September 2014

Industry at a glance

By Tom DiNardo and Kelsey Rolfe

Green light for Fortune Minerals’ NICO project

Fortune Minerals Limited’s NICO project took an important step forward in July, when the company received approval on a land use permit and water licence.

The Wek’eezhii Land and Water Board of the Northwest Territories gave the go-ahead on the two permits that will allow Fortune to start construction on the site, located about 100 kilometres northwest of Yellowknife. J. Michael Miltenberger, N.W.T.’s environment minister, gave the final approval in late-July.

NICO will be a gold-cobalt-copper-bismuth project, consisting of an open pit and underground mine, and a mill. If Fortune gets the financing it needs, CEO Robin Goad said the company will start construction on the site later this year. It would potentially become operational in the third quarter of 2017.

The property has Proven and Probable Reserves of 33 million tonnes, including 102 million pounds of bismuth and 82 million pounds of cobalt. NICO is expected to have a mine life of 20 years, with a planned mill throughput of 4,650 tonnes of ore per day.

Fortune expects to receive full funding for construction from strategic partners such as Posco and Procon Mining and Tunnelling, the latter of which has a 19.43 per cent interest in the company.

Goad said Fortune will be targeting the battery market by producing a “cobalt-sulphate product” used in the manufacturing of rechargeable lithium- ion and nickel metal hydride batteries. “What we’re feeding into is the growth of the batteries in not only portable electronic devices but also electric vehicles,” he said.

NICO is projected to create 300 construction jobs and 270 permanent jobs.

The bulk concentrate produced in N.W.T. will be shipped to Fortune’s planned Saskatchewan metals processing plant near Saskatoon, which is slated to open around the same time as the mine.

– Kelsey Rolfe

Barrick to replace CEO with co-presidents

After a two-year tenure, Barrick Gold Corp’s CEO, Jamie Sokalsky, will step down on September 15 and a new leadership team of two co-presidents will take his place, the company announced in July. Kelvin Dushnisky, formerly the company’s senior executive vice-president, and Jim Gowans, the COO, will hold the dual roles.

“The board had been having discussions about the structure that would have the best outcome for the company,” said Barrick spokesman Andy Lloyd. “As part of that, Jamie agreed to step down. It’s really as a result of restructuring.”

The co-presidents will divide the CEO’s job, with Gowans managing day-to-day operations and Dushnisky focusing on government and stakeholder relations. “The two of them [will be] joined at the hip as they manage the company and put a particular focus on those issues,” Lloyd said.

Barrick chairman John Thornton said the company does not plan to appoint a new CEO. Analysts have speculated that the new structure would give him more power. “The fact that a CEO has not been named suggests that John Thornton will continue to be very active in the management of the company in a de facto CEO role,” TD Securities analyst Greg Barnes wrote in a note to investors. ‘

Lloyd denied the speculation. “John has said many times he has no interest in being CEO. Really it is Kelvin and Jim as co-presidents that are managing the company,” he said.

The announcement of Barrick’s management shakeup came just 10 weeks after founder Peter Munk left the company.

– K.R.

Encana sells Bighorn to Jupiter Resources

Encana Corp., Canada’s largest producer of natural gas, announced in late-June it would sell its Bighorn asset in west-central Alberta to Calgary-based Jupiter Resources for $2 billion.

The deal includes almost 1,500 square kilometres of land and Encana’s interests in pipelines, facilities and service arrangements. Bighorn has roughly 1.1 billion cubic feet of net Proven Reserves, 75 per cent of which is natural gas.

“It’s certainly a valuable asset, but [the sale] was mainly due to our focus on transitioning our portfolio to include more oil and natural gas liquids,” said Encana spokesman Doug McIntyre. “Bighorn...was really not being funded much, if at all. [The sale] allowed us to realize the value of that asset.”

The deal with Jupiter, a subsidiary of private-equity firm Apollo Global Management, is expected to close in the third quarter this year.

Bighorn’s sale follows Encana CEO Doug Suttles’ decision to focus 75 per cent of the company’s capital investment on six key oil-heavy resource areas throughout the continent, instead of maintaining 30 scattered assets. The remaining 25 per cent is invested in seven other minor assets.

