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Investors focused on funding future base metals exploration

4th November 2016

By: Robyn Wilkinson

Features Reporter

  

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There is an increasing investment trend involving near-surface, easily mined base metal oxide deposits in Africa that can generate early cash flow amid the current commodity prices to fund further exploration of a deposit at a later stage, says specialist consultant to the mining industry The MSA Group.

Downturns in base metals prices have resulted in exploration and capital expenditure cuts, and the delay or shelving of projects. Therefore, MSA principal consultant Mike Robertson expects tighter market conditions for some commodities in future once the impact of these decisions on supply come into play. “This should, in turn, put upward pressure on base metal commodity prices.”

Robertson says base metal prices have declined in general since early 2011, bottoming out earlier this year following the Chinese stock market crash. “Investor sentiment in the resources sector is showing signs of improvement, assisted by a strong recovery in oil prices earlier this year. However, some investors are tending to focus on short-term opportunities such as oxidised near-surface deposits overlying or proximal to primary deposits, or reprocessing tailings.”

Robertson highlights that such projects, which are not necessarily large or particularly high grade, need to be cheap and easy to mine and process.

Some MSA clients are also considering alternative extraction models that involve the funding and support of artisanal mining communities to obtain conflict-free certification, providing basic equipment, health and safety training, and buying the concentrate that is produced.

To this end, Robertson notes that MSA is increasingly involved in the high-level technoeconomic evaluation of early-stage projects. The company completed two such evaluations this year at base metals projects in the Democratic Republic of Congo (DRC) for Canadian mineral exploration and development company Ivanhoe Mines’ Kipushi underground zinc/copper project, and tin exploration and mining company Alphamin Resources’ Bisie tin project.

Robertson highlights that the Kipushi project is regarded as one of the best zinc projects in the world, largely owing to its zinc grade of about 35% and existing underground infrastructure. With the assistance of MSA and Australian consulting engineering firm OreWin, Ivanhoe announced a positive preliminary economic assessment for the redevelopment of the project in May.

This redevelopment will focus on Kipushi’s Big Zinc zone, which has an estimated 10.2-million tons of measured and indicated mineral resources, grading 34.9% zinc. With a life-of-mine (LoM) average production rate of 530 000 t/y of zinc concentrate, Ivanhoe expects the successful restoration of Kipushi will make it the highest-grade zinc mine in the world.

MSA is also assisting emerging mineral exploration and development company Regal Resources with ongoing exploration at its fold-and-thrust-belt joint venture project with Ivanhoe Mines, located to the immediate south of Ivanhoe’s Kamoa-Kakula copper project, in the DRC.

In February, MSA provided input into a positive feasibility study for Alphamin Resources’ Bisie project, which is regarded as one of the world’s largest and highest-grade tin deposits. The feasibility study (FS) supports the development of an underground mine at the Mpama North orebody, located in North Kivu, in the eastern region of the DRC, which contains more than 190 000 t of tin from defined measured and indicated mineral resources. The mine’s development will also include a process plant that is designed to treat the run-of-mine material using proven gravity separation methods.

The FS envisages project implementation over 18 months, with the establishment of the underground mine with a 10.5-year LoM, scheduled to start early next year. Ore development and stoping are scheduled to take place six months after the mining portal has been established. First production is expected in the latter half of 2018, with average production estimated at 9 000 t/y of tin contained in concentrate.

Base Metals Markets
While copper prices continue to show volatility, fluctuating at low levels, and with industry consensus predicting that copper production will continue to exceed consumption for the next year, Robertson says the outlook for zinc, tin and lead is far more positive.

“Since the uptick in mid-January, copper prices have shown volatility, fluctuating around low levels of about $2.15/lb. Part of the problem for copper has been a surplus of production in relation to demand over the past four years, arising from investments made by producers during the previous boom. This has contributed to downward pressure on the copper price. General consensus is that copper production will continue to exceed consumption for the next year or two.”

Robertson adds that, although China is the world’s biggest consumer of copper, accounting for 45%, its demand has slowed as the country evolves from a production-based economy to a more consumer-based economy.

Some of the big copper producers, however, forecast supply deficits towards the end of this decade, with Robertson highlighting Chilean copper miner Codelco’s forecast of a copper deficit by 2018, while Australian-headquartered multinational BHP Billiton foresees a deficit in 2019. “Delays in expansions and startups of new operations, partly as a result of the low copper price environment, are contributing to this. According to reports by business intelligence company CRU Group, the supply gap is expected to widen beyond 2020.”

Robertson notes that, with the shutdown of some key large-scale operations – such as base metals miner MMG’s Century mine, in Australia, and zinc miner Vedanta Zinc’s Lisheen mine, in Ireland – as well as subsequent supply constraints, zinc outperformed other base metals in the first nine months of this year. While tin was one of the worst-performing commodities in 2015, primarily owing to excess supply driven by increased production from Myanmar, formerly Burma, in South-East Asia, Robertson points out that, along with zinc, the metal has been outperforming other base metals this year on expectations of future supply constraints.

He notes that, according to the International Tin Research Institute, tin supply from the world’s largest exporter, Indonesia, is declining because of more stringent export restrictions. A significant shortage in global supply is forecast from 2018.

MSA geology operations manager Michael Cronwright adds that MSA has seen an increasing number of enquiries regarding tin projects, largely from small producers and junior explorers. This, he says, reflects a renewed interest in the sector, which is further bolstered by metals traders investing in advanced projects to secure a portion of their supply.

“Supply shortfalls of zinc, lead and tin are expected in the near to medium term. As a sister metal of zinc, lead has also been affected by mine closures. However, a positive factor in the outlook for lead is the growing demand for hybrid and electric vehicles, and the lead acid battery market. Electric vehicles are also expected to drive cobalt demand, as cobalt is a key component of lithium-ion batteries,” adds Robertson.

While regulatory and legislative uncertainty, as well as infrastructural constraints, including the supply of power, roads, rail, water and ports facilities, continue to negatively impact on companies exploring and mining in Africa, Robertson remains optimistic about the continent’s outlook.

“These challenges to mining in Africa are also reasons why large parts of the continent remain underexplored and highly prospective. Perseverance by exploration and mining companies has resulted in the discovery of world-class deposits such as Bisie and Kamoa-Kakula. The mining sector is a key player in the economic transformation of African countries. Also important is taking an innovative approach to the development of projects and not just chasing grade and tons, but factoring in mining costs and alternative funding models.”

Edited by Tracy Hancock
Creamer Media Contributing Editor

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