DeBeers. Panning for Gold.

9 12 2010

I am struggling to keep up with my one-entry-a-week commitment. Last week, news reports of DeBeers and AngloGold Ashanti joint venture to search for gold off South Africa’s West Coast particularly caught my attention. Here’s what, the already one year old joint venture is about.

De Beers and AngloGold Ashanti committed themselves to prospecting and exploring one of Seafield Resource’s projects in New Zealand using the technology developed by DeBeers Marine to search for diamonds in water of a depth of 20 m to 200m off the Namibian coast. The results of the prospecting campaign were considered disappointing by Seafield.

Following this setback, De Beers and AngloGold Ashanti have taken their JV to the South African West Coast where gold is thought to have washed into the sea from rivers (millions of years ago) and are covered in sediment. Drilling is set to start in Q1 of 2011 and will aim at determining the economic viability of the deposit.

Seafield Resources, part of E Oppenheimer & Son International, has been exploring the coast of South Island in New Zealand through other projects. This week Seafield Resources was brought up in Trading Markets’ “Small Cap Stocks on the Move” following a recent 148% gain.

More on Marine Mining

Marine mining is fairly new, having taken off in the 60s and 70s. Current operations are mostly focused on tin dredging, gemstones, sands and gravels. The costs of marine mining have been prohibitive for many years, but marine mining to be becoming more attractive.

Other firms such as Nautilus Minerals (TSE:NUS) and Neptune Minerals (LON:NPM) are focusing their marine operations in the “other” ring of fire, a region known for its seafloor earthquakes and volcanic eruptions in Oceania.

Marine deposits may be easier and more economical to mine than land-deposits as they are exposed on the sea floor and do not require the removal of tons of overburden. They also require less staff (DeBeers’ ships have about 40 employees onboard) and present fewer risks to workers. These operations are also mobile and can be taken from a deposit to another.

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The Pentagon promoting mining in Afghanistan. FAIL

16 06 2010

The push to develop a mining industry on the Afghan territory is not new. At the previous PDAC convention in March of this year, presentations were made to promote Afghanistan as a mining venue. A recent New York Times article however brought up a bit of superlative to the endeavour as it reported US discoveries of nearly $1 trillion in untapped mineral deposits in Afghanistan. This politically opportunistic release looks like a sexy centerfold. Afghanistan could be the “Saudi Arabia of Lithium” according to the Pentagon. Facts have been heavily airbrushed.

Actual mineral exploration does not seem to have contributed significantly to the $1-trillion figure. My suspicion towards perfectly round numbers has been corroborated by  The British Geologist Survey who reported that:  “No systematic modern exploration has been carried out since the withdrawal of Soviet forces and many of the known localities warrant further investigation and exploration based on modern mineral deposit models and techniques.”

The New York Time wrote “The potential is so great that officials and executives in the industry believe it could attract heavy investment even before mines are profitable”. With such a statement, one wonders if those “discoveries” are not mines that closed down because of the war. I would also have thought investment preceded profits in mining… but that’s just me.

On June 25th, Afghanistan officials are supposed to stop by London to present the deposits. Super majors are supposed to be in attendance. They apparently are very interested in the deposits by that may be yet another superlative.





Flash News on Rare Earths

22 03 2010

Rare Earths are becoming a politically salient issue in the U.S. House Representative Mike Coffman introduced the RESTART Act, a legislation aimed at developing a domestic supply of rare earths. The Act contemplates measures to increase domestic exploration, secure new overseas supplies (supply chain development),reduce the amount of rare earths needed through research, increase recycling of REE materials and even stockpiling. In light of China’s resource hoarding of rare earths elements, the evaluation of international trade practice is also considered.

The article on this topic can be found on Mineweb. For the courageous, more details on the RESTART Act can be found on the US Congress website.

Knowledge Infrastructure Lacking in the U.S. Representatives of academia met by the House Committee on Science and Technology in the context of the RESTART Act have emphasized the need for the US to re-build its knowledge infrastructure in the area of rare earths. Industrial capacities in the field have declined with the emergence of China has the only remaining market player in the rare earths market in the 1990s. Scientists present have called for the establishment of National Research Center on Rare Earths and Energy and the National Research Center for Magnetic Cooling. Scientists have indicated that China and even Mongolia had such research centers for rare earths.

