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ice road pioneer john Zigarlick remembered
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A publicAtion of
Focused on Developing the Harper Creek VMS Copper-Gold-Silver Deposit in British Columbia
Total Proven and Probable Reserve of 704.4Mt @ 0.262% Cu (0.14% Cu cut-o ), 0.029g/t Au and 1.14g/t Ag Detailed Feasibility Study Results March 2012 Estimated production over life-of-mine: 3.63 billion lbs Cu, 372,000 oz Au and 14M oz Ag contained in concentrate. Estimated pre-tax NPV8 $749.7 million, IRR 20.2%; based on metal prices of US$2.50/lb Cu, US$1,250/oz Au and US$20/oz Ag, and 0.86:1 US/CDN exchange rate Mine life 28 years at a milling rate of 70,000 tonnes/day Stripping ratio 0.81:1 life-of-mine Capital costs are estimated at C$838.95 million in Q4 2011 dollars, including contingency Adjacent rail, road, power and town infrastructure Project is 100% owned by Yellowhead Mining* Senior management has extensive international experience with large scale open pit copper projects Excellent potential to signicantly expand the resource
* Subject to 3% NSR royalty capped at $2,500k, adjusted for ination, plus a further 2.5% NSR royalty on approximately 1.5 million tonnes of ore which is expected to be mined beginning in year 16 of the mine plan.
TSX-V: YMI
www.yellowheadmining.com
M M
Kaminak Gold president and CEO Rob Carpenter.
Credit: Kaminak Gold
contents
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Faces
John Zigarlicks northern legacy The ice road pioneers death comes as the Tibbitt to Contwoyto winter road turns 30 ...........................................Page 6 By Alisha Hiyate
John Zigarlick and Mervyn Hempenstall of Nuna Logistics.
Credit: Nuna Logistics
Microscope
Arctic allure Despite the geologic promise, northern gold mines face a host of challenges .........................................................Page 9 By Virginia Heffernan
Area Play
Nunavut: the Norths shining star ...........................................Page 16 By Alisha Hiyate and Trish Saywell Yukon gold contenders still in the game .................................Page 20 By Ian Bickis
Commodity
Rewriting the book on graphite The graphite story is more complex than it seems ..................Page 22 By Alisha Hiyate
Insight
Why class actions against miners are on the rise What investors need to know about the new legal reality for Canadas miners ............................................Page 27 By Ian Bickis On the cover: The Tibbitt to Contwoyto winter road.
Credit: Diavik Diamond Mines Inc.
Basic Geology Ore Deposits High-Tech Prospecting Sampling & Drilling Mining Methods Processing Ore Mining & the Environment The Mining Team The Business of Mining Feasibility: Does it Pay? Metal Markets Making Sense of the Numbers Investing in Mining Glossary of Mining Terms
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to capitalize on all the coming opportunities it sees in the North, from natural resources to international law and wrangling over who owns the Arctic, to tourism. The area is so prospective, the firm has moved up its schedule to have the group operational, from the end of 2012 to mid-year. We decided to use the ice road image on the cover in memory of John Zigarlick, a northern visionary who passed away in December at the age of 74. Zigarlick was most responsible for the inception of the Tibbitt to Contwoyto winter road 30 years ago and also cofounded Nuna Logistics, a majority Inuitowned contractor specializing in northern operations. Zigarlicks death hit those who knew him hard. Some of the people he worked with during his 35-year career in the mining business shared their stories with me (see Page 6), including Charlie Lyall. The former president of Inuit-owned Kitikmeot Corp., a partner in Nuna Logistics, says its difficult to overstate his friends impact on the North. His knowledge of northern construction and northern mining and development is huge his legacy is huge, Lyall says. Theres a lot of stuff thats happening today, its
AlishA hiyAte
ahiyate@miningmarkets.ca
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faces
John Zigarlicks
Ice road pioneers death comes as the Tibbitt to
ts fitting that when Erik Madsen last saw Nuna Logistics cofounder and CEO John Zigarlick, two weeks before his death, Zigarlick was doing what he loved best planning for a future ice road. He was talking about next time I see you, Im going to get some maps because I want to show you where we might best build an ice road going into your Baffin Island project, says Madsen, Baffinland Iron Mines vice-president of sustainable development, health, safety and the environment. We were going to get together in the New Year and do that, Madsen continues, recalling the conversation about Baffinlands Mary River iron project over dinner in Yellowknife late last year. Then I got a call during Christmas, it was quite the shock. Zigarlick died in his home in Edmonton of natural causes on Dec. 16, 2011, at the age of 74. But he leaves an indelible mark on Canadas Far North an area he loved and was passionate about developing. Zigarlick was the pioneer who, as president and CEO of Echo Bay Mines in the 1980s, started the worlds longest winter road, now known as the Tibbitt to Contwoyto winter road joint venture, to supply the Lupin gold mine, in Nunavut. As head of Echo Bay in the 1980s, Zigarlick demonstrated that in times of high commodities prices, remote Arctic mines could be highly profitable with a bit of planning, determination, and elbow grease. A details man and the ultimate big picture thinker, Zigarlick crafted a plan to develop the highgrade Lupin gold mine, 400 km north of Yellowknife, N.W.T., that tested the limits of what was possible in the North. And a decade later, Zigarlick was one of the first to partner with Inuit organizations ahead of the creation of Nunavut as a cofounder of Nuna Logistics, a majority Inuit-owned operating company that has built and maintained the Tibbitt to Contwoyto ice road since 1997. Madsen, a former director of the Tibbitt to Contwoyto winter road joint venture worked closely with Zigarlick for 15 years and made the 9-10 hour trip up or down the highway many times
By AlishA hiyAte
with a man he calls his mentor and a second father. While Nuna has an experienced team that manages the yearly ice road, which is built 80% on frozen water, and carries up to 11,000 truck loads during its eight- to ten-week operating season, Madsen says it remained Zigarlicks pet project. John would still call two, three times a day because hed have a new idea, Madsen says. He was always thinking ahead about how to make things better. That instinct is what made Zigarlick so successful in Canadas often unforgiving Far North.
northern legacy
Contwoyto ice road turns 30
who joined Echo Bay in 1978. John had to convince (IU) to invest in a gold mine up in the High Arctic of Canada, where there was really no precedent set for that type of operation, says McLellan, now a purchasing manager for Kinross Gold (K-T, KGC-N), which bought Echo Bay in 2002. Zigarlicks ability to sell IU on the idea of investing hundreds of millions of dollars into a fly-in northern operation impressed the young McLellan. That was the start with me for Johns leadership skills and entrepreneurial insights, he says. John saw things that other people didnt. Building infrastructure in Arctic conditions was tough, says Walter Sopher, a northerner and experienced contractor who was hired initially to build the airstrip at the operation. Sopher remembers travelling across a frozen lake on a skidoo during his first trip to the site in March 1980, to scout out a potential gravel source at -40C. I thought: man oh man, Holy Jesus, what are we getting into, Sopher says. It was cold and miserable. Gold and silver prices spiked at US$850 per oz. and US$50 per oz., respectively, in 1980, and forward sales of silver in the late 1970s brought $29 million into Echo Bays coffers. Supported by the precious metals boom, Zigarlick decided to fly in all the construction materials to Lupin, 400 km north of Yellowknife a feat that had never been tried at an Arctic operation. The company bought C130 Hercules and Convair 640 aircraft, which worked round the clock, seven days a week for more than a year to ship in a total of 32,000 tonnes of cargo. Despite the large scale, complex logistics and high costs associated with such a massive undertaking, the mine was completed on time and on budget in 1982. That was also the year Lupin got its first winter road. Although ice roads were not a new concept, no one had ever built one as long as the nearly 600-km-long Lupin ice road, which required a considerable financial investment for use over just two to three months. In those days, it was about $5 million a year to open and operate the winter road and that was big money back in the 80s, McLellan notes. But, again, Zigarlick managed to get IU and Echo Bay shareholders the company had gone public to help fund construction of Lupin on board and saved millions of dollars a year on transportaJohn Zigarlick with Mervyn Hempenstall tion costs. Credit: Nuna Logistics The road was initially built by Echo Bay and Robinson Trucking, with other contractors having a go before Nuna took it over. While Lupin went on care and maintenance in the late 1990s due to low gold prices, the ice road had already become a central support for the first diamond operations in the Northwest Territories, Ekati and Diavik.
