March/April 2014

Industry at a glance

By Peter Braul, Tom DiNardo and Herb Mathisen

Taseko vows to keep New Prosperity fires burning

After the New Prosperity project was handed a second rejection from the federal government, Taseko Mines brass announced they would continue their legal fight with Ottawa over the validity of evidence submitted by Natural Resources Canada that resulted in the government’s decision. “All of this will roll out in front of a court some day,” said Brain Battison, Taseko’s vice-president of corporate affairs.

Prime Minister Stephen Harper, speaking at PDAC in March, called the environmental assessment “extremely negative,” and added that unresolved land claims issues with First Nations in the area contributed to the decision. But Harper also sought to reassure miners that his government is an ally of the industry in general, noting that Taseko is welcome to apply for environmental permitting on its B.C. gold-copper project for a third time with revised plans.

In the meantime, Taseko CEO Russ Hallbauer stated in a release that the company will “look at other opportunities to increase shareholder value.” Analysts have speculated over what properties the Vancouver-based company could consider acquiring. Jackie Przybylowski, an analyst at Desjardins Securities, pointed to Curis Resources, another HDI company, while Christopher Chang, a Laurentian Bank analyst, said he believes Yellowhead Mining would be another fitting candidate.

– Peter Braul

Flaherty keeps exploration tax credit

First introduced by the Liberals as a five-year initiative in 2000, the Mineral Exploration Tax Credit (METC) has been extended for one year in each of Finance Minister Jim Flaherty’s budgets, dating back to 2006. In February, he once again included the 15 per cent credit, which flow-through-shareholders can claim for specific exploration work performed by junior mining companies. The government estimates the credit has helped juniors raise $5 billion since 2006. In comparison, the lost government revenue as a result of the credit is expected to be roughly $45 million this year. While the government continues to tout METC’s benefits, it has shied away from instituting it as a permanent measure, despite extending it during both commodity booms and market dips. “The temporary nature of the Mineral Exploration Tax Credit allows the government to periodically review the measure and ensure that it remains appropriate in light of evolving conditions,” wrote David Barnabe, spokesperson of the ministry of finance. The department, however, would not comment on what criteria are used to determine whether to extend the credit. When asked at PDAC if he would consider making the credit permanent, Prime Minister Stephen Harper joked that he would “never prejudge the actions” of Minister Flaherty.

– Herb Mathisen

Midway Gold on its way to production

Midway Gold Corporation began building its Pan gold project in January and, with construction expected to take six to nine months, the company is optimistic it could start production at the Nevada mine in the fourth quarter this year.

The open pit, heap leach mine has an expected life of roughly nine years with Proven and Probable Reserves of 48.3 million tonnes, grading 0.56 grams per tonne and a targeted average annual production of 81,000 ounces. “We’ve got a power line and a road that needs to be widened that’s already pioneered to the site,” said Jaime Wells, investor relations analyst at Midway. All that is left to build are minor facilities and the adsorption/desorption and refining (ADR) plant.

Wells said he is optimistic about the profitability of the Pan project given the recent improvement in gold prices: “With the upswing, Midway has responded well and we hope to see that into 2014.” Based on a November 2011 feasibility study, the internal rate of return at a gold price of $1,200 per ounce is 32 per cent. At press time, gold was hovering around $1,340 per ounce. Even if gold prices level off, there are opportunities to extend the project. “We deliberately stopped our drilling at a million ounces at Pan just so we weren’t drilling out of equity dollars,” said Wells, “but we have enough evidence internally that we are optimistic that it could double, and we actually permitted for twice the amount of mine life.” Midway has also done some drilling in between the two planned pits, showing there is potential for further expansion.

– Tom DiNardo

New group aims to attract women to mining in northern Ontario

A new not-for-profit organization in northern Ontario hopes the efforts of its membership can fill a pending shortage of mining workers with an under-represented segment of the population. Women in Mining Northern Ontario (WIMNO) held its inaugural meeting in January, and it aims to address the lack of women in the industry, said president Charmaine Gazdic.

Women currently make up 16 per cent of the mining workforce, according to the 2013 Labour Market Forecast Report by the Mining Industry Human Resource Council (MiHR). With pending shortages forecast for the industry in the next decade, Gazdic said, “to fill the shortage, we are looking to women in the sector as well as aboriginals.”

Northern Ontario is an important place to pursue this work because of its large mining community, she explained. WIMNO plans to promote the industry’s existing opportunities to students and young professionals in the region through networking events, personal and professional development, and leadership conferences. In June, the organization will host a networking event at MacLean Engineering, and in September it will launch its student chapter at Laurentian University.

– T.D.

Junior sector ever optimistic as summer approaches

Whether based in reality or not, explorers and the contractors that support their industry voiced enthusiasm and optimism at AME BC’s Roundup conference at the end of January. Though the exploration sector is in turmoil, more than 6,500 attendees from 37 countries found the necessary cash to attend the conference in Vancouver this year.