New Rare Earths Plays Outside of China

Just as we expect Chinese domestic demand to outpace supply by 2012, massive projects are coming on stream. Here’s a few who have made headlines lately.

Arafura Resources’ (ASX:ARU) Nolan’s phosphate uranium project is expected to be in production by 2013. Feasibility and project optimisation are still being assessed. Arafura has a resource from the measured to inferred categories of 30.3 million tonnes that contains 850,000 tonnes of rare earths (REO). The project would include a processing plant.

U.S. Rare Earths has a USGS validated deposit of rare earths in Diamond Creek, Idaho and in the Lehmi Pass in Montana. These are significant deposits of heavy rare earths. Edward Cowle, President and CEO of the company lately stated that; “according to the USGS report, the company’s ore bodies contain enough accessible and minable lanthanum, neodymium, dysprosium, terbium, and europium to make the United States independent from reliance on foreign suppliers.

Another deposit has the potential of becoming one of the largest rare earth mines. Greenland Minerals and Energy’s (ASX:GGG) Kvanefjeld project could produce rare-earth concentrate and uranium oxide for roughly 20 years. The deposit’s is JORC-Compliant and contains 4,79 million tons of rare earths oxides. Production would be commencing in 2015 according to its pre-feasibility study. In the meantime the work programme for this project focuses on social and environmental impact studies, beneficiation studies, improvement of recoveries and improving mine schedule. Via Mining Weekly





The Ring of Fire

12 01 2010

With a title such as this one, I hope this entry will appeal to amateurs of all things western. There is this great chromite rush taking place in the northern Ontario, Canada, as various juniors are racing to provide a National Inventory Compliant 43-101 resource estimate (see previous entry). Brian Sylvester wrote an article on this deposit known as the Ring of Fire, and the rivalries in between the various firms currently drilling in the area in the September issue of Mining Markets. A lot has happened since September and I intend to follow up on Brian Sylvester’s article.

A Bit of Background

Chromite is usually processed into ferrochrome which is then used as strenghtener in stainless steel. 90 per cent of chromite mined in used in such production. Current supply of chromite originates mainly from South Africa (38 per cent of global production), Kazakhstan (18 per cent) and India (18 per cent). With the exception of South Africa most producing countries are supplying nearby regional producers. There is currently no North American supplier of chromite. Commercial development of the Ring of Fire would involve substituting South African supply by the Canadian one.

Chromite is essentially an old boys club and it could prove difficult for new players to join especially if it involves taking another firm’s cosy spot. Unless one has really large tonnage of very good grade and quality chromium this is unlikely to happen. Guys in the Ring seem to be confident in their resource and assume that strategic positioning through the International Chromite Development Association and a lot of effort into branding could be enough to allow them a share of the North America market and perhaps a modest breakthrough in China. A strategic alliance with Cliffs Natural Resources, an important supplier of iron ore and metallurgical coal to North American steel mills is in order.

Companies

I am unsure of how closely the ring of fire follows the narrative of a typical gold rush but it surely fits the general storyline of the “capitalist economic activity in which the participants aspire to race each other in common pursuit of a new and apparently highly lucrative markets”. A general buoyant feeling of a ‘free for all’ is also mandatory and with recent events the ring of fire’s chromite rush can certainly score a few style points. Below is an update on companies presented in Mining Markets in case they would turn out, after all, to be great stock picks.

Noront Resources (Not-T): First Past the Post

Noront is so far the best financed companies working on the ring and is “leading the charge” if you allow me to borrow their PR lines. The company was the first to present on December 9th, 2009, an initial resource estimate (NI 43-101 compliant) for a portion of its Balckbird chromite deposit. Measured and indicated resource of 8.9 million tonnes as well as a further inferred resource of 6 million tonnes. Drill results on Noront’s property have also indicated the presence of nickel, copper and platinum group metals on the property.