Nuna Logistics
With acquisitions of properties in the United States and elsewhere in the 1980s and 90s, Echo Bay transformed from a small silver miner worth $7 million in 1979 to a company with several mines and a market capitalization of $2 billion in 1995. But in 1993, Zigarlick retired from Echo Bay only to turn around and start two new ventures, Nuna Logistics and Pilot Shipping. John wasnt somebody that was going to sit retired, Mervyn Hempenstall, president and CEO of Nuna Logistics, recalls with a laugh. He liked to work, so that was as much a hobby as it was a means to an end, he says adding that at that stage, Zigarlick didnt need the money. Again, Zigarlicks focus was on the North. The idea behind Nuna was to develop a majority Inuit-owned company with expertise in northern mining and development. Zigarlick approached Fred Hunt, CEO of Nunasi Corp. and Charlie Lyall, at the time the president of Kitikmeot Corp., to join forces. There was huge potential (in the north), says Lyall, a former RCMP special constable who had worked in Echo Bays human resources department and in the companys hangar in Yellowknife in the 1980s. The land claim had just been settled and we knew about the potential of mineral development in the region. Moreover, the Nunavut Land Claims Agreement, which formed the basis for creating Nunavut, called for Inuitowned businesses to get a good shot at some of the expected development contracts, he adds. I considered John to be the expert on northern development and mine development so I couldnt think of a better partner. For Zigarlick, who from the start had always insisted that Inuit have a chance at the jobs created in their own territory,
MINING MARKETS JuNE 2012
the partnership was a natural one. John had a great deal of respect for Inuit, Lyall says. Hed gone on a couple of snowmobile trips with friends and he couldnt believe how they could navigate with seemingly no navigational aid. He was always very impressed and awed by that. Inuit-owned companies Kitikmeot Corp. and Nunasi Corp. each own 25.5% of Nuna, with 49% owned by Nuna Management Group. The company now employs more than 600 people and this year won the Prospectors and Developers Association of Canadas Skookum Jim award for aboriginal achievement. Nunas services and northern expertise have been integral to many northern operations. It was involved with the Diavik diamond mine from the start, setting up the first camp there. And since 1997, the company has been handling the building and operation of the 568-km-long Tibbitt to Contwoyto ice road joint venture between the operators of the Ekati, Diavik and Snap Lake diamond mines.
an amateur photographer who would often stop to snap a photo of a wolf on the road or a particularly striking sunset. And top of mind for him was always ensuring the safety of the operation for the crew, many of whom he knew well because they returned year after year. The ice road has grown from handling 500-600 truck loads a year when it was serving Lupin alone to a record 11,000 in 2007, serving the diamond mines at their peak. That evolution has required a team effort, including the work of many consultants over the years, such as EBA Engineering, whose planning and engineering work has fine tuned the operation. The road is a dramatically different one today than it was back when it was just servicing Lupin, Hempenstall says, explaining that the engineering, technical support, and safety of the road have all been improved dramatically. Of course, a lot of those things had to happen for the road to be able to handle the volume. Last February, Zigarlick completed a book about the ice road called On Good Ice with journalist Bill Braden. About 2,500 hardcover copies were printed, and an updated softcover version is under way. The road had its 30-year anniversary this winter, and this season, it was dedicated to Zigarlick, a father of three, grandfather of six, and great-grandfather of five. Zigarlick will be remembered not just for his innovative thinking and ability to execute big ideas, but also for his way with people and talent for getting the best from employees. At Lupin, which produced roughly 3.3 million oz. of gold over two decades, Zigarlick always had his ear to the ground. When he would go to the mine site at lunch, he wouldnt sit with the management, hed go sit with the miners at their table, McLellan says, adding Zigarlick always joked that management would only told him what he wanted to hear. He wanted to hear it from the guys who were living there every day, working there it was their job, it was their life. Zigarlick was also known for his generosity, with friends, family, employees and strangers alike. He volunteered in the kitchen of an Edmonton community services centre for the homeless for 25 years, and also donated to many causes. When a tornado struck Edmonton in 1987 and destroyed the trailer homes of some Echo Bay employees, Zigarlick helped them get back on their feet. While he loved to work, he was also very health conscious and fit, and enjoyed fishing, boating and golf. After he retired from Echo Bay, he bought a 100-ft. yacht, and appropriately named it the Reward. While Zigarlick was generous with his expansive knowledge of northern mining and development, and mentored many of the people now carrying out the same work, his colleagues and friends say Zigarlick was one of a kind. Theres nobody in the north country today that will ever replace John Zigarlick and I do not see anybody in the future, Sopher says. He made things happen. MM
Despite the geologic promise, northern gold mines face a host of challenges
microscope
Ever since the Klondike gold rush at the close of the 19th century, Canadians have become extraordinarily skilled at overcoming the challenges of extracting gold from the permafrost at a profit. Now robust commodity prices are triggering a fresh stampede to the Arctic as mineral and oil and gas producers reach farther afield in their search for undeveloped deposits to meet demand. Mineral exploration spending in Canadas three northern territories, for example, has soared to more than $500 million from less than $200 million a decade ago, according
to the federal Department of Aboriginal Affairs and Northern Development. Activity is especially high in the Yukon as juniors try to replicate the success at the multi-million oz. White Gold deposit, discovered by prospector Shawn Ryan in 2008 and currently being developed by Kinross Gold (K-T, KGC-N). In Western Europe, exploration spending is expected to increase 10-15% to US$590 million this year, according to Swedens Raw Materials Group (RMG). Most of that money will flow to the northern lands of Sweden, Finland, Norway and Greenland.
