Aug '13

Industry at a glance

By Ryan Bergen, Herb Mathisen, Alexandra Lopez-Pacheco and Anna Reitman

Forest fire forces evacuation of Goldcorp’s Éléonore

A massive forest fire in Northern Quebec that threatened communities and caused closures to the James Bay Road also forced Goldcorp to evacuate 760 employees from its Éléonore site. All but 35 workers, who stayed on-site as an emergency measures crew, were preventatively flown from the site on July 3 and 4, when the fire was just 100 kilometres away. Goldcorp is currently constructing the Éléonore mine, which it expects to begin production in late-2014. A period of rain helped to extinguish the blaze and with shifting winds pushing smoke from the site, delivery of fuel and supplies picked back up on July 8, and the company reported that the construction schedule would not be effected.

– Herb Mathisen

Ghana cracks down on illegal mining

During a six-day operation in June, Ghana arrested 168 Chinese citizens for illegal gold mining, to combat a problem that Ghanaian officials say has reached alarming proportions. The arrests did not come entirely without warning. In May, Ghanaian president John Dramani Mahama spoke of his country’s heightened efforts to address the issue. “I am sending a clear signal to the offending individuals and groupings that the government will not allow their activities to cause conflict, dislocation, environmental degradation and unemployment when in fact the sector should rather benefit our communities and our country,” he said.

The June operation, coupled with the arrest of 120 illegal miners in March, is still just the tip of the iceberg. Chinese media estimate some 50,000 of its citizens have flocked to Ghana’s “gold rush” since 2005, most of them from Shanglin, an impoverished county in Guangxi province.

“Across West Africa, the problem of illegal artisanal mining and illegal small scale mining can be traced back to poor regulation and weak oversight on the part of governments,” says Avril Cole, a Toronto-based lawyer with Norton Rose Fulbright Canada LLP. “Governments in these jurisdictions also often lack the financial resources and administrative capacity to monitor artisanal and small scale mining and fund the initiatives necessary to ­combat the problem of illegal artisanal mining.”

– Alexandra Lopez-Pacheco

Cliffs’s Carrabba to step down

In early July, Joseph Carrabba announced he will be leaving his post as president and CEO of Cliffs Natural Resources effective Dec. 31, 2013. The Cleveland-based company revealed that Laurie Brlas was also retiring as executive vice-president and CFO, effective immediately. No successor to Carrabba was named. “This is an important transition for our company, and the board believes it is appropriate and in the interests of the company and our shareholders to take the time to conduct a thorough search for the best possible candidate,” said Jennifer Mihalcin, public affairs representative.

Carrabba started with Cliffs as COO in April 2005. He has led the company since September 2006, including through its C$4.9 billion acquisition of Consolidated Thompson Iron Mines Ltd. in 2011. The company took a US$1 billion writedown on the deal earlier this year and, with sluggish iron ore prices, laid off workers at the Bloom Lake iron ore mine in Quebec by delaying the project’s expansion.

More recently, Cliffs suspended environmental assessment work on its massive chromite deposit in Ontario’s Ring of Fire region, due to delays on important decisions from the provincial government. See Slow road to the Ring of Fire for more details.

– H.M.

Orbite signs offtake deal with Glencore

Though Orbite Aluminae has not yet determined where it will build its proposed smelter-grade alumina processing plant, the Quebec-based company has, in Glencore International, found a buyer for the plant’s eventual output. Orbite plans to process ore from its Grand-Valleé aluminous clay deposit in Quebec’s Gaspé region using a proprietary extraction technique rather than the standard Bayer process. This acid process is able to extract alumina, while also recovering oxides, hematite and rare earth elements as byproducts without generating red mud. The subsidiary of GlencoreXstrata agreed in June to purchase all the smelter-grade alumina produced over the first ten years. According to Orbite, the agreement is also the starting point to negotiate Glencore taking a potential stake in the proposed 7,000 tonne-per-day smelter facility.

In addition to putting the pieces in place for the planned smelter-grade plant, the company is currently shopping the high-purity alumina (HPA) it produces at its plant near Cap-Chat, Quebec to potential buyers. However, scaling up the HPA plant next year to three tonnes per day, the construction of the smelter-grade facility and the future of the Grand-Valleé mine depend on the company finding ready buyers for the premium alumina product that can fetch up to $300 per kilogram.

– Ryan Bergen

No mining IPOs in Q1 2013

The first quarter of 2013 saw no initial public offerings (IPO) from Canadian mining companies on the TSX and TSX-Venture exchanges – the first time this has occurred since the TMX Group acquired the Venture Exchange in 2002, according to Carolyn Quick, TMX Group communications director. “What we noticed was mining equities were probably performing just as well as other TSX stocks, but sometime around January 22 onward, mining equity returns were actually slowing or dropping,” said Jay Patel, partner at Ernst and Young, upon release of the firm’s quarterly Canadian Mining Eye report. “What we see happening in a situation like that is people take a wait-and-see approach,” he added. “Even if you are ready to do an IPO, you might sit on the sidelines to wait and see how things pan out.”

Despite the lack of IPOs, Patel said he still believes the outlook for mining is relatively positive. “Mining is a long-term business and we think good assets will get funded,” he said. “Certainly some of the mining companies that are taking a longer-term view and have the ability to withstand the current market will benefit themselves in the long run.”

– H.M.

Centerra talks partnership with Kyrgyzstan

Following the unrest at its Kumtor gold mine this spring, Centerra Gold has entered into discussions with the Kyrgyzstan government about potentially having it become a joint venture partner in the mine. Under the current agreement, the government, through a wholly-owned subsidiary, holds a 37.2 per cent equity stake in the project.