The company sold its Jonah Field natural gas asset in Wyoming for $1.8 billion in March to global private investment firm TPG Capital.

– K.R.

First European carbon capture project receives EU funding

A Yorkshire company received 300 million euros from the European Union in July to develop Europe’s first coal-fired power plant with carbon capture and storage (CCS) technology, which would bury its carbon dioxide (CO2) emissions deep underneath the North Sea. The funds came from NER300, the financing instrument established by the European Commission to encourage more low-carbon energy projects.

Drax Group, which operates Britain’s largest power station, will use the funds to build the power plant, called White Rose, on land beside its existing coal-fired power plant near Selby in North Yorkshire. White Rose is a joint venture between Drax, Alstom and BOC, operating under the name Capture Power, and is expected to burn enough coal to power 630,000 homes. Ninety per cent of its emissions will be transported by pipeline and stored under the North Sea, a service that will be provided by National Grid, an electric power transmission network in the U.K. National Grid is currently developing the common transportation and storage infrastructure White Rose will use.

“The NER300 award represents another significant milestone for us in our development programme,” said Capture Power CEO Leigh Hackett in a press release, “as well as providing a strong signal for CCS in Europe.”

The front-end engineering design study for White Rose is on track to receive a final investment decision at the end of 2015, with construction slated to begin in 2016.

CCS plants prevent CO2 emissions from being released into the atmosphere, and bury them underground. This technology is widely seen as an important new tool for combating climate change.

White Rose is one of 19 projects across the EU to receive NER300 funding, which totalled one billion euros this year.

– K.R.

Barrick partners with Saudi firm on copper asset

Barrick Gold Corp. is partnering with Saudi Arabian Mining Co. (Ma’aden) on its copper project in Saudi Arabia, the company announced in July.

As part of the joint venture, the Saudi company will acquire 50 per cent of Barrick’s Jabal Sayid asset, located around 120 kilometres southeast of Medina, for $210 million. The acquisition is expected to be completed in the fourth quarter of this year.

Barrick expects that this move will allow Jabal Sayid, delayed because of safety-related permit problems and legacy matters over mining licences that emerged in the third quarter of 2012, to begin production in late-2015.

“We’ve got the operating experience in copper, they obviously have the local expertise in the kingdom, so it’s a complementary pairing of the two companies,” said Barrick spokesman Andy Lloyd.

Barrick is considering working with partners in different countries on future projects including other mining companies, government partners and sources of capital. “It’s a model we’d like to do more of,” Lloyd said.

Barrick has already completed most of the construction at Jabal Sayid. When it becomes operational, the site is expected to have a mine life of 15 years and produce roughly 100-130 million pounds of copper in concentrate per year during the first five years.

– K.R.

Water woes at Cigar Lake

Cameco has temporarily stopped jet boring at Cigar Lake due to ground freezing issues at the Saskatchewan uranium mine, the company announced in July.

“Given that the McClean Lake mill has not yet started processing Cigar Lake ore, we have decided to temporarily stop jet-boring at Cigar Lake to allow the ore body to freeze more thoroughly in these areas,” Cameco stated in a press release.

To prevent water from entering production areas and stabilize the rock formation at Cigar Lake, Cameco freezes the ground around the ore body with a brine solution. But freezing at the mine is not advancing as quickly as predicted. This is due to the higher-than-expected moisture and clay content of the soil, said COO Bob Steane in a conference call with media and investors.

Steane said there are areas that could be mined today, but the ground in a particular peninsula of the ore body is not frozen enough to safely mine in that area. “It’s a localized situation,” he said.

Before production stopped, Cigar Lake had mined roughly 1,000 tonnes of uranium ore. Cameco expects the ground to be sufficiently frozen within a few months, at which point production will restart. While the interruption causes a shift in production at the mine, Cameco is certain it is still on track for its production target of 18 million pounds of uranium per year by 2018.

– Tom DiNardo

Aussies roll back carbon tax

Australia abolished the country’s contested carbon tax in July, which charged the top carbon emitters in the country for every tonne of greenhouse gas they produced. In a 39 to 32 vote, the Australian Senate repealed the tax.