By Virginia Heffernan
Special to Mining MarketS
AEM-N) are collectively writing off more than $2 billion in investments in Nunavut at a time gold is trading near record highs comes as both a surprise and a disappointment for northerners. Hope Bay was the big shocker because it had such an immediate negative consequence, says Tom Hoefer, executive director of the Northwest Territories & Nunavut Chamber of Mines. Around 200 people are losing their jobs, so there is a big hit on small communities. Newmont acquired Hope Bay four years ago when it purchased Miramar Mining YOUR TECHNICAL SERVICES PARTNER for $1.5 billion. The project is one of the largest undeveloped gold projects in North America, extending 1,000 sq. km along a prospective greenstone belt. But despite drilling more than 230,000 ALS is completing an aggressive metres along the belt and spending milcapacity expansion plan across lions on exploration and development, North America to provide industry including construction of a frozen core tailings dam, Newmont was unable to bring leading turnaround time for the any of the belts deposits up to the reserve 2012 exploration season. category, says Chris Hanks, vice-president For further information on our Capacity Expansion Plan, please contact Client Services: of environmental affairs for Hope Bay Email: ClientServicesWCAN@alsglobal.com | Phone: +1 604 984 0221 Mining, a Newmont subsidiary. After having additional problems securRIGHT SOLUTIONS RIGHT PARTNER www.alsglobal.com ing land tenure, the company decided to Overall, investment in the Arctic could reach US$100 billion within the next decade predicts a new report called Arctic Opening: Opportunity and Risk in the High North published by Lloyds, the international insurance specialist. So the news that gold producers Newmont Mining (NMC-T, NEM-N) and Agnico-Eagle Mines (AEM-T,
write down the $1.6-billion investment before it reached the prefeasibility stage and is now preparing the site for care and maintenance. All options are open. We are holding the project for now but would be open to joint ventures or offers, Hanks says. The other Nunavut casualty, Agnicos Meadowbank mine, was like Hope Bay the target of a strategic takeover. In 2007, Agnico bought Meadowbanks owner, Cumberland Resources, for $600 million in shares. Eberhard Scherkus, Agnicos president and CEO at the time, predicted that a new era for the Arctic was beginning. But five years later, in tandem with Newmonts Hope Bay announcement, Agnico wrote down $644 million on Meadowbank, citing persistently high operating costs. Ore dilution, which resulted in lower than expected grades to the mill, and the cost of transportation, logistics, labour and maintenance continued to be much higher than expected, said current president and CEO Sean Boyd in a letter to shareholders in March. As a result, operating costs for Meadowbank soared to more than US$1,000 per oz. One of the often hidden yet significant costs is the high rate of absenteeism and turnover at the mine, Agnicos Nunavut manager Denis Gourde told delegates at the Nunavut Mining Symposium in Iqaluit in April. Of the 276 Inuit workers hired in 2011, 229 have left and absenteeism is running at 5.6%. The higher costs affect the grade of the ore that can be mined economically, so Agnico has cut the remaining ore reserves at Meadowbank from 3.5 to 2.2 million oz. and the life of the mine by three years. Production in 2012 is expected to be roughly equivalent to that of 2011, levelling out at 280,000 oz. at a cost of US$1,040 per oz. Negotiating a realistic Inuit impact and benefit agreement and getting access to land for drilling from Nunavut Tunngavik Inc., which controls the surface rights near the mine, has also been a challenge, Gourde said.
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the operating environment to see what we can do to help address costs and other challenges that we face, such as regulatory complexities, Hoefer says. An initiative launched by the federal government is pulling apart the existing legislation in both the Northwest Territories, where exploration spending is falling because of the convoluted regulatory regime, and Nunavut. The hope is that the resulting changes and amendments will streamline the regulatory process and encourage more mining investment. Meanwhile, Agnico remains optimistic that its Meliadine project farther south will succeed because it is a larger deposit than Meadowbank with better grades and a more favourable location just 25 km from the community of Rankin Inlet. The community has a long mining tradition that dates back to the 1950s, having been founded as a mining town to support the Rankin North nickel mine. Agnico acquired Meliadine from Comaplex Minerals in 2010 and expects to make a production decision next year. Agnicos other northern mine, the Kittila gold mine in northern Finland, is also humming along. As Europes largest gold mine, Kittila produced 143,560 oz. at a total cash cost of US$739 per oz. in 2011 and Agnico is considering a second expansion underground. Another company making strong inroads in the north is Elgin Mining (ELG-T), a Vancouver-based junior that bought the past-producing Lupin mine and Ulu gold project in Nunavut last year and recently merged with Gold-Ore Resources, owner of the Bjorkdal gold mine in Sweden. Elgin plans use cash flow from the Bjorkdal mine (about $12 million in 2011) to fund exploration and development activities, including a rapid ramp-up to production at Lupin. Lupin is fully permitted, boasts existing mine and mill facilities and has access to the Tibbitt to Contwoyto winter road leading to the Northwest Territories diamond mines from Yellowknife.
winter road from Rankin Inlet) are blessed with relatively good access, one of the biggest hurdles to mining north of 60 remains a lack of infrastructure. Generally, if a company wants to build a mine in the Arctic, it has to build the road, railways, airstrips and power lines leading to it too. Mining commodities such as gold and diamonds are at an advantage because they dont need to haul bulk products. But they still have to transport personnel and supplies. The same project in southern Canada would have much better economics, points out Grant Pearson, vice-president of business development for Nuna Logistics, which builds and maintains much of the infrastructure in Canadas Far North, including the 108-km all-weather road leading from the community of Baker Lake to Meadowbank. But when you have to fly people in and out there is a huge transportation cost and there is the cost of getting fuel and supplies into the site, and your product out. Those are not so much mining challenges but logistics challenges. Winter roads can be unreliable. In 2006, Jericho looked like a promising new diamond mine in Nunavut until unseasonably warm weather made the winter road to the site unusable before all of the fuel and explosives needed to run the mine could
While Kittila, Bjorkdal and Meliadine are blessed with relatively good access, one of the biggest hurdles to mining north of 60 remains a lack
of infrastructure.
be brought in. The shortened season was the catalyst for a string of misfortune that eventually shuttered the mine, now owned by Shear Diamonds (SRM-V), before its second birthday. Climate change may make these episodes more common. Accessibility may decline as melting permafrost damages fixed infrastructure and as shorter winter road seasons reduce accessibility to land, says the Lloyds report. So far though, Nuna Logistics has been able to adapt the worlds longest winter road, the Tibbit to Contwoyto joint venture, to changing circumstances. The company says it has applied lessons it learned in the shortened 2006 ice-road season in subsequent years. In 2010, the weather was almost identical to 2006 and we had no problem, says Nuna president and CEO Mervyn Hempenstall. Before, Mother Nature sort of took care of things and now we have to help Mother Nature take care of things, Hempenstall adds, explaining the company has honed techniques to build, flood and better monitor the ice thickness. Another danger for underground mines is that higher temperatures would require larger rock pillars to replace the strength of the permafrost, increase flooding and boost the cost of cooling the air in deep mines. On the flip side, climate change is opening up new shipping routes in the north as the sea ice melts. The average number of ice-free days in the Beaufort Sea, for instance, has increased to 105 from 93 in the 1990s, says the Lloyds report. In Greenland, the
MINING MARKETS JuNE 2012
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warming trend has opened up coastal areas to exploration as a result of the retreating ice cap.
