05/23/2018

COMPANIES MENTIONED

Kutcho Copper Corp.

Wheaton PreciousMetals Corp.

Streetwise Reports LLC101 Second St., Suite 110

Petaluma, CA 94952Tel.: (707) 981-8999Fax: (707) 773-5020

info@streetwisereports.com

STREETWISE REPORTS

THE ENERGY REPORT

THE GOLD REPORT

THE LIFE SCIENCES REPORT

The Critical Investor examines a company that has been diligently exploring acopper-zinc project in British Columbia.

Source: The Critical Investor for Streetwise Reports

Kutcho project, VP Exploration Rory Kutluoglu

1. Introduction

After entering the markets with a big splash in December 2017, on the back of analmost monumental deal (for a nano cap) with Wheaton Precious Metals Corp.(WPM:TSX; WPM:NYSE), Kutcho Copper Corp. (KC:TSX.V) has been workingquietly but diligently behind the scenes, to set up everything for further developmentof their high grade copper-zinc Kutcho project in British Columbia.

Their goal is to advance the deposit to ultimately double the current size, and bydoing this improve current 2017 Pre Feasibility Study (PFS) economics when theFeasibility Study (FS) will be completed a year from now. In this article I will discussproceedings for this year, revisit economic potential and valuations, and will have amore in-depth look in the WPM stream, in order to show it is in fact a good deal forKutcho Copper compared to others.

All presented tables are my own material, unless stated otherwise.All pictures are company material, unless stated otherwise.All currencies are in US Dollars, unless stated otherwise.

2. Current status and plans

Before I continue with current activities, let's have a look at a few basics first. KutchoCopper has $4.5M in cash at the moment after receiving the first US$3.5M paymentfrom WPM on April 4, 2018, and C$20M in debt. The second payment of US$3.5Mis expected in August of this year. As a reminder, management and Board controls10% of shares which counts as above average skin in the game. Wheaton PreciousMetals holds 13% and Capstone Mining is the largest shareholder with 16%.

As of May 18, Kutcho Copper has a share price of C$0.59 and a market cap ofC$28.18M, with only a very tight 47.77M shares outstanding (fully diluted 70.1M, alloptions and warrants out of the money at C$1.00, expiry in 3 years). The averagedaily volume of last month is 43k shares, which is about 10% of the average of the

Copper Explorer Gearing Up for Significant ProjectExpansionStreetwise Reports

first 2 months.

Share price over 1 year period

After the big entry in December, the stock gradually went down lower as everybodythat was interested took a position in these first months, and buying pressure andvolume decreased. When looking at the chart it seemed that the C$0.45-50 levelfunctions as a solid bottom and an indicator of minimum fundamental value themarket was willing to pay for Kutcho, as there were no strong catalysts or marketingsince Dec 2017-Jan 2018. As the summer drill program is about to start and furthercatalysts are expected, I expect investor awareness for this company improvingagain, facilitating a second wave of new entrants.

As a reminder, Kutcho Copper management has planned the scale of the upcomingfield program such that they can achieve all the technical data collection for thefeasibility in one field season. The easy field season up there is May 21 to October31. Outside this window, things are not impossible, just more expensive, andtherefore the company is looking to complete all drilling requirements within thisperiod.

All kinds of equipment, supporting the upcoming field program, is being transportedto location at the moment. Camp construction and commissioning is anticipated tobe completed by June 1st, and drilling with two rigs will commence on June 15th.According to COO Duncan, if needed the number of rigs will be scaled up to four inorder to finish before the winter break. The 2018 field program will look to expandresources through infill drilling for inclusion in the FS, and to provide data for theoptimization of metallurgical recoveries and geotechnical parameters.

Under the engineering lead of Ausenco, the recently hired engineering firm to dothe FS, the team consists of: Sim Geological Inc. for resource modeling, Holland &Holland for metallurgical engineering and process design, Terrane Geoscience Inc.for geotechnical engineering, and SRK Consulting for open pit and undergroundmine design among others.

I am not too familiar with the other names, but Ausenco is a worldwide operatingfirm, worked for majors like BHP, Glencore, Newmont, Vale and numerous otherslike copper/base metal focused Hudbay, Las Bambas, Teck, and also did a goodjob at Atlantic Gold's Moose River project. I am happy to see SRK, which I regardas one of the top two or three in the mining business, doing the mine design. Thiswill probably generate a lot of confidence in the quality of this study and itseconomics.

Exploration camp used by Kutcho Copper

Although the upcoming drill program will focus on infill drilling, several priority drillready targets prospective for additional resources have also been prepared. Theseprospective targets include, as mentioned in the corresponding news release:

- Mineralized drill intersections along strike and down plunge to the west from theEsso deposit (one of three VMS deposits comprising the Kutcho project) including7.1 metres @ 1.96% copper, 5.24% zinc, and 18.0 g/t silver in DDH 94-B3. Theseintercepts could represent extensions to the high-grade Esso deposit or a potentialnew deposit.