For most, the annual event was a chance to network and talk rocks, not to worry about funding. “We control what we control,” said Adam Travis, CEO of Colorado Resources, which has had recent success drilling out its North ROK copper-gold property in northwest B.C. “We wouldn’t be in the business if we weren’t eternal optimists. This year at Roundup and at the Cambridge (Vancouver Resource Investment) show, I see people have got a renewed enthusiasm.”

Mike Ball, commercial sales director at Weatherhaven, whose company supplies portable shelters, camps and systems for remote sites, said exploration suppliers all suffered to varying degrees during the recent lull. “If you’re going to service this market, you had better have at least one foot on another saddle,” Ball explained, adding Weatherhaven is also a defence contractor and so not completely exposed to the junior mining down-cycle.

But drillers have fewer options. “Just about every drill contractor has got capacity that’s not being used,” said Geoff Newton, senior project geologist at Kaminak Gold. His company has more money than most, with $10 million in working capital to continue exploration this year. “There are very few people who couldn’t get a rig going pretty quickly,” he added.

Dips in metal prices are only one reason why many juniors are not appearing attractive to investors. Even though, Ball said, commodity prices “are an order of magnitude higher” than they were 10 years ago, he points a finger at regulatory costs for recent shortcomings. “There is an enormous burden associated with just maintaining your listing on public exchanges,” he said. “I’ve heard that it is between $160,000 and $250,000 just to maintain your listing on the Venture Exchange. That’s not a lot of money when you’re raising millions, but it’s a whole heck of a lot of money when you’re diluting your shares by 30 per cent to go raise $30,000. That’s very problematic.”

The positive momentum continued through to March, as the annual PDAC Convention did not experience a notable drop-off in attendance, bringing in the fourth biggest audience in its history.

– P.B.

Cliffs closes Wabush mine, future uncertain

In February, Cleveland-based Cliffs Natural Resources shut down the Wabush iron ore mine in Newfoundland. “Our assessment has determined that the current cost structure and capital requirements at Wabush Scully are not sustainable,” said director of global communications Patricia Persico, adding the mine’s future is uncertain. “The company is considering all options including a sale of the operation.”

The Wabush iron ore mine was Cliffs’s highest cost operation and it was running at a loss. During the fourth quarter of 2013, cash costs were US$143 per ton. Other factors that led to the idling of the mine included an inability to meet targeted operational performance while costs continued to rise, along with declining sales margins. Efforts to improve productivity last year, including a $66-million investment, of which $40 million was devoted to mobile equipment, did not pan out.

The cuts may not stop at Wabush. Cliffs announced in February it would be reducing expansion and capital spending at its Bloom Lake mine because of the outlook for iron ore prices. For now, Persico said Bloom Lake is in operation but that could change if pricing significantly decreased for an extended period of time. “For example, if Platts pricing remains below US$100/ton for a prolonged period of time,” she said. “We have a sense of urgency in that the status quo [at Bloom Lake] is not acceptable and a change is necessary. The first step is to cut all growth and expansion capital, which we’ve done. The next step is to explore our options, which we are doing.”

– T.D.

Transmission line energizes Kami project

The Newfoundland and Labrador government announced in February that it will construct a transmission line from Churchill Falls to Labrador West, marking a significant step forward for Alderon Iron Ore’s Kami project in the Labrador Trough. The line will provide the necessary power for construction and production at the company’s flagship project. “It’s an enabler for operations and it’s also important from the perspective of us securing the financing for our project because it’s a known fact that it’s a system that is lacking transmission capacity,” said Tayfun Eldem, Alderon’s president and CEO. Alderon has been pushing for the current grid in the region to be upgraded since September 2011.

Alderon is required to pay $65 million for its share of the usage on the new transmission line. The company announced in late February that it secured a $22-million loan from Liberty Metals & Mining to cover the first security deposit. Liberty Metals & Mining holds a 14.5 per cent stake in Alderon. Depending on the need for the next work phase, Alderon may use its own funds or borrow money from Liberty again to pay for the remainder of its access, according to Tayfun.

“The next step for the Kami project is completing our funding so that we can start construction,” said Eldem. “The project has received sanction from the regulators and we’re busy acquiring all the construction-specific permits, but we will not start construction until the full funding is in place.” Construction could begin as early as this summer and would take about two years to complete.

– T.D.

Miners find safety while stranded in potash operation

A fire broke out in the north block of Agrium Vanscoy’s potash mine in Saskatchewan, trapping 54 miners underground overnight on February 14. The fire forced the miners to clear the north block and seek safety in emergency shelters underground to avoid smoke. An emergency response team headed into the mine and put out the fire that broke out around 9:45 p.m. The mine was ventilated to clear the smoke, and miners were released from underground shelters when it was deemed safe. Production was temporarily affected by the incident, as underground operations were shut down from the start of the fire Friday evening until Sunday night.

General manager Mike Dirham said the fire started on a scoop tram and spread when the vehicle’s fire suppression system failed to extinguish the fire. The cause of the fire is currently under investigation. Dirham said Agrium is working with provincial authorities and forensics experts to determine what happened and to prevent similar events in the future.

– T.D.

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