an average grade of 13.1 grams gold, says owner Sumitomo Metals Mining. At Coeur dAlene Mines (CDM-T, CDE-N) Kensington mine, cash costs exceeded US$1,000 per oz. in 2011, the mines first full year of production. But after the company temporarily reduced mining and milling activities in order to complete several underground and surface projects, full production is resuming ahead of schedule, allowing the mine to produce about 85,000 oz. of gold mostly in the second half of the year. The Fort Knox mine, sharing the neighbourhood with Kinrosss White Gold development project to the east and its highly profitable Kupol mine in Russia to the west, is an open-pit operation that uses a combination of carbon-in pulp milling, heap leaching and gravity to process ore grading, on average, just 0.43 gram gold per tonne. Last year, Fort Knox produced almost 290,000 oz. of gold at a cash cast of US$692 per oz. Remaining proven and probable reserves total more than four million oz. But it is Kinrosss Kupol mine in Russias Far East, just across the Bering Strait from Fort Knox, that is the real motherlode. In 2011, the mine produced more than 650,000 oz. of gold at a cash cost of US$378 per oz., making Kupol by far the largest and lowest cost operation in the companys stable and a prime example of how good geology can trump the difficulties of mining in a remote, inhospitable location with limited infrastructure. Northern Europe has a competitive advantage in
climate and infrastructure. Although northern Europes gold mines in Finland and Sweden are just as far north as those in Canada, Alaska and Russia, they have the advantage of the warming effect of the Gulf Stream. And because Europe is more densely populated in comparison, the infrastructure leading to the mines tends to be better. At Elgins recently purchased Bjorkdal mine, for instance, the moderated climate is more like Timmins than Yellowknife, even though Bjorkdal is farther north than the Northwest Territories capital. Available infrastructure includes a railway and paved highways connecting the region to the rest of Sweden as well as low-cost hydropower. Other advantages the Nordic countries have over other jurisdictions, says RMG, include plenty of underexplored territory, a skilled and experienced workforce, and positive attitudes towards exploration and mining. The Nordic countries continue to cement their position as the premier European exploration and mining hub, says RMG. The corollary is that the dominance of the Nordic countries in the mining sector will continue for the next decade or more. But as more mineral investment pours into the underexplored north worldwide, companies will have to do a better job of managing costs while protecting the Arctic ecosystem and negotiating fair terms with the communities affected. This has never been an easy task, and its not about to get any easier. The Arctic region is changing more rapidly than anywhere else on Earth, says Charles Emerson, lead author on the Lloyds report says. More research into the unknowns is essential to ensure that the risks and incentives of further exploration in the region are better aligned. No doubt Agnico-Eagle and Newmont would agree as they absorb the string of significant writedowns on their northern investments. MM
The auThor is a freelance wriTer specializing in mining issues, and principal of ToronTo-based geopen communicaTions (www.geopen.com).
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area play
NuNavut
The shining star of Canadas North
By AlishA hiyAte & trish sAywell
The exploration camp at Elgin Minings Ulu gold project, in Nunavut.
Credit: Elgin Mining
vey of mining companies by the Fraser Institute, owing in part, to the amount of red tape explorers encounter in the territory.. Nunavut gold exploration may see some blowback from the writedowns Agnico-Eagle Mines (AEM-T, AEM-N) and Newmont Mining (NMC-T, NEM-N) have taken on two of their projects there. But new infrastructure developments, such as the Bathurst Inlet Port and Road, (see Page 17), could provide a counterbalance to the bad news by promising to lower costs for nearby projects in the long run. Regardless, there are still a good number of promising gold projects in Canadas north. Here are a few that make the grade.
In spite of the challenges of working in the Far North, spending on mineral exploration and evaluation of deposits has roughly doubled over the past two years in both Nunavut and the Yukon. Explorers and developers are projected to drop $569 million in Nunavut in 2012, and $285 million in the Yukon. That compares with expected total spending across Canada of $4.2 billion, an increase of 50% over the past two years. In the Northwest Territories, however, spending increased in line with the rest of Canada, to a projected $124 million this year. The jurisdiction was rated the worst in Canada in this years sur-
age, and a nearly 2,000-metre-long air strip. Elgin acquired Lupin last summer, and also recently became a producer with a takeover of Gold-Ore Resources and its 40,000-oz.-per-year Bjorkdal gold mine in Sweden. Lupin produced 3.3 million oz. of gold at a head grade of 9 grams gold per tonne over about 20 years of pro- The dotted line shows the route of the proposed duction. The mine has been on care Bathurst Inlet and and maintenance since 2005, and is Port project. Credit: Sabina fully permitted. Gold & Silver About 155 km north of Lupin, Elgin also holds the Ulu gold project, which hosts indicated resources of 751,000 tonnes grading 11.37 grams gold per tonne, plus 418,000 inferred tonnes of 10.61 grams gold. Not far east of Lupin, Sabina Gold & Silver (SBB-V) is working on a PEA for its Back River gold project, due to be released at presstime. The company has budgeted $70 million this year at the project, which hosts total indicated resources of 22.3 million tonnes grading an average
of 5.62 grams gold for 4 million oz. gold in several deposits (Goose, Llama and Umwelt). Inferred resources add another 2 million oz. gold contained in 10 million tonnes grading 6.23 grams gold. Sabina is drilling up to 76,000 metres at Back River this year to expand and upgrade resources. Environmental and engineering work, in anticipation of a prefeasibility study next year, is also under way. Sabina is studying a production scenario of 300,000 oz. gold per year, based on throughput of 5,000 tonnes per day, starting as soon as 2016. The junior is expecting lower operating costs than Agnicos Meadowbank because of its projects higher grade. Back River hosts five deposits across a 5-km stretch in the Goose Claim block. The George claim block, 50 km to the north, hosts a high-grade underground resource (590,000 indicated oz. at 10 grams gold and 866,000 inferred oz. at 10.5 grams).