In late May, hundreds of Kyrgyz citizens – some on horses – stormed the gold mine, with some calling for its nationalization. On May 28, the road to the mine was blockaded by protesters, and two days later, power was cut off, suspending mining operations and causing US$4 million in damages, according to the government. Kumtor, which according to Toronto-based Centerra is the largest private employer and foreign investment in the Kyrgyz Republic, produced more than 315,000 ounces of gold in 2012. Earlier this year, a parliamentary decree called for a renegotiation of the project’s operating agreement so the government could increase revenues. The company was also hit with a $315-million environmental claim. Discussions are now centered on the Kyrgyz government possibly trading its current stake in the mine to become a joint venture partner, which according to early reports from the government could double cash flows to the country.

– H.M.

Teck appoints new executive VP and COO

Vancouver-based Teck Resources has appointed Ian Kilgour as its new executive vice-president and COO as of June 20, 2013. Kilgour leaves his two-year role as senior vice-president of Teck’s coal operations to take on this new position, which puts him at the helm of all Teck’s mining operations and joint ventures in its steelmaking coal, copper and zinc business units.

Kilgour, a metallurgical engineer who holds a Master of Science from the Royal School of Mines in London and a Bachelor of Applied Science from the University of Melbourne, has more than 30 years of experience in the mining sector. He has served in senior roles with the BHP ­Billiton Mitsubishi Alliance, BHP’s Goonyella Riverside Mine and at Minera Escondida. “Ian brings a strong track record of consistently driving results, a focus on cost management and global experience to the COO role,” said Don Lindsay, Teck president and CEO.

– A.L.P

Coup for gold

Egypt’s only modern gold producer is proving adept at weathering political storms. In the immediate aftermath of the country’s military intervention to oust President Mohamed Morsi in July, Centamin’s shares went up by 11 per cent. The company had been battling the administration over the legality of its permit to operate the Sukari gold mine – its only revenue-generating asset. It helps that Centamin announced solid second-quarter performance. Total gold production was up 39 per cent year-on-year at 93,624 ounces and analysts noted targets have been met throughout political turmoil. Broker RFC Ambrian wrote in a client note that share price volatility is likely though as political events in Egypt continue to unfold and the company’s licence challenge moves through the courts.

Vancouver-headquartered Alexander Nubia is exploring in the Eastern Desert, 500 kilometres south of Cairo. CEO Alexander Massoud played down the impact of the upheaval on operations, explaining the company is not in a permitting or licensing stage and hot summer months tend to be low-activity anyway. “I’ve already been through this once. I think change was expected because there was a lot of dissatisfaction and this will be good for the country.”

Some gold exploration activities in Egypt are on the back burner, though. SMW Gold has two licences north of Sukari. Operations director Mohammed Hadi said the hold-up results from the political situation, though he expects work to resume in two or three months.

Egypt’s fragile democracy has not been helped by the coup, said Maarten-Jan Bakkum, senior emerging market strategist at ING Investment Management, and risk of an economic blow-up has increased. He added however that, in the commodities sector, companies are used to operating in countries with grim political environments. Ownership of assets, he said, will be the primary concern.

– Anna Reitman

Kinross walks away from Fruta del Norte

After more than two years of negotiations with the Ecuadorian government, Kinross Gold Corp. has halted development of its Fruta del Norte gold project, which it acquired in 2008 for $1.2 billion. The two parties hit an impasse over the government’s plan for a 70 per cent windfall tax on revenue and its subsequent decision to not extend the negotiation deadline beyond August 1, 2013. “We have said that we will exert strict capital discipline across our company, that we will allocate our capital only to projects which meet our investment criteria, and that we will only enter into agreements that are in the best interests of the company and its shareholders,” said Kinross CEO J. Paul Rollinson. “After a great deal of effort to arrive at a mutually agreeable outcome, it is unfortunate that the parties were unable to reach an agreement on Fruta del Norte which would have met those criteria.”

With any sale of Fruta del Norte subject to government approval, and the government indicating it will not support efforts by Kinross to solicit a potential new partner or a buyer, Kinross said it would incur a charge of approximately $720 million in the second quarter, with $700 million expected to be a non-cash charge. “It’s been a tough negotiation,” Rollinson told Reuters. “Sometimes the best deal is the one that you don’t sign, and that seems to be the case here.”

– A.L.P.

New Gold acquires Rainy River Resources

On May 31, New Gold and Rainy River Resources announced they had entered into an agreement that would see New Gold acquire Rainy River through a friendly take-over bid. The offer comes in at a 67 per cent premium to Rainy River’s 20-day volume weighted average trading price. New Gold picks up Rainy River’s advanced-stage gold project located in ­northwestern Ontario’s Richardson Township.

“The acquisition of Rainy River is consistent with our strategy of identifying opportunities to create shareholder value,” said Randall Oliphant, New Gold executive chairman. “We have followed Rainy River for some time and see this as an opportune time to add this great asset to our portfolio. We view the combination of Rainy River’s ideal location, sizeable reserve, robust production potential and experienced team as presenting a truly compelling opportunity.”

Dale Peniuk, a Rainy River director, described the acquisition as a great outcome for the company’s shareholders. “To be able to realize a meaningful premium, while gaining the ability to combine with a well-established mine builder in New Gold, is a win-win scenario for our shareholders,” he said.

– A.L.P.

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