In December, Noront made an unsolicited offer to acquire rival Freewest Resources, whose resource is estimated to be greater in terms of grade and tonnage, by attempting to exchange each 7 Freewest share held for 2 of Noront’s share. Noront’s intentions of acquiring Freewest have sparked a fairly public exchange of love and affection between the two companies. Eventually Freewest rejected the offer in favour of Cliffs Natural Resources (already owning a 12 per cent stake in Freewest at the time of the deal.

Freewest Resources (FWR-V)

As for Freewest Resources, it owns three properties in the ring of fire, Black Thor, Black Label (in joint venture with Noront) and Big Daddy (in joint venture with KWG and Spider Resources). These three deposits are expected to have the greatest tonnage in the ring of fire. The company is rumoured to have the best intersection it the belt at this point.

Black Thor is significantly advanced in the process of releasing an estimate too and is the actual runner up. Yet on November 17th, the company provided updates on the Black Thor mineralization as a potential mineral deposit which falls short of NI 43-101 compliance but tipped on the possibility of the deposit containing from 50 to 60 million tonnes of chromite. Platinum group metals were also found as well as a possibility of diamond occurrence. At this point, the economic viability of this deposit is still intangible as the tonnage and grade a still uncertain.

KWG Resources (KWG-V) & Spider Resource (SPQ-V)

As mentioned earlier, the two firms mentioned above are involved in a joint venture with Freewest Resources in the exploration of the Big Daddy deposit. They have recently provided further drilling results on this property which hinted at the presence of nickel.

KWG focuses on two property groups. One is a chromite, nickel and base metal group and the other one is a diamond group held in a wholly owned subsidiary, Debuts Diamonds Inc. (DDI). It however involved in the development of a North American chromite market in ways that go beyond mining. Cliffs Natural Resources, who owns a 20% stake in KWG, has warranted KWG to initiate the development of a railway that would link mining operations to a ferro-chrome refinery. KWG has created Canada Chrome Corporation as a wholly-owned subsidiary to be the financing and development arm. To that end KWG set up the Canada Chrome Corporation. KWG also owns a 1% net smelter royalty (NSR) carried interest in three other newly-discovered chromite deposits.





Rare Earth Plays outside China.

23 12 2009

I recently tipped you on the importance that rare earths elements (REE) would have in the coming years. I had then promised that I would follow up with a list of the up and comers of rare earths outside of China. I recently attended an investment salon focused on mining projects and was able to gather information on rare earth plays in Canada and elsewhere. I have selected a few companies that came across as interesting stock picks. All of these companies are definitely juniors are varying stages of resource development.

Avalon Rare Metals

Avalon Rare Metals is one of the most prominent new players in the field of rare earths. The company is the only TSX-listed company entirely focused on rare earths. 4 out of 5 of the companies projects currently at an advanced development stage. Its flagship property, the Nechalacho REE Deposit, located in Canada’s Northwest Territories, “is a very large, very rich deposit”. What makes this deposit more appealing than the companies other properties is the ratio of heavy rare earths of 25.4%. Heavy rare earths are generally more valuable as they are much less readily available. REEs found at this property include yttrium, tantalum, niobium, gallium and zirconium.

Commerce Resource Corp.

Another company called Commerce Resource Corp. also came across as especially appealing. This company focuses on tantalum and niobium. Tantalum is usually in demand for high-tech goods used in aerospace, life science industries while niobium is used in the composition of super alloys for steel structures. With the inclusion of 2 per cent niobium to steel, the PSI (pounds per square inch) capacity can be increased from 40,000 for standard steel to 120,000.

The company “hopes to become a large and profitable low-cost producer of niobium and tantalum for the global market”. At present the company is still essentially focused on the exploration and development of the Blue River project in BC and the Eldor Carbonatite project in Québec. The BC property consists of three deposits one of which, Upper Fir, could be brought into commercial production of tantalum and niobium eventually. This Eldor Carbonative project is in earlier development stage and focuses essentially on exploration at the moment.

MDN Inc.