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After selling the Hackett River silver-zinc project in Nunavut to Xstrata Zinc last year, Sabina finished 2011 with $160 million in cash. The company retains a royalty on silver production amounting to 22.5% of the first 190 million oz. produced, dropping to 12.5% thereafter. The project is only 50 km away from Back River, and Sabina announced in March that it and Xstrata have agreed to work together to advance the Bathurst Inlet Port and Road project (BIPR). Although Sabina says the plan for a deep-water port, 70 km north of Back River, isnt crucial to develop the project, the company sees opportunity in the project. BIPR has been stalled then resurrected several times in the past, and is at the feasibility stage, with considerable existing baseline and environmental data. The project, with a pricetag last estimated at $270 million, would see the port connected by an all-weather road to the Tibbitt to Contwoyto ice road. The port would be located 35 km south of Bathurst Inlet. Sabina is also spending $8.3 million to drill 12,500 metres at its Wishbone project, where it made three discoveries in 2011. Agnico-Eagle Mines (AEM-T, AEM-N) second major project in the Low Arctic is the advanced-stage Meliadine project, 290 km southeast of its Meadowbank mine, near the western shore of Hudson Bay in Nunavuts Kivalliq region. The gold major picked up Meliadine in 2010 and after an extensive drill program last year, carved out proven and probable reserves of 12.5 million tonnes grading 7.2 grams gold per tonne for 2.9 million oz. gold. Measured and indicated resources stand at 12.6 million tonnes grading 4.09 grams gold for 1.7 million oz. with another 12.7 million inferred tonnes at 5.98 grams gold for 2.4 million oz. A $30-million exploration budget for 2012 includes 90,000 metres of drilling in the projects six known deposits, and 25,000 metres of grassroots exploration drilling. Agnico has budgeted $52 million for infrastructure, permitting and a feasibility study. Supplying Sabina gold & Silvers Its also pursuing permits to build a 25-km, all-weathBack river project, in Nunavut. er access road from Rankin Inlet that would allow for Credit: Sabina Gold & Silver year-round exploration. For an earlier-stage project, North Country Golds (NCG-V) Three Bluffs deposit lies northeast of Baker Lake. Located in the 300-km-long Committee Bay greenstone belt, Three Bluffs is 180 km northeast of the Meadowbank mine, and has similar geology and mineralization. A resource update in April pegged indicated
resources at 4.3 million tonnes grading 4.9 grams gold for 678,000 oz. gold. Inferred Market cap resources add 4.5 million tonnes at 5.69 grams $6.3 billion gold for 829,600oz. $112.4 million North Country is planning a 12,000-metre drill $40.6 million $34.3 million program this year targeting high-grade mineral$362.6 million ization over 1.2 km of strike and between 300 $621.4 million and 600 metres depth. To date, most drilling has focused on the eastern 1.3 km of a 4.1-km-long trend, and has only extended to 300 metres depth. Drilling this year showed the deposit extends to at least 500 metres. Three Bluffs is a structurally controlled lode gold system hosted in oxide facies iron formation and greywackes. In the southwest corner of Nunavut, north of the Manitoba border, Prosperity Goldfields (PPG-V) is exploring the Kiyuk Lake project. The project first saw drilling (14 holes for 2,600 metres) last year, resulting in three discoveries. The Cobalt find returned 32.1 metres of 1.82 grams gold per tonne from 52 metres depth; Gold Point returned 63.6 metres of 2.84 grams gold from 149 metres; and Rusty returned 157.6 metres of 1.7 grams gold from surface. Prosperity followed up with a 4,500-metre drill program in March, and planned more drilling in June. Mineralization at Kiyuk is hosted in a sequence of conglomerates and breccias that occur along an unconformity between two sedimentary units. Prosperity recently merged with Yukon explorer Smash Minerals. And in the Northwest Territories, the standout gold project is Seabridge Golds (SEA-T, SA-N) Courageous Lake project. Seabridge is working on a feasibility study, due in June, for the FAT deposit at Courageous Lake. A PEA released last summer projected FAT could produce 383,000 oz. gold per year at a cash cost of US$599 per oz. over 16 years. Measured resources stand at 1 million oz. (13.4 million tonnes at 2.5 grams gold), with indicated resources at 6.9 million oz. (94 million tonnes at 2.28 grams gold) at a cutoff grade of 0.83 gram gold. Inferred resources add 3.4 million oz. in 49 million tonnes grading 2.18 gram gold. In hopes of making a new discovery, Seabridge is also spending $8.5 million this year on exploration of the 52-kmlong Matthews Lake greenstone belt that hosts FAT. MM
area play
Yukon contenders
By Ian BIckIs
Carlin-type Rackla gold project starting in June. The company The Yukon gold exploration season is looking a little more has not specified a cost estimate for the program, but last year restrained this year, but still full of potential. it spent $29.5 million at Rackla, completing 26,600 metres of The territorys second gold rush is clearly maturing: new drilling. Like Kaminak, it also invested in infrastructure such as entrants and newly staked claims are dwindling, sample proairstrips and lodgings. grams are transitioning to drill programs, companies are bowing Atac will again be targeting its Conrad, Osiris, Isis East and out, and the first major resource estimates from the boom are other Nadaleen Trend targets as it hopes to rekindle excitement on the horizon. for its new Carlin-type district, but has not put out a timeline for Excitement for 2012, however, has been tempered by the a first resource estimate. Yukon explorers depressed stock prices, hit especially hard in Golden Predator (GPD-T) started its 2012 exploration prolast Septembers market drop because of the speculation that had gram at its Brewery Creek gold project in February, thanks to inflated their prices. Any recovery has been hampered because easy road access and tame topography. The company plans the slump came near the end of the Yukon exploration season to drill at least 30,000 metres this year, compared with 55,000 when news flow typically tapers off. metres last year. It put out a resource estimate on the project in Prominent explorers were hit as hard as anyone in September, May that outlined 20.4 million indicated tonnes grading 0.89 with share prices plunging by as much as 50% that month and gram gold per tonne for 518,000 oz. gold in both oxide and then continuing to drift lower. But with significant cash reserves sulphide, and 13 million inferred tonnes grading 0.83 gram gold or enough market faith to raise money, the better known compafor 345,000 oz. in sulphide and oxide. The company is looking nies have set out sizable exploration programs for the year. to restart the past-producing mine in 2013. Kaminak Gold (KAM-V) spent $22 million on exploration As of late March, Golden Predator had $19 million in workat its Coffee gold project last year, including 48,000 metres of ing capital owing in part to a $12-million financing in March, drilling and significant camp infrastructure investments. For though it originally set out to raise as much as $17 million. 2012, it has set out a $17-million exploration budget targeting Ethos Gold (ECC-V), still with $14 million from last year, has 50,000 metres of drilling with four rigs. The junior can afford the planned a $7.3-million, 16,000-metre exploration program at its program in part because of a $15-million raise in November at Betty gold project. The junior (formerly Ethos Capital) will con$2.80 and $3.35 per share, leaving it with $21.4 million at years centrate on the Mascot Creek target, where last year it identified end. In May, it also launched a $5.25-million flow-through raise a 17-sq.-km, gold-in-soil anomaly and collected grab samples as at $2.10 per share so it can add to its program. high as 24.8 grams gold per tonne and dug pit trenches returnThe 2012 drill program, which Kaminak started March 19, is designed primarily to shore up information Selected Yukon explorerS on its high-grade oxidized Supremo, Latte and Ticker Share price 52-week Shares Market Double-Double targets in anticipation of an initial Company symbol (May 12 close) high/low outstanding cap inferred resource due later this year, while the Argus Metals AML-V 5 19/3.5 64.6 million $3.3 million ATC-V $2.24 $10.34/$2.16 97.4 million $218 million company will also drill new targets like Sugar. Atac Resources Colorado Resources CXO-V 33 $1.25/26 38.4 million $12.7 million ECC-V 75 $1.39/33 42.9 million 32.2 million Kaminak has already released results from the Ethos Gold Golden Predator GPD-T 43 $1.46/41.5 143.9 million $61.9 million first 14 holes, showing a new discovery near the Independence Gold IGO-V 18 50/16 43.2 million $7.8 million KAM-V $1.90 $4.71/$1.65 73.9 million $140.5 million main targets, with hits such as 32 metres at 3.6 Kaminak Gold Kinross Gold K-T $7.91 $18.17/$7.15 1.2 million $9 billion 15 37/13.5 111.6 million $16.7 million grams gold per tonne, 37 metres of 2.1 grams Northern Freegold Res. NFR-V Northern Tiger Res. NTR-V 12 65/10 98.9 million $11.9 million gold and 21 metres at 2.1 grams gold. Pacific Ridge Expl. PEX-V 10 68/9.5 70.1 million $7 million 58 $1.48/37 59.1 million $34.3 million Atac Resources (ATC-V) held $20.4 million Prosperity Goldfields PPG-V Ryan Gold RYG-V 34 $2.09/33 116.6 million $39.7 million at the end of 2011 after having raised $25 mil- Strategic Metals SMD-V 93 $4.24/93 90.2 million $83.9 million TAK-V 5.5 41.5/4.5 70.5 million $3.9 million lion early that year. The company has planned Taku Gold White Pine Resources WPR-V 14 63/14 30.4 million $4.3 million 30,000 metres of drilling using six rigs at its