- The FWZ, a relatively narrow sulphide lens (2 to 5 metres thick) which liesbeneath the Main zone and which was subject to an historic estimate prepared asan internal document for Esso Minerals in 1979, of 230,000 tonnes averaging1.47% copper, 5.52% zinc, 0.4 g/t gold and 43.7 g/t silver. The FWZ may havepotential along strike and down dip for additional mineral resources. Thismineralized zone demonstrates that additional horizons across the property areproductive for VMS style mineralization:

- Main mineralization is open down-dip along 800 m, or 57%, of the total strike forthis deposit, indicating potential for resource expansion down-dip.

- Esso mineralization is open down-dip along 300 m, or 50%, of the total strike forthis deposit, and is open up-dip along 125 m or 20% of the total strike, indicatingpotential for resource expansion both up- and down-dip.

- Favorable untested stratigraphy east of the Main Zone, and on the southernportion of the property where the Kutcho time equivalent sulphide horizon isrepeated by folding.

After asking management about the timeline of these targets, it seems that none ofthem will be explored this year: "Esso and Esso West are deep targets, so unlikelyto get to them this summer (more likely to be targeted once underground). Also, theFWZ and Main down-dip targets would be higher priority than the repeated sulphidehorizons on the southern portion of the property, as targets proximal to and alongtrend with mineralized lenses tend to provide a higher probability of finding more ofthe same."

Working with the First Nations is also a priority for management, and in addition to

reaching a Communications Agreement with the Tahltan Central Government onOctober 26, 2017, the company also signed an Exploration Agreement on April 17,2018. As the Kutcho project is also located on land involving the Kaska FirstNations, the company is engaging them too. The Kaska FN relationship isprogressing and management is working towards completing of the agreements atthe moment.

I like to see the First Nations having a prominent place early on in the process, thisis addressing potential risks at the right time. With a well-known expert like AlisonRippin Armstrong things seem to be in very good hands. She has also re-initiatedbaseline studies for environmental assessments on February 14, 2018.

The current timeline for the Kutcho project looks like this:

As can be seen when comparing the timelines in my last analysis, the FS,permitting and construction decision has been moved into the future. The FS moveda half quarter, the permitting a quarter and the permit review over one year. Theguidance was 30 to 36 months, and has now been extended to 41 months.According to COO Rob Duncan, the Federal and Provincial governments are re-vitalizing their permitting processes to increase the importance of social aspects ofresource projects to better their efforts with respect to their duty to Consult with FirstNations on a government to government basis. The results of these changes shouldbe greater surety earlier on in the permitting life of projects in successfully receivingall permits required to mine. While updates to the permitting process have not yetbeen officially rolled out, Kutcho Copper has adjusted its project timeline, in part toincorporate the anticipated changes, and also as a result of extensive interactionwith government offices which provide guidance on permitting timelines using theKemess and Brucejack underground mines as real world examples.

3. Stream Comparison

In my last analysis I mentioned that Kutcho Copper closed a stream deal with WPMon industry standard terms, illustrated by an example of the ongoing cash paymentsfor silver coming in at 20% at the Glencore-Wheaton deal (US$900M upfront cash).Since then I read some comments on ceo.ca about the Kutcho/WPM streambasically being expensive and at the expense of Kutcho economics, and although Ialready knew by asking experts that this wasn't the case, I decided to look a bitfurther into this.

A way to look at the profitability of streams, as indicated in those comments onceo.ca, and a much more comprehensive way compared to cash paymentpercentages, is to analyze the Internal Rate of Return (IRR) for the stream owner. Inorder to compare the profitability of the Kutcho stream, I analyzed several otherstreams for IRR, after normalizing metal prices for all streams (gold US$1250/oz,silver US$17/oz). Here we go, first up is the Kutcho/WPM stream, both NPV andIRR for all cases presented are pre-tax as taxes on these streams can be complexand isn't needed to illustrate the comparison:

See Full Size Image

Then we have the Golden Star/Royal Gold stream:

And the NewGold/Royal Gold stream:

See Full Size Image

Followed by the Yamana/Sandstorm stream:

See Full Size Image

And the Lydian/Orion stream:

Next up is the Panoro/WPM stream:

See Full Size Image

And the Glencore/Franco Nevada stream:

And last but not least the Taseko/Osisko stream:

See Full Size Image

When I put all NPVs and IRRs in one table, it looks like this:

As can be concluded, Kutcho Copper/WPM doesn't have the lowest IRR on itsstream of all peers, but it is below average, and certainly in line with or belowcomparable streams regarding pre-tax NPV. The IRR seems a direct indicator for

risk on the project, for example Lydian has a jurisdictional risk, and Panoro afinancing risk (and according to an influential blogger also a local risk but I don'tknow the details on this), as it needs a pretty high copper price (US$3.25/lb Cu for apost-tax IRR of 19.5%) in order to be economic (I estimate post-tax IRR of 18% as athreshold for this mid sized project).

