“Concerns related to the global economy and slower economic growth in China have had a substantial impact on Canada’s mining industry,” says Canadian mining company Fortune Minerals.
About 60% of the world’s publicly traded mining companies trade on Canada’s two largest stock exchanges and, for the first time in ten years, neither of these exchanges had a mining initial public offering in the first quarter of the year.
The current environment has resulted in mining companies cutting exploration budgets and delaying project development. Despite this outlook, the diversified resource company reports that it aims to transition through permitting and construction to become a mid-tier producer..
The company, which has two advanced-stage development assets, says that, its deposits of important commodities are required to build infrastructure to support increasing urbanisation in emerging markets. “The commodities will also be used to manufacture goods to improve the quality of life for billions of people,” it states.
The two projects are the Arctos Anthracite Project, in north-west British Columbia, Canada; and the NICO gold/cobalt/bismuth/copper project, in the Northwest Territories of Canada, 160 km north-west of Yellowknife.
“In 2012, Fortune Minerals completed updated, positive feasibility studies on both projects, which indicated expanded mineral reserves, extended mine lives and demonstrated robust economics under updated commodity-price assumptions,” explains Fortune Minerals investor relations manager Troy Nazarewicz.
The NICO project, which is more advanced than Arctos, is a proposed, fully vertically integrated project that will include mining and concentrating ores and transporting the metal concentrate to a refinery for further processing to high-value products.
Fortune Minerals owns land near Saskatoon, in Saskatchewan, which is being considered as the site for the refinery in the current feasibility study. The company is also investigating options for custom processing.
“NICO’s unique metal assemblage includes 1.1-million ounces of gold, 86-million pounds of cobalt, 102-million pounds of bismuth (15% of global reserves) and 27-million pounds of copper,” says Nazarewicz.
Work, valued at $100-million, has already been invested in the project, including test mining and pilot plant processing.
This included a front-end engineering and design study, which was completed in 2012. The study updated the mineral reserves to 33-million tons, extending the planned mine life to 20 years.
“This demonstrated low cash cost for all metals free of by-product credits, a base case pretax internal rate of 14% and a net present value of $309-million using a 7% discount rate. Additional optimisations are being conducted to improve project economics,” states Nazarewicz.
In January, environmental-impact assessment board, the Mackenzie Valley Review Board, completed its environmental assessment report and recommended approval of the mine and mill for the NICO project.
Nazarewicz points out that the report’s recommendation has been submitted to the Minister of Aboriginal Affairs and Northern Development Canada and the Tlicho First Nations government for approval and signature.
He states that another study was conducted on the project in 2012, demonstrating that battery-grade cobalt sulphate product can be produced from the proposed refinery.
“This was done at the request of a potential strategic partner in Asia that needs a reliable source of supply of this product to manufacture high-performance lithium ion and nickel metal hydride rechargeable batteries.
“The market for these batteries is expanding, owing to their use in portable electronic devices and the pending proliferation of electric vehicles. The rechargeable-battery market currently accounts for 35% of cobalt demand, up from 1% in the mid-1990’s,” says Nazarewicz.
He adds that by being produced directly into chemical form, the cobalt sulphate can be produced at NICO at a lower operating cost than the high-grade cathode metal that was previously planned for production and, owing to greater demand for the chemical, the cobalt sulphate can be sold for more than the metal.
Nazarewicz notes that the company’s focus for the NICO project in 2013 is on financing, completing the permitting and preparing for construction.
“While these are being reviewed, we are advancing discussions with the Tlicho government towards completing impact and benefit agreements for the project. We expect to be fully permitted for the mine and concentrator later this year,” he says.
Fortune Minerals is also in discussions with potential strategic partners interested in providing the project financing. Subject to the receipt of this financing, the company plans to begin site preparation for construction later this year and to start construction in 2014.
Arctos Anthracite Project
The project is a joint venture (JV) between a subsidiary of Fortune Minerals (80%) and South Korean steel producer Posco (20%) and is one of the world’s premier metallurgical coal projects.
The four Arctos deposits straddle the existing British Columbia Railway right-of-way, about 330 km north-east of the Port of Prince Rupert.
“This existing brownfield transportation corridor is planned to have the track extended from its current terminus, 150 km south of the site, to provide a simple transportation solution for moving coal to the Port of Prince Rupert for export to the overseas steel industry,” explains Nazarewicz.
He points out that more than $100-million of work has been conducted on advancing the project, including an updated feasibility study in 2012 that was based on an expanded 125-million-ton run-of-mine coal reserve, openpit mining, a wash plant and the railway transportation of coal.
“The feasibility study demonstrated a 25-year mine life at a yearly production rate of three-million tons, based on less than 5% of the project’s total historical resource. The freight-on-board cash cost of C$127.61/t would place the project among the lowest-cost Canadian metallurgical coal producers,” says Nazarewicz.
As a key supplier of high-quality anthracite coal to the global steel industry, Arctos has the potential to create more than 500 direct jobs, 1 000 jobs in supporting activities, more than $10-billion in revenue and contribute $900-million in combined federal and provincial taxes.
The project is currently in the environmental assessment process to permit the mine, processing plant and railway.
Nazarewicz notes that the JV is working together with community stakeholders and Aboriginal groups to establish communication protocols for relationship building, engagement with and participation in the project.
He says activity on the project in 2013 will be focused on the completion of environmental baseline data collection in support of the environmental assessment process.
“The final report is expected to be filed early in 2014 to initiate the review process. Concurrent with the assessment, Fortune Minerals is seeking a second-stage strategic partner to complete project financing,” states Nazarewicz.
He states that the company has expanded its management team in support of its efforts to become a midtier producer.
The appointment of Mike Romaniuk as operations VP and COO added significant capacity to the organisation, owing to his experience of more than twenty years with mining companies such as Xstrata Nickel and Falconbridge.
“He will lead the development of both projects,” says Nazarewicz.
Despite the company’s recent success, Nazarewicz says the lack of activity in Canada’s mining sector is remarkable.
“The current state of the capital markets reinforces our view that targeting JVs with strategic partners for project financing is the correct approach,” he states.
Nazarewicz explains that the company faces challenges, such as the difficulties encountered in the capital markets by the resources sector, the escalation in project capital costs and the stringent regulatory environment.
“We believe that the earth’s inventory of readily accessible mineral deposits is in decline and additional commodities will be required to accommodate growth in emerging markets, particularly in Asia.
“We are in the midst of what we believe is the largest expansion of mining activity in history, which is required to meet the needs resulting from urbanisation in emerging economies and to support the demand for consumer goods now available to a greater number of people,” says Nazarewicz.
He points out that concerns pertaining to China’s slowing growth rate are misguided, as the importance of the increase in actual raw-material demand that is taking place is not taken into consideration.
“The 20% growth rate in China’s passenger car market in the first quarter of this year, April trade data showing a 16% year-on-year increase in China’s iron-ore imports and a 36% increase in coking coal imports point to a bright future,” Nazarewicz concludes.