ing up to 50 metres of 7.3 grams gold. Ryan Gold (RYG-V), which spent $15 million last year despite a delayed start, outlined a $26-million budget for 2012 in March. But it has already revised that down to $21 million: the exploration budget dropped from $20.6 million to $10.7 million, with $5 million being lost in the overall budget cut and another $5 million being diverted to finding for a more advanced-stage project. The company now plans to drill 7,500 metres, with 6,000 metres and $4.3-million dedicated to its flagship Ida Oro project. Mahtin, Flume, Kluane, and a few other projects will also receive attention. In January, Northern Freegold Resources (NFR-V) released a first resource on the Revenue zone of its Freegold Mountain project totalling 101 million inferred tonnes grading 0.34 gram gold, 3.14 grams silver, 0.13% copper and 0.04% molybdenum. The company wants to drill 25,000 metres on the project, focusing on expanding Revenue as well as the Nucleus and Tinta deposits, and exploring the Stoddart zone. The junior set out to raise $6 million in March, but finally closed the financing in mid-May after raising only $756,500. Kinross Gold (K-T, KGC-N), is staying tight-lipped about its White Gold project. The company drilled 13,000 metres in 2011 but hasnt made any specific commitments for 2012, and White Gold has long been absent from its highlighted list of development projects. It could be a modest year for less advanced companies struggling to raise funds. Argus Metals (AML-V), trading at 7, managed to raise $650,000 this year to get out of debt and stay afloat. But it cant afford to explore its Hyland gold project in southeastern Yukon. Taku Gold (TAK-V), trading at 6, has outlined a $600,000 exploration budget for 2012 after spending over $3 million last year on its extensive White Gold property holdings. White Pine Resources (WPR-V), which optioned the Money and Tender properties in early 2011 and spent $1 million exploring them, recently let its option agreement lapse as it tries to defer payments on the properties. Some have a little more flexibility, such as Colorado Resources (CXO-V). The junior has proposed a $5-million work program at its Oro project starting in June, owing to cash reserves. Northern Tiger Resources (NTR-V) has planned a 3,000-metre drill program at its 3Ace project and will add more if markets allow. Pacific Ridge Exploration (PEX-V), raised $1.5 million in late 2011, bringing its cash reserves to $3.5 million. It recently outlined a $2.3-million exploration program for its Mariposa project. A challenging end to 2011 has also seen a bit of consolidation and potential focus away from Yukon. Smash Minerals, which went from $1.26 in August to a low of 30 in October after hitting little in a rush drill program on its Whiskey target, recently merged with Prosperity Goldfields (PPG-V), which has shifted its focus to Nunavut. Independence Gold (IGO-V), which now
View looking west towards camp from the Osiris area at Atac Resources Rackla gold project.
Credit: Atac Resources
Massive realgar found on the Nadaleen trend at Atac Resources Rackla project.
Credit: Atac Resources
holds what were Silver Quests substantial Yukon claims following its buyout by New Gold (NGD-T, NGD-X), has optioned off two of its largest Yukon projects as it concentrates on B.C. However, soon-to-be-listed Precipitate Gold, headed by ex-Underworld Resources and current Prosperity Goldfields president Adrian Fleming, has amassed several Yukon properties, targeting sediment-hosted or Carlin-type gold. Its flagship Reef project, 200 km north of Watson Lake, hosts a 3-km-long gold-arsenic-antimony soil anomaly. Reef is located in the southeast end of the Tombstone gold belt, in the lower Selwyn basin. Precipitate plans to conduct geological mapping and sampling this year, and to complete the projects first six drill holes, totalling around 1,400 metres. After its IPO at 40 a share this spring, the junior expects to have $3.4 million in cash and 25.3 million shares outstanding. For a bellwether of Yukons exploration health in a single company though, one could do worse than Strategic Metals (SMD-V). The prospect generator and incubator, managed by Archer Cathro, has the biggest portfolio of projects in the territory as well as significant shareholdings in a host of other Yukon explorers. Its shareholdings, including almost 10% of Atac, translated to $52 million in marketable securities as of late February. The company traded at under 25 in early 2009, peaked at $4.24 last July, and then fell to just over a dollar in the fall. It is trading at $1.25, but another jump could bode well for the Yukon as a whole. MM
The auThor is a sTaff wriTer aT The NorTherN MiNer, where a versioN of This arTicle was firsT published. MINING MARKETS JuNE 2012
21
commodity
By AlishA hiyAte
applications such as nuclear pebble bed reactors, but theres also the added potential of graphene, a new material that could have far-reaching implications in electronics and make for lighter, more fuelefficient aircraft and cars. But even though the market is growing, the story is a little more complicated than it may seem. Graphite prices tanked during the financial crisis, then started to take off in the summer of 2009. While prices have increased dramatically over the past few years for one type of graphite, known as natural flake, rising demand hasnt been the cause. Like rare earth elements, which ignited investor interest in 2009, China dominates graphite production. After flooding the market with cheap graphite in the early 1990s, rendering mines elsewhere unprofitable, the country now produces 80% of world supply. Stephen Riddle, CEO of Asbury Carbons, a New Jersey-based graphite distributor and processor that has been in business for 117 years, says that when demand started to come back for graphite in 2009, producers were caught off guard. The mines had trouble keeping up short term because they had cut back capacity, and also, they were preparing for the winter months, Riddle says, explaining that most of the worlds natural flake
By now, youve heard the pitch. Graphite is the old mineral made new again with high-tech potential thats about to explode. Until now, it has been valued largely for its ability to withstand high temperatures in steelmaking, but new applications making use of its unique combination of properties high strength, light weight and conductivity could mean a graphite revolution on the horizon. Not only will demand for this form of carbon increase as lithium-ion batteries and electric vehicles (EVs) gain traction, and with the growth of new
a graphite-laden rock sample from focus Metals Lac Knife project, in Quebec.
Credit: Focus Metals
The Lac Knife graphite project, owned by Focus Metals (soon to be Focus Graphite), in Quebec.
Types of graphiTe
Type Synthetic selected Uses Electrodes, carbon fibers (used in aircraft, sporting goods), batteries, nuclear, specialty graphite Lubricants, foundry coatings, pencils Refractories, carbon brushes, batteries Steelmaking
graphite comes from mines in Chinas Heilongjiang province that close in the winter. At the same time, China has closed down or consolidated some production, to better control environmental issues and protect graphite reserves. Adding further pressure to prices, in January 2010, the Chinese government started going after graphite exporters that had been dodging or underpaying the 20% export tax on graphite, sending exports down and prices up. (China also has a 17% value-added tax on the material.) It all added up to a temporary supply crunch. Since last summer, however, prices have levelled off, and have recently stabilized at US$2,000-US$2,500 per tonne.
and lump or vein graphite, a rare, high-purity (95-98% carbon) form that accounts for only 1% of the natural graphite market. The type of graphite used in tennis racquets and aircraft, is actually synthetic graphite, and more accurately called carbon fiber, says Riddle. Carbon fiber is 100% manmade and has nothing to do with any of other types of graphite, he explains. Synthetic graphite, including carbon fibers, account for 92% of the $13-billion graphite market, according to Asbury Carbons. The remaining 8%, worth $1 billion, is shared between natural flake, amorphous graphite and
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synthetic graphite powder. All told, the natural flake market is only about 500,000 tonnes a year, Riddle says. (Some estimates put it as low as 400,000 tonnes.) The biggest share of demand for natural flake graphite, estimated at 35-45%, comes from refractories, heat-resistant bricks, linings and sprays that can withstand the high temperatures necessary to make and mold steel. About 70% of refractories demand is tied to steel. While that market is growing, theres some disagreement about the rate of growth. Byron Capital Markets puts the rate of growth at 5-6% a year, but Riddle suspects its actually closer to 2%.