4. Copper revisited

Talking about copper, let's have a quick look at the latest outlooks on the red metalby 4 of the biggest producers/traders in the world. The usual chart (for example RioTinto has used the same chart for years) describing copper supply/demand looksmore or less like this, as illustrated nicely by the Visual Capitalist:

First Quantum Minerals has the following view on supply/demand developments:

Personally I find the surplus in 2021 remarkable, as we are supposed to be deepinto a deficit by then. Codelco, the Chilean state-owned giant and largest copperproducer in the world, has this view:

Freeport McMoran has the following outlook for copper, but doesn't provide aforecast on demand or pricing, just like Codelco:

Glencore, a combined producer/largest trading house on the other hand foresees aconsistent increase for copper demand, and has an interesting story to tell in theirpresentation about over-investment in the years before 2016, and makesstatements about the influence of the increasing electrification of our society onmetal demand, an interesting read. This is their view on demand for the next fewyears:

However, they avoid to come up with a comparable outlook for global supply. I doagree with the central thesis of new and sufficiently large deposits not beingdiscovered fast enough, capex at very low levels and very few new projects in thepipeline, and fancy the long term outlook on copper a lot.

5. Potential Economics & Valuation Revisited

As a reminder, the base case scenario of the 2017 PFS generates an after-taxNPV8 (8% discount) of C$265M and an after-tax IRR of 27.6%, using metal pricesof US$2.75/lb copper, US$1.10/lb zinc, US$17.00/oz silver and US$1,250/oz goldand a currency exchange rate of 0.75 USD/CAD. This is all based on a modestinitial capex of C$220.7M which is well below base case NPV8, which is a strongfeat for a base metal project in general. Especially the larger projects have a capexoften outscoring NPV8 by 20-50%.

Although the Kutcho project already has a much higher NPV8 compared to thecurrent market cap (C$265M vs C$28.18M), there is clear appeal in doubling theresource and improving economics. There are several ways like lowering the cut-offfrom 1.5% to 1% for the Main zone (which could add up to 5Mt to the mine plan),convert Inferred to M&I or later on to Reserves for the Sumac Zone, as this wouldadd about 4Mt, and add tonnage through drilling at depth, which could add another1.3-3.6Mt. This could definitely generate tonnage in the realm of 20Mt. Otheropportunities are improving recoveries of copper and zinc, FX rates, higher metal

prices and further optimization of for example mine plan and opex. On the longerterm there is a lot of exploration potential, and even further out there is potential fornew discoveries at the newly optioned TCS property not too far away.

All opportunities considered, and as a reminder, when I would use a 20Mt scenario,an 80% Zn recovery rate, a 1.25 exchange rate, a US$2.75 base case copper priceand a fixed US$1.10 Zn price, a 2,500tpd throughput scenario for a LOM of 22years, and a 4,500tpd throughput scenario for a LOM of 12 years, this would be theresulting, familiar, hypothetical sensitivity table:

By running the numbers it shows why developing the 4,500tpd scenario probably isthe most economic scenario, followed by potential delineation of more resources(and eventually into reserves) for a longer LOM through exploration.

I updated the peer comparison, despite incredible variation in typical metrics,notwithstanding stage or jurisdiction, at least it represents a brief overview of copperprojects:

And:

As a rule of thumb and always the case with peer comparisons, every company hasits own story with very specific details, causing valuations the way they are,therefore making it impossible to take comparison results at face value. Withoutgoing too deep into different peers, I must say I was pretty impressed with the recentPFS delivered by Rick van Nieuwenhuyse's Trilogy Metals; its post-tax IRR of 38%is unheard of for a copper project. As it is very Nordic, they really needed somethingspecial, and it very much looks like they succeeded. A P/NAV of 0.12 is almostridiculous in my opinion, and keep in mind they have two projects. It is on top of mywatchlist.

Again, it is very hard to pinpoint towards a value of a developer before it is fullyfinanced and ideally built and commencing production, as there isn't particularlystrong comparison material to work with, but in my view the Highland CopperP/NAV of 0.2 (down from 0.3 in my last analysis as the share price of Highland lost1/3 the last month by big selling out of the blue) provides us with a realistic andconservative guidance at FS/permitted stage. With the current base case NPV8 ofC$265M @US$2.75/lb Cu, this could roughly result in a potential double for Kutchoarriving at the same stage, and when using the 20Mt scenario in a potential triple ormore.