Recently elected Liberal Prime Minister Tony Abbott campaigned on the promise of repealing the tax and rejoiced in the wake of the vote. “The coalition [government] promised to abolish the carbon tax and today the government has delivered on that promise,” said Abbott in a press release. The prime minister has criticized the carbon tax for costing the average Australian household AU$550 per year.

Abbott has stated he plans to replace the carbon tax with a taxpayer-funded plan that incentivizes companies to reduce emissions and use cleaner energy. “The government remains committed to taking action to tackle climate change but we’ll do it without Labour’s $9 billion carbon tax hit on the economy,” he said.

The tax was initially imposed by the Labour party in July 2012, charging the top 348 polluters in Australia AU$23 for every tonne of CO2 they produced.

– T.D.

Labrador Iron halts production on operations

Labrador Iron Mines Holdings Limited stopped all mine operations indefinitely, the company announced in July.

Keren Yun, vice-president of investor relations, said the decision to put operations on hold stems from three specific issues. The first is the poor quality of ore discovered in 2013 at the company’s James mine, near Schefferville, Quebec. The expected costs of extracting the ore and this year’s plummeting prices contributed to the decision that it was not feasible to continue production.

“At current prices, continuing at the James mine would have probably resulted in losses this year,” Yun said. For Labrador to resume its operations, she said the company would need to see iron ore prices reach US$100 a tonne. At the end of July, the price was around $US95.

Labrador Iron is treating 2014 as a “development year” for its Houston mine in the Labrador Trough, Yun said. The company is talking with commodity traders, financial institutions and others about potential funding.

The company is cutting costs by renegotiating contracts with transportation providers and its mining contractors, and looking at alternative port arrangements. It also laid off around half of the 60-person workforce in February at its corporate offices.

Labrador’s decision to halt its operations comes at a time when demand for iron ore has slumped dramatically and its benchmark price has dropped 30 per cent since February. “You can get some quarter-to-quarter price improvement,” said Patricia Mohr, a commodity specialist at Scotiabank. “But I would say that the weaker prices are going to be in the market for several years.”

Other Canadian iron ore producers have also cut back or shelved their projects. Baffinland Iron Mines Corp. reduced the planned production level of its Mary River project in January 2013 to 3.5 million tonnes, down from 18 million. In the first quarter of 2014, Cliffs Natural Resources idled its Wabush iron ore Scully mine.

– K.R.

Stornoway begins construction at Renard

Stornoway Diamonds Corp. began construction at its Renard diamond project in north-central Quebec in early-July, after arranging an unusual funding deal.

Stornoway’s $946-million financing package was announced two days before construction began, and includes a $427-million offering of common share subscription receipts, a $275-million streaming agreement, $155 million in two debt facilities and $48 million in cost overrun credit facilities. Construction was halted until the company had guaranteed full funding to avoid having to stop midway to raise more cash. It took Stornoway 18 months to secure the funding package.

All the pieces of the package were arranged at the same time, a strategy that goes against the typical method of layering financing methods one at a time. Stornoway CEO Matt Manson said it was done because of the economic climate.

“We had a good asset and people wanted to finance it, but everybody wanted certainty of where the other pieces of the financing were going to come from,” he said. “It wasn’t possible for us to layer it on. We had to provide certainty.” Stornoway offered that certainty by making the funding pieces cross-dependent: if one of the pieces fell through, the rest would not be used.

The company had its groundbreaking ceremony on July 10, with Quebec Premier Phillipe Couillard in attendance. Construction will last two years, with first plant commissioning expected for late-2016. Commercial production is slated for the second quarter of 2017.

“A huge amount of work has gone on to get us to this point,” said Manson. “So it’s a hugely satisfying moment to be able to [start construction].”

Renard has an expected mine life of 11 years, with an average annual production of 1.6 million carats per year. The mine’s Proven and Probable Reserves are 17.9 million carats.

Stornoway had already built a road – the Route 167 extension, connecting the communities of Chibougamau and Mistissini to Renard – and an airport prior to starting work on the mine.

– K.R.

Supreme Court says provinces don’t need feds to take up treaty lands

The Supreme Court of Canada (SCC) ruled in July that provinces have the ability to “take up” aboriginal treaty lands for mining and logging without the permission of the federal government.