At a graphite conference presented by Industrial Minerals in London, U.K., in January, Greg Bowes, the CEO of Northern Graphite (NGC-V), which is advancing the low-grade but very large-flake Bissett Creek graphite project in Ontario, said that more graphite is needed to keep up with projected demand. In order to keep in line with EV market projections alone, graphite production has to double. Over 50% of new natural graphite production will not be suitable for lithium-ion batteries. While all agree there is high potential for growth in this market, synthetic graphite is the current choice for battery makers, not natural flake. Thats owing to the consistency and purity possible in synthetic material, and is especially true in lithium-ion batteries for high-end applications. But high-purity (98-99.99% carbon) synthetic graphite is expensive. That could give juniors an edge if they can produce consistent high-purity graphite at a reasonable cost. Great strides are being made with natural graphite and we believe that with all of the improvements made, natural graphite could supplant synthetic in the medium term and be a competitor in new battery applications, says the 2012 Electric Metals Greenbook, produced by Byron Capital Markets. Another crucial consideration is the process by which battery-grade graphite is produced. Battery-grade graphite comes in two forms: expanded (which has sheetlike particles) and spherical. Spherical graphite is a young industry and still in the
The open pit at Flinders Resources past-producing Kringel graphite project, in Sweden.
Credit: Flinders Resources
$40.7 million Green Giant (Madagascar) $84.1 million Kringel (Sweden) $79.7 million Lac Knife (Quebec) $19.9 million Graphite Creek (Alaska) $105.3 million Bissett Creek (Ontario) $7.8 million Black Donald (Ontario) $12.8 million Deep Bay (Saskatchewan) $5 million Asbury (Quebec) $16.2 million Albany (Ontario) n/a Kearney (Ontario) n/a Black Crystal (B.C.)
2012
Source: Byron Capital Markets research (with updated market information) Historic resource and grade, not compliant with National Instrument 43-101 *
testing phase, Moores says, and the high-quality raw material needed to make it costs about US$2,500 a tonne. Moreover, upgrading it comes at a cost. Youre losing 70% of it when you make spherical graphite, Moores says. You can get US$7,000, US$8,000 a tonne (for spherical graphite), but wastage is a big problem. In general, the larger the flake size, the less waste there is in the purification process. But the battery market may take some time for graphite juniors to penetrate. To some extent, the whole lithium-ion battery story is a little bit longer-term than what people think, says Jonathan Lee, a mining analyst at Byron Capital Markets
who specializes in battery materials and technologies. Even if the EV market were to take off, it still takes time to go through the process of becoming a tier one supplier for the automotive market and that could take years to implement, he adds. That being said, there could be that growth in the next 3-5 years if they take off, but in the short term most of the graphite price increase has been due to the actions of China rather than explosive demand from the two applications people have been talking about (lithium-ion batteries and graphene). A key question for all graphite juniors is who they will sell their product to, especially for near-term producers. To some extent, graphite has to be custom-made. Because it doesnt trade on the London Metals Exchange or any type of commoditized market its really an industrial mineral you have to know what youre going to sell and you have to have buyers for it. The end-product has to meet a customer specification or a multitude of customer specifications, Lee says. Having an end customer to help you with producing the right material is key. None of the junior mining companies have done that to date to a large measure. One big problem for near-term graphite producers is that all the production of anode natural flake graphite for batteries currently takes place in China. If they want to supply that market, theyre going to have to sell to China, Riddle says. And then they have a 20% disadvantage against the Chinese, he adds, referring to the countrys 20% graphite export tax Chinese anode graphite producers dont have to pay when buying their flake. To compete, Western producers would have to drop 20% off of the world market price, which is based on having the export duty. Riddle estimates it will be two or three years before
MINING MARKETS JuNE 2012
25
You have to know what youre going to sell and you have to have buyers for it. The end product has to meet a customer specification or a multitude of customer specifications.
Jonathan Lee, Byron Capital Markets analyst
an anode natural flake plant opens outside of China, and even then, initial production would only be around 5,000 tonnes. Making spherical graphite is a three-step process, starting with milling and classifying the flakes, purification through acid treating, and then coating the particles. (That last step is the only one that is not yet done in China, but rather in Japan or Korea.) To that end, Focus Metals (FMS-V) announced plans in May to develop graphite purification facilities that will enable it to upgrade graphite from its Lac Knife project in Quebec, to 99.95% carbon. Its also planning to develop graphite anode production facilities for lithium-ion batteries. The junior has signed a licensing agreement with Hydro Quebec research institute IREQ, which will provide technology and technological support for the enterprise. Focus wants to start producing spherical flake graphite by 2015 at a plant designed to produce 15,000 tonnes at its peak. The anode plant would be designed to produce 5,000 tonnes of anodes per year. that could be applied to electronics and to make aircraft and cars lighter, are likely in for a long wait. The material, while exciting, is currently in the research phase. The two-dimensional, ultra-thin material is extra tough, heatresistant, conductive and flexible. Riddle says the first likely use for graphene will be in electronics. But manufacturers will want synthetic material the Ferrari of graphene because of its purity and regardless of price. The percentage that they will add will be so small that theyre not really concerned with the cost, Riddle says. Where graphite juniors may be better able to serve the market is in non-high-tech applications. Again, Focus Metals announced in December that it had signed a memorandum of understanding with Graphoid and Rutgers University AMIPP Advanced Polymer Center to jointly develop graphene technology applications. Riddle says Focus is being smart with the partnership by initially targeting lower-cost markets for graphene in the infrastructure, aviation and automotive arenas. For now, much of the potential for graphite remains just that potential. In the short-term, there is some room in the market for new producers, says Byron Capitals Lee, who believes that a few near-term producers, such as Northern Graphite, have a chance to capitalize on current high prices. The number of new entrants than can come into the market is really dependent especially in the next one to three years on the actions of China, he says. Part of that will be mitigated by the wfact that some existing mines are expanding (in Brazil and India), but there is room for new entrants and there are customers worried about supply. Lee also believes that near-term producers are not relying on potential supply but actually being realistic about finding customers today. Though Riddle agrees that some new production is needed, he questions whether junior miners will get the quantity, quality and timing right. I think it is a good product to get into, but short-term, I think too many are going to come in at the same time and kill each other, he says. I think theyre going to find out how hard it really is to sell. MM
Graphene
Investors hoping to cash in on graphene, a new material
Biotite quartz schist outcrop at Graphite Ones Grapite Creek project, in Alaska.
