveries 

The fact that these mines are relatively low-grade compared to the world’s top producing mines a mere generation ago illustrates the increasing challenge of replenishing the world’s dwindling, non-renewable copper supplies at a time when global demand is surging like never before. This is clearly illustrated in the chart below. 

It’s not just grades of newly-discovered deposits that is typically diminishing. Their size is has also taken a hit in recent years. 

Consider this: nearly one billion tonnes of copper were discovered during the last decade of the 20thcentury and the first decade of the new millennium combined. Yet this figure has dropped by nearly 900%to a little over 100 million tonnes during this last decade –which coincided with a deep and protracted slump in the mining industry during which very few new copper-gold mines came onstream.

Moreover, high-grade deposits have become especially rare. In fact, only four world-class copper deposits – consisting of over one billion tonnes grading 1% copper or better – have been found since the turn of the new millennium. 

Investors should also take note that the mining industry is increasingly having to rely on developing high-grade copper deposits in politically problematic nations such as Congo and Angola. 

What ultimately might be most remarkable about the MPD discovery is that it is a very rare “home-grown” find in the modern mining era. In fact, it is shaping up to be one of the highest-grade porphyry discoveries in North America in recent memory. 

If it does prove to be richly mineralized, it is worth noting that each of the world’s new "super mines" is typically worth billions of dollars and is large enough to run profitably for decades on end. This makes the rich grades being found at MPD all the more remarkable.   

By way of a little perspective, the pipeline of new copper projects is the lowest in a century, according to Mining.com. Yet the paradox is that demand is projected to skyrocket. Just look at what is being forecast by the US Geological Services, which predicted in 2018 that more copper will be required in the next 25 years than was consumed in the last 500 years. 

This assessment is not surprising considering that battery-powered automobiles each contain on average 183 pounds of copper, which is as much as ten times the copper needs of conventional automobiles, according to Copper Alliance.

In spite of the COVID-19 global pandemic, copper demand continues to significantly outstrip supply due to heightened usage, particularly for the electrification of vehicles and other "green" initiatives.  

This daunting challenge is being presaged by China’s new US $700 billion economic revitalization stimulus program, involving massive infrastructure and urbanization projects. 

Investment Summary

Kodiak has made impressive strides this year. This includes having discovered the high-grade Gate Zone during its maiden drill program at the MPD Property in Q1 of this year. 

Additionally, the continuation of high-grade drill results over wide intercepts subsequently inspired mining heavyweight Teck Corp. to invest CDN $8 million in Kodiak to earn a 9.9% equity interest in MPD. It is worthy of note that Teck owns the nearby Highland Valley mine and no doubt sees considerable potential in MPD to emulate the kind of success that this flagship asset has enjoyed. 

Teck will no doubt be very happy with the latest high-grade results from hole #5. So too is Kodiak’s President and CEO Claudia Tornquist. She says this new development is proof that the Gate Zone has considerable size potential. 

“Importantly, we are also starting to see significant size to the larger mineralized envelope, first identified in the near-surface by shallow historic drilling and extended down to a depth of over 800 metres by Kodiak,” she said in Kodiak’s latest news release.

On a technical note, the company maintains a tight share structure consisting of 44.8million shares outstanding (51.8 million fully diluted). When matched with a steady flow of upbeat news, such a scenario typically acts as a powerful catalyst to higher share price valuations. Thus far, this has proven to be the case for Kodiak, which appreciated as much as 600% this year before backing off from its highs.

With a treasury of around $15 million, the company is very much in control of its own destiny. Much of this war chest is sure to be spent in the ground, where it promises to continue to generate outstanding drill results. 

The emergence of a high-grade, world-class copper-gold discovery at MPD appears destined to power this company to higher share price multiples over the next 12 months. Patient investors seem poised to earn outsized rewards for backing this lustrous success story in the making.  

ABOUT THE AUTHOR: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, The Times (UK), Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post, AOL, City A.M. (London), Bloomberg, WallStreetOnline.de (Germany) and the Independent (UK). He has also appeared in business interviews on the BBC, CBC, and SKY TV. He is also an enthusiastic shareholder of Kodiak Copper. 


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