MDN Inc is a company focused on the exploration and development of gold and rare earths. It draws cash flow from its 30 per cent stake in the exploitation of the Tulawaka gold mine with Barrick Gold while undertaking gold exploration in Québec and Tanzania. With regards to rare earths, the company has acquired a 28,75% stake in MCI in which IAMGold also holds a 37,5% stake). MCI which hold the Anita project, a niobium and tantalum play located in Québec’s Lac-St-Jean region. MDN could take a stake of up to 75 per cent of MCI in the coming three years.

Talison Tantalum

I know that I have been presenting you fairly junior companies. However, if you are looking for a company that has production up and running, Talison Tantalum can be of interest. This company was born from a split of Talison Minerals into two separate companies, one that would focus on lithium and the other on tantalum (no kidding eh?!). Anyhow, this company is producing about a third of the world’s tantalum supply and could produce up to 50 per cent of the global demand. The company holds the two largest tantalum mines as well as processing facilities. The company is already positioned as a dependable long-term source of tantalum worldwide. Overall production capacity is in excess of 2.3 million pounds of tantalum per annum.

It seems that even the most juniors of these companies have reasonable chance of succeeding. In light of the high economic priority that some governments have made of securing supply, pricing has been of little relevance to many users of REEs. As part of a ‘growth blueprint’ the Japanese government, taking note from the Chinese’s handbook on snatching resources, was planning on a state-backed resource acquisition for rare technology metals up for sales around the world. I’d love to see those two countries bidding on the same company





The Geopolitics of Rare Earths

9 12 2009

Rare earths elements are used in electronics, in renewable energy infrastructure as well as high-tech military materials. In a way, rare earths are the pillars of next generation technologies. The demand for these metals is expected to grow at such a pace in coming years that obtaining a secure supply could become critical.

Rare earths are a tiny industry. Global demand is of about 125,000 tonnes a year. In the last 10 years, China which currently produces 95 per cent of rare earths increased production from 40,000 to about 125,000 tonne per year. Demand is predicted to rise to 200,000 tonnes per year in 2014.

With China setting up policies to restrict the exports of rare earths to benefit from the comparative advantage that they provide for its domestic industries; importers, such as Japan are worried that the supply available will not be sufficient to meet their needs. The U.S. Geological Survey has however iterated that the long-term outlook for rare earth elements “appears to be for an increasingly competitive and diverse group of rare-earth suppliers”. If all the rare earths projects currently envisioned were coming on steam shortage scenarios could be avoided.

As a result of expected demand many new source of supplies are being considered (I plan on briefing you on new plays in an upcoming entry). In addition, countries such as the United States, Japan, Australia and South Africa that used to have a production capacity until operations became uneconomic as a result of competition from China could be resuming their operations.





Large low grade gold deposit in low risk jurisdiction. Who wants a piece ?

14 11 2009

I hope that the previous post at least made you curious to know what the future was holding for the host community of McWatters’ Sigma gold mine. If it is not the case, just pretend and read through. In 2004, the McWatters’ property in Abitibi Témiscamingue was purchased by Osisko who plans to begin to extract from the low-grade gold deposit in 2011. Osisko’s has been very successful so far with the early stages of the project’s development. Everything seems to go as planned, recent exploration carried at the periphery of the deposit has been rewarding and financing is pouring in. Has Osisko really hit a home run ? and has it been that easy ?

Osisko: simply too good?

With a name like that, it could as well be a popsicle flavour.But it’s not. In a nutshell the company is planning on exploiting a huge low-grade gold deposit (survey results vary between 8.60 g/t and 1,55 g/t) located in Malartic in Abitibi Témiscamingue. The company purchased the rights in 2004 following the bankruptcy of McWatters of which you have heard of the debacle in Thursday’s entry. This deposit has the potential of becoming Canada’s second largest gold mine covering 230 square kilometers of land. The open-pit mine is expected to produce 591 000 ounces of gold per year for a 10 year-period. At present resources are estimated at 6.28 million ounces in proven and probable reserves (also in the computation are 1,4 million ounces in indicated resources and 720 000 ounces in presumed resources). The resource is expanding as the company pursues its drilling program. In its feasibility study Osisko reported that it exploitation costs were of US $319 per ounce which is claimed to be low on the cost curve. Capital costs are estimated to be of US $146 per ounce.