In a unanimous 7-0 ruling, SCC affirmed that Ontario could “take up” traditional land of the Grassy Narrows First Nations in the Keewatin area of northwestern Ontario in accordance with Treaty 3. The province, however, must consult and accommodate Grassy Narrows as well as preserve their rights to hunt, fish, and trap on the treaty land.

While this case focused specifically on forestry, the ruling has implications for “any type of provincially authorized land use activities including mining,” said Jolanta Kowalski, a spokeswoman for the ministry of natural resources.

“The decision by the SCC reaffirms Ontario’s position and provides greater clarity for resource development in the province,” Kowalski said.

The Grassy Narrows First Nation first brought litigation against Ontario in 2005, alleging that forestry operations on their land infringed upon hunting and fishing rights under Treaty 3. According to the claim, only the federal government had the power to “take up” the lands. The Ontario provincial government would have to seek consent from the feds to continue, they said.

The most recent ruling comes after Grassy Narrows First Nation appealed the decision of the Ontario Court of Appeal in March 2013, which ruled in favour of the provincial government.

– T.D.

CME/Reuters set new silver fix

The 117-year-old London silver fix was replaced in mid-August by an electronic, auction-based fix designed by the Chicago Mercantile Exchange (CME) Group and Thomson Reuters.

CME Group provides the price platform and methodology for the new fix and Thomson Reuters oversees the administration and governance.

The London Silver Price, as it is now known, is set by a series of electronic auctions every day starting at noon. The first 30-second auction opens with an auction price, expressed in U.S. dollars per 100,000 troy ounces (1 troy ounce = 1.09 ounces) or one lakh of silver. Auction participants – a regular collection of silver miners, consumers and banks – input the volumes they would buy and sell at that price. If the difference between buy and sell orders is more than three lakhs at the end of the round, the auction price will change and another auction will begin. This process continues until the buy and sell volumes are within the three-lakh tolerance.

“By inviting all of the users to participate ... the daily rate aims to be a fully accurate representation of the price of this essential precious metal,” said Rhona O’Connell, Thomson Reuters’ head of metals research and forecasts.

The London Silver Market Fixing Ltd., the previous silver fix association comprised of Deutsche Bank, HSBC, and Bank of Nova Scotia-ScotiaMocatta, was disbanded on August 14, and the new fix implemented the following day.

The process to develop a new silver fix came after Deutsche Bank announced in May that, in three months’ time, it would stop contributing to the gold and silver fix benchmarks. “The silver fixing company felt that having only two contributors was not viable,” said Aelred Connelly, a spokesman for the London Bullion Market Association (LBMA), which oversees the silver and gold fixes.

LBMA announced in mid-July that it would open market consultations to overhaul the century-old gold fix as well, with plans to announce the new administrator in September, and implement the new process by the end of the year. Thomson Reuters told CIM Magazine in August that it planned to submit a joint proposal with CME Group for the gold fix.

– K.R.

Mount Polley tailings pond breach, by the numbers


Screenshot from a video of Imperial Metals’ Mount Polley tailings breach in British Columbia | Courtesy of Cariboo Regional District

The dam at B.C.-based Imperial Metals’ Mount Polley tailings pond collapsed in early August, sending millions of cubic metres of slurry and debris into Hazeltine Creek. Inspectors from the ministry of energy and mines were called to investigate the collapse, and the Cariboo Regional District declared a state of emergency. A water ban, prohibiting consumption and recreational use, was also implemented for Quesnel Lake, Polley Lake, Hazeltine Creek, and Cariboo Creek, and was later expanded to include the entire Quesnel and Cariboo River systems up to the salmon-rich Fraser River. Residents have called the breach an environmental disaster and took pictures of debris and dead fish floating in the affected waterways. But Imperial Metals CEO Brian Kynoch insisted the tailings water was “very close to drinking quality,” adding that he would drink it himself.

– K.R.

Mount Polley tailings pond breach stats

Next: Tsilhqot’in ruling rattles resource industry
Mining industry uncertain in the wake of landmark aboriginal title decision in B.C.

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