Chinese snap up base metals projects
Zinc-rich properties in Nunavut offer huge state-owned metals trader potential for ample and reliable future minerals supply
Last updated 6/27/2010 at Noon
Chinese companies are doing their homework and investing in base metals projects in northern and western Canada to take advantage of rising prices and to secure a future supply of the minerals for their operations back home.
First on the scene were private Chinese companies, Jinduicheng Molybdenum Group and Northwest Nonferrous International Investment Co. In the summer of 2008, they purchased a 100 percent interest in Yukon Zinc Corp., which owns the Wolverine Project and other mineral assets in the Finlayson District of southern Yukon Territory.
Then a year ago, China Minmetals Corp., one of world's largest metals traders and No. 412 on the Fortune Global 500 in 2008, jumped at an opportunity to go upstream into the project side of mining by purchasing the mineral assets of Australia-based Oz Minerals Ltd.
Today, the state-owned Chinese company's new subsidiary, Minerals Metals Group, is one of the world's top five producers of zinc and substantial amounts of copper, lead, gold and silver. Most of the producing assets are located in Australia or Asia, including a mine in Queensland, Australia, that is one of the world's largest zinc producers after Alaska's Red Dog Mine.
MMG also is systematically exploring mineral assets in Canada, including 2,000 square kilometers of granted tenements that surround the High Lake and Izok Lake projects in Nunavut, targeting copper, zinc-lead and nickel mineralization in aggressive 2010 exploration programs.
High Lake has an NI 43-101-compliant resource calculated in June 2008 that includes measured and indicated resources totaling 17.2 million metric tons grading 3.36 percent zinc, 2.25 percent copper, 0.31 percent lead, 70 g/t silver and 0.95 g/t gold, along with a 40,000-metric-ton inferred resource grading 2.38 percent zinc, 0.49 percent copper, 0.44 percent lead, 122 g/t silver and 0.21 g/t gold.
An NI 43-101-compliant resource calculated in June 2008 for Izok Lake has estimated measured and indicated resources totaling 14.4 Mt grading 12.94 percent zinc, 2.51 percent copper, 1.28 percent lead and 71 g/t silver, along with a 369,000-metric-ton inferred resource grading 6.40 percent zinc, 3.79 percent copper, 0.27 percent lead and 54 g/t silver.
MMG also is exploring early stage nickel-copper projects through joint ventures in Nunavut, Ontario and Minnesota.
In December, Yunnan Chihong Zinc and Germanium Co. agreed to join Selwyn Resources Ltd. in a rare 50-50 joint venture to develop the Selwyn Project in Yukon Territory as the world's next major zinc-lead mine. Yunnan Chihong agreed to advance the partnership C$100 million to fund the Selwyn venture to bankable feasibility.
Strategic investments in Canada
"What a difference 12 months makes. When we think back a year ago today, we were in the middle of a global financial crisis. Base metals prices were down between 50 and 70 percent, and I think most people would have said we were in for a long, hard recession," MMG Canada President Martin MacFarlane, told a mining industry audience in Nunavut recently.
He said Oz Minerals was trying to refinance its loans in early 2009 with little success. Equity markets were closed and the only opportunity available to the company was to sell some of its assets.
"China Minmetals came along with a bid for the whole company and was able to buy all of the company, including Canadian assets, with the exception of one mine in Australia," MacFarlane said.
"China Minmetals saw an opportunity to go upstream into the project side of mining, and that's why they decided to buy Minerals Metals Group or MMG," he said. "Today, things look much brighter. Base metals have recovered most of their drop in prices, and things are going on in the equity markets. People are raising money again."
Aggressive exploration in Nunavut
Despite its bold acquisition, China Minmetals eased into its new role as a Canadian explorer, confining its efforts during the economic downturn in 2009 to smaller programs at High Lake and Izok Lake.
Using only 30 days of geophysics, mapping and prospecting focused on High Lake East in 2009, MMG geologists developed new exploration targets for 2010.
They also reviewed all data previously collected about Izok Lake and developed new interpretations and 2010 drill targets at depth and along strike. This work led MMG to shift the focus of its Canadian exploration this year to the Izok Lake Project.
"Why we are excited by Izok Lake? It is probably the highest grade, undeveloped zinc resource left in the ground in the world," MacFarlane said. "Our previous studies show it will probably sustain an 11-year mine life with annual output of 140,000 metric tons of zinc, 30,000 metric tons of copper and 13,000 metric tons lead. That's right up there with the global best.
"Importantly, the mining is very straightforward. It is a very shallow deposit amenable to open-pit mining with a 3-1 strip ratio. The ore is very coarse-grained, which means the concentrate will be relatively easy to process to get good recoveries," MacFarlane said.
The deposit also promises exceptionally high recoveries with minor penalties.
MMG intends to spend C$7 million to explore both properties in 2010, primarily with drill testing of extensions of the Izok deposit at depth and along strike this spring and summer, drill testing of High Lake East targets identified in 2009, prospecting for more targets at High Lake East and exploring the region for another Izok-caliber target.
To enhance the project's financial return, MMG also will continue to study challenges to developing the Izok property, including the lack of a road and port for the remote project, which is located in northwestern Nunavut 300 kilometers, or 186 miles, inland near Kugluktuk. The project also must contend with the Arctic region's 100-day shipping window.
MMG said it will focus on expanding the resource at Izok Lake until it can support 20 years of mining. Other ideas up for consideration include dusting off the Bathurst Inlet Port and Road proposal shelved a few years ago; minimizing the impact of arctic conditions by operating a mine exclusively during the summer months and processing Izok ore at the nearby defunct Lupin Gold Mine, which MMG also owns.
"