6. Conclusion

After a winter of preparations, Kutcho Copper has finally arrived at the start of theirfield program, and will start drilling in about a month from now. Doubling theresource in Q1 2019 seems to be a very realistic target, and if this milestone isachieved, economics will improve even more, with the NPV increasing quitesignificantly. In mining, usually nothing goes smoothly, but in this rare case I expectKutcho Copper to sail pretty effortlessly to a potential double in a bit over a yearfrom now, when the FS comes out.

Kutcho project

I hope you will find this article interesting and useful, and will have further interest inmy upcoming articles on mining. To never miss a thing, please subscribe to myfree newsletter on my website www.criticalinvestor.eu, in order to get an emailnotice of my new articles soon after they are published.

The Critical Investor is a newsletter and comprehensive junior mining platform,providing analysis, blog and newsfeed and all sorts of information about juniormining. The editor is an avid and critical junior mining stock investor from TheNetherlands, with an MSc background in construction/project management.Number cruncher at project economics, looking for high quality companies, mostlygrowth/turnaround/catalyst-driven to avoid too much dependence/influence of long-term commodity pricing/market sentiments, and often looking for long-term deepvalue. Getting burned in the past himself at junior mining investments by followingoverly positive sources that more often than not avoided to mention (hidden) risks orcritical flaws, The Critical Investor learned his lesson well, and goes a few stepsfurther ever since, providing a fresh, more in-depth, and critical vision on things,hence the name.

Disclaimer:

The author is not a registered investment advisor, currently has a long position inthis stock, and Kutcho Copper is a sponsoring company. All facts are to be checkedby the reader. For more information go to www.kutcho.ca and read the company’sprofile and official documents on www.sedar.com, also for important riskdisclosures. This article is provided for information purposes only, and is notintended to be investment advice of any kind, and all readers are encouraged to dotheir own due diligence, and talk to their own licensed investment advisors prior tomaking any investment decisions.

Want to read more Gold Report articles like this? Sign up for our free e-newsletter,and you'll learn when new articles have been published. To see a list of recentarticles and interviews with industry analysts and commentators, visit ourStreetwise Interviews page.

Streetwise Reports Disclosure:1) The Critical Investor's disclosures are listed above.

2) The following companies mentioned in the article are billboard sponsors ofStreetwise Reports: Wheaton Precious Metals. Streetwise Reports does not acceptstock in exchange for its services. Click here for important disclosures aboutsponsor fees. The information provided above is for informational purposes onlyand is not a recommendation to buy or sell any security.3) Statements and opinions expressed are the opinions of the author and not ofStreetwise Reports or its officers. The author is wholly responsible for the validity ofthe statements. The author was not paid by Streetwise Reports for this article.Streetwise Reports was not paid by the author to publish or syndicate this article.Streetwise Reports requires contributing authors to disclose any shareholdings in,or economic relationships with, companies that they write about. Streetwise Reportsrelies upon the authors to accurately provide this information and StreetwiseReports has no means of verifying its accuracy. 4) The article does not constitute investment advice. Each reader is encouraged toconsult with his or her individual financial professional and any action a readertakes as a result of information presented here is his or her own responsibility. Byopening this page, each reader accepts and agrees to Streetwise Reports' terms ofuse and full legal disclaimer. This article is not a solicitation for investment.Streetwise Reports does not render general or specific investment advice and theinformation on Streetwise Reports should not be considered a recommendation tobuy or sell any security. Streetwise Reports does not endorse or recommend thebusiness, products, services or securities of any company mentioned on StreetwiseReports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employeesor members of their families, as well as persons interviewed for articles andinterviews on the site, may have a long or short position in securities mentioned.Directors, officers, employees or members of their immediate families are prohibitedfrom making purchases and/or sales of those securities in the open market orotherwise from the time of the interview or the decision to write an article, until oneweek after the publication of the interview or article. As of the date of this article,officers and/or employees of Streetwise Reports LLC (including members of theirhousehold) own securities of Wheaton Precious Metals, a company mentioned inthis article.

Charts and graphics provided by the author.

If you would like to comment on the content of this article or any of the companiesdiscussed in this article, or if you would like to be interviewed by StreetwiseReports, please contact Gordon Holmes of Streetwise Reports atgordon@lookoutridge.com, 707-481-1410.

Streetwise Reports : The Gold Report : The Energy Report : The Life Sciences Report

IMPORTANT DISCLOSURES

The Gold Report, The Energy Report, The Life Sciences Report and Streetwise Reports do not render general or specific investment advice and donot endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed forarticles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the openmarket or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the "Learn More About Companies in this Issue" section.Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

OTHER DISCLOSURES

Streetwise - The Gold Report, The Energy Report, The Life Sciences Report and Streetwise Reports are Copyright © 2018 by Streetwise ReportsLLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only inwhole (and always including this disclaimer), but (ii) never in part.