A revised layout and better understanding of costs have ballooned the projected cost of building a new Ajax mine by more than 60 per cent, to $1.3 billion.
KGHM Ajax released an updated feasibility report earlier this week.
It details huge cost increases, along with plans to increase daily production and shorten the life of the historic open-pit mine immediately south of Kamloops to 18 years, down from an earlier projection of 23 years.
In an email response, project development manager Clyde Gillespie said the estimated cost increase from $800 million four years ago to $1.3 billion today results from a number of factors, including "more rigour and detail in engineering, higher processing rate and the revised project layout."
The revised mining plan would see daily tonnage increase from 60,000 up to 65,000 tonnes, something that accounts for the shorter mine life.
The release and Monday's expected publication of its environmental application come at a grim time in commodity markets, with copper trading around the US$2 a pound mark -- far below any long-term projections used in any Ajax study, past or present.
The latest economic study -- authored for KGHM Ajax by M3 Engineering and Technology Corp. -- assumes a long-term copper price averaging US$3.21 a pound.
Mining analyst Stefan Ioannou with Toronto's Haywood Securities said while the copper forecast is more than 50 per cent higher than today's copper price, it is not unrealistic given the mine will take several years to build and its expected life of 18 years.
While Ioannou cautioned he has not followed KGHM Ajax closely, he said a preliminary read of the updated feasibility study shows poor economic prospects even at inflated copper prices.
That opinion is based primarily on KGHM Ajax's forecasted 13 per cent internal rate of return, or IRR -- what Ioannou called "a key economic metric a banking group would look at.
"Typically bankers get interested when a project generates an after-tax return of 18 per cent -- that's after tax," he said.
The feasibility study uses a before-tax IRR.
Ioannou said B.C. taxes would typically be about 30 per cent.
Ioannou said he cannot recall "off the top of my head" a mining project of Ajax's magnitude that has gone ahead with a 13 per cent IRR. The analyst added projects of this size are not moving ahead anywhere in the world under current economic conditions.
The declining loonie will, however, help mine economics.
The mine would sell copper and gold in American dollars while its labour costs are in Canadian dollars.
Jim Gillis, a veteran Kamloops mining promoter, agreed with Ioannou that Ajax's economic prospects look marginal, even at its US $3.21 per pound projected copper price.
But, he's hoping the giant mining firm owned in part by the Polish government will fund the project itself if it cannot attract outside interest from lenders.
Gillis said the company's own projections mean, even under a best-case scenario -- the mine receiving approval in a year, followed by 2.5 years of construction -- KGHM would not starting making money for at least a decade from now.
"If they get construction going, it will supply a hell of a lot of jobs . . . Do I think it will go ahead? I hope so. Copper will rebound, but it will take time."
Gillis doubts the feasibility study has costed any share of profits to First Nations.
Stk'emlupsemc te Secwepemc Nation -- comprised of Tk'emlups and Skeetchestn Indian bands -- is suing in B.C. Supreme Court for a declaration that it holds title and rights to the mine site.
The 18,000-page environmental assessment will be publicly released Monday. That starts the clock ticking on a 180-day review process that will include public comment, public meetings and studies by agencies before going to provincial and federal ministers for approval.
Other details released in the feasibility study show an approved Ajax project would be accessed from the Coquihalla Highway via a reconfigured interchange at Inks Lake.
Power would come from BC Hydro's Jacko Lake subdivision 12 kilometres from the proposed mill site. STOCK PRICE OF AJAX PARTNER ABACUS TAKING A BEATING The Vancouver-based junior mining company that owns 20 per cent of Ajax has sunk to pennies a share, a long painful fall for the company that discovered the resource and its investors who have lost millions of dollars.
Following the release of the economic update on the proposed Ajax mine, shares in Abacus Mineral Exploration dropped a penny to four cents a share.
Four years ago, shares were worth six times today's depressed price. At their peak, a decade ago, Abacus traded for 90 cents a share.
While more than one-million shares changed hands on Thursday, it represented only about $50,000 in value.
City mining promoter Jim Gillis said professional and institutional investors no longer have interest in the stock, which he said is being bought and sold by "mom and pop" investors.
It is valued in total at about $4 million.
Under the terms of its joint-venture with Polish mining giant, Abacus is required to fund its 20 per cent of the cost of mine development and capital.
According to the most recent financial statements, Abacus has exhausted its cash after contributing more than $8 million to the project in 2014 and more than $6 million the first nine months of 2015.
It is now required to borrow from KGHM Ajax for all "cash calls" of project development.
Those loans are to be funded by its share of profits if the mine is ever built.
Gillis said he cannot see a way that Abacus can come up with its $250-million share of the project cost.
"Abacus is a long ways from anyone's dream stock to buy," said Gillis.
"I'd sell, even at three cents."
-- Cam Fortems