Credit: Graphite One
insight
Why
on the rise
The numbers are sobering: A $4-billion classaction lawsuit against Kinross Gold (K-T, KGC-N), a $1-billion claim against Baffinland Iron Mines, a $250-million claim against Agnico-Eagle Mines (AEM-T, AEM-N), a $66-million claim against Eastern Platinum (ELR-T) and a $50-million claim against Canada Lithium (CLQ-T), all in the past year. Any eventual settlement will likely be for far less, but the high-profile claims are a stark reminder of the new legal reality for Canadian miners: Bad news, followed by a big drop in the share price, has a good chance of attracting a class-action lawsuit. With the exception of the Baffinland lawsuit, which relates to the companys takeover process, the listed lawsuits are all known as Bill 198 actions, after the 2005 Ontario legislation that relaxed the rules on securities-based class actions. The key element of the bill was that it removed the need to prove that plaintiff shareholders had relied on misleading information when buying a stock, as is the case with civil claims. Instead, they only had to prove that misleading information existed. The bill, combined with updated class-action legislation about the same time, opened the doors to the class-action lawsuits mining companies are seeing today. To avoid becoming a U.S.-style, sue-first, askquestions-later system, the bill incorporated some barriers, such as the need to have a judge agree that the case has merit. The precedents set so far, however, point to a fairly low entry threshold, with 35 Bill 198 actions launched between 2006 and 2011. The general view of class-action practitioners is that its now easier to commence a class-action lawsuit than it ever was, says Alan Hutchison, a partner at Fraser Milner Casgrain, who works in securities and mining litigation. In the world of mining, with reams of disclosure and forward-looking statements, there is a lot of material in which to find fault. Add to that the geologic complexity and operational risk of mining, and the deep pockets of many miners, and the industry makes a compelling target for class-action lawsuits. Between 1997 and 2011, the mining industry accounted for 18% of the 89 class-action lawsuits filed, while in 2011, the industry was subject to four of the record 15 cases filed. This year looks to be another busy one for the industry, with the high-profile Kinross suit alleging the company made false and misleading statements related to its Tasiast mine in Mauritania,
class actions
against miners are
By Ian BIckIs
27
NovaGold Resources and Teck Resources Galore Creek project, in British Columbia, circa 2008.
Credit: NovaGold Resources
and the Agnico-Eagle lawsuit related to the writedown of its Goldex mine in Quebec, already brought forth. Both companies have declined to comment on the matter. Andr Durocher, a partner at Fasken Martineau, says that attempts in the U.S. to rein in class-action lawsuits, combined with increasing legal expertise on class actions in Canada, and the countrys prominence in the industry, all makes fertile grounds for class-action lawsuits. He adds that the volatility of mining stocks make miners particularly vulnerable.
class-action cases forward in Canada, says the high number of mining lawsuits is inevitable given how predominant they are on Canadas stock markets. That being said, he also thinks industry practices have also contributed, and that disclosure standards could be improved. Sometimes companies make wildly optimistic projections they have no business making and they do it, frankly, to prop up their stock price, Lascaris says. There is a bit of a Wild West culture that still prevails in the mining industry.
high-risk, high-reward investment. But I think that people tend to forget the first part.
Mining in general is a
Alan Hutchison, partner at Fraser Milner Casgrain
Lets say you have bad news and the stock reacts violently the next day it makes for an ideal situation for someone to claim that the bad news has cost the client, Durocher says. Hutchison says that with the mining sector generally doing well over the past decade, expectations have been heightened and people are taking gains for granted. Mining in general is a high-risk, high-reward investment, Hutchison says. But I think that people tend to forget the first part. Dimitri Lascaris, a partner at the Siskind law firm that has played a prominent role in bringing All three lawyers, however, say theyve seen companies adapt better practices since the door was opened for class-action lawsuits. Hutchison says that over the past five years, he has seen a greater emphasis on process. Companies are initiating more special board committees, using more inside and outside legal counsel, consulting with multiple fairness advisers, contracting external engineering firms and generally relying more on experts. As long as the company has acted appropriately and relied on external advice from an expert in their field, thats a compelling defence, Hutchison says.
Construction of the processing plant at Canada Lithiums Quebec lithium project, in Quebec.
Credit: Canada Lithium
Durocher says that companies seem to have made a number of changes to corporate governance in anticipation of the 2005 changes, while taking ever more care with public disclosures like press releases. They tend to review press releases much more, Durocher says. They parse the statements with a heavier pen. Lascaris says that companies are significantly more cautious about making aggressive, unrealistic projections about their performance. I think there was a lot of that going on before the law came into effect. As to the threat class actions pose to companies, settlements have so far been modest. Bear Lake Gold (BLG-V) settled for $1.3 million, Orsu Metals (OSU-T) for $2.2 million, Southwestern Resources for $15.5 million, and in perhaps the most high-profile yet, NovaGold Resources (NG-T, NG-X) reached a global $28-million settlement in 2010 related to its halting work at the Galore Creek project. Lascaris noted that the new law limits company liability to 5% of its market capitalization, even in cases of blatant fraud, though there is still the possibility of pursuing more in the civil courts. Director and officer insurance provides further buffering for a settlement, as well as funds to fight a lawsuit. Few if any cases will constitute an existential threat to a mining company, Lascaris says. But lawsuits still provide a significant distraction to management and often lead to negative publicity. Hutchison says that for those reasons, as well as
to stave off further legal costs, companies almost always settle once the class action is certified. I think youre finding that a lot of mining companies, even if they have a compelling defence, would prefer to settle rather than keep incurring costs and uncertainty, Hutchison says. With the legal framework still relatively untested, however, there is a fair bit of uncertainty as to where securities class actions could go in the future. There could be a trend towards even more lawsuits like in the U.S., where American firms were first to sue Kinross and Agnico-Eagle and have already launched lawsuits against Nevsun Resources (NSU-T, NSU-X) related to the drop in gold reserves at its Bisha mine, in Eritrea. As claims amounts rise, there could also be an increase in settlement amounts. But for now, with significant risk involved in launching a plaintiff suit, legal firms will have to be selective in the cases they pursue. And the mining industry will have to keep improving disclosures. The potential of a lawsuit could increase, as legal capacity and precedents increase. Hutchison notes that most people in the industry are not concerned. Lets face it people in the mining industry are generally optimists, Hutchison says. Most people are trying to build things. Theyre not moving ahead on the expectation that something is going to go wrong. MM
The auThor is a sTaff wriTer wiTh The NorTherN MiNer aNd is based iN VaNcouVer. This arTicle origiNally appeared iN The NorTherN MiNer. MINING MARKETS JuNE 2012
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Atico Mining (ATY-V) Projects: El Roble (copper-gold), in Colombia Burnstone Ventures (formerly Pure Diamonds) (BVE-V) (graduating from the CNSX) Projects: Tomichi (coppermolybdenum), in Colorado DGM Minerals (DGM-V) Projects: Notamiche, in Quebec Dolly Varden Silver (DV-V) Projects: Dolly Varden (silver), in B.C. Infinity Minerals (IFN-V) Projects: Rainbow (gold-silver), in B.C. Infrastructure Materials (IFM-V) Projects: Silver Queen and Klondyke (silver), in Nevada; limestone quarry in Manitoba Iron Tank Resources (TNK-V) (formerly Mountain Gold Resources) Projects: Birch (gold-copper), in B.C. Manado Gold (MDO-V) Projects: Clisbako (gold), in B.C. Matnic Resources (MIK-V) Projects: Shuswap (silver), in B.C. NovaCopper (NCQ-T) spinoff of NovaGold Resources Projects: Upper Kobuk (gold), in Alaska Pantheon Ventures (PVX-V) Projects: Kokoko (iron ore, others), in Ontario Portola Resources (PZ-V) (previously RX Mining) Projects: La Biznaga (silver, base metals), in Mexico Silver Mountain Mines (SMM-V) (Graduating from the CNSX) Projects: Ptarmigan and Silver Mountain (polymetallic), in B.C.
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