Osisko is sufficiently well-financed to go ahead with the Canadian Malartic project as well as explore the feasibility of other plays. The company has been through a successful streak of financing moves in the past year and on September 24th, the company announced that the funding needs for the Canadian Malartic project had been met following an $150 million agreement with the financing arm of Canada Pension Plan, the CCPIB. This deal allowed the company to fulfill the terms of a previous financing with the Société Générale de financement du Québec with whom the company had a CA$75 million agreement that was condition to the company raising CA$225 from other sources. On September 1, 2009, the company announced that a right issue had allowed it to raise CA$149,5 million. In February this year, Osisko raised C$403-million in a bought-deal offering, making it one of the first junior miners to raise equity finance after markets froze up in the fourth quarter of 2008. Big miners are also acquiring stakes in Osisko. In mid-August Goldcorp took a 13 per cent equity stake in Osisko and further acquired shares on September 1st. Rumors that Agnico-Eagle could be interested in buying Osisko have also become widespread as on June 25, the trading volume in Osisko share became unusually high. Kinross is also rumoured to be interested in Osisko. It has been reported in the media that a bidding war for Osisko would not be a surprise.

It’s no free ride

Despite its latest successes, Osisko has had to face quite significant challenges so far.

When purchasing the property in 2004, Osisko inherited the legacy of McWatters in the form of six mine waste disposal sites totalling an area of 500 hectares. The cost of rehabilitating that area is estimated to CA$25 millions and will be shared equally between the Ministère de Ressources Naturelles et de la Faune and Osisko. The company is finding some benefit to this agreement as the company will be able to dispose conveniently of its processing waste as part of the rehabilitation effort. Processing waste of Osisko will generate an acid-free tailings and will not be leachable. To receive authorization for the development of the Canadian Malartic project, the Bureau d’audiences publiques sur l’environnement recommended that financial guarantees be required to ensure that the project can be undertaken in a manner consistent with the sustainable development objectives of the province. To that end, the company has made available 100 per cent of the funds necessary to rehabilitate the Canadian Malartic mine at the end of its useful life which is above the 70 per cent threshold usually required (but that sometimes does not get paid at all).

Other technical hurdles to the project included the relocation of 205 homes, a daycare center, and a church which happened to be on the land that the company is projecting to mine on. A school was also demolished in the process and on June 15th, the city organized a celebration for the event. This sounds a bit unusual but since Malartic as a population of 3500 inhabitants, the bulk of them probably went to the same school. Ok, you digress Pepito.

In sum, details like a legacy of environmental liability and housing getting in the way seem not to have been huge issues. However lately, a few news stories on Osisko broke in the news and as much as the company can come across the white knight bringing jobs and environmental relief to yet another remote region of Canada, vibrant resistance from key stakeholders has emerged. The Anishinabeg Nation (Algonquins in short) has expressed its intention to block the project as they have not been consulted. They consider the Osisko site to be on their ancestral lands and are contesting the project on the grounds that previous rulings have established a constitutional obligation for governments to consult and to accomodate First Nations.

The MP representing the riding in which Osisko operates has been blamed by a member of the opposition’s far-left party, Québec Solidaire, of being too close for comfort with the company. Additionally the Minister in charge of Aboriginal Affairs, Pierre Corbeil, is also quite close to mining interests as soon after his electoral defeat of 2007 he became a member of the board of directors of Canadian Royalties, a mineral exploration company active in Nunavik. While this may not be saying anything about Osisko’s work ethics, I can share from my very young career in the public service that it is not rare to see MPs getting involved to attract big investment projects.

Canadian Malartic is very likely to be the largest private-investment project in Québec this year and its position as the biggest gold inventory in a single, low-risk spot is making it a quite attractive play for investors. It is worth keeping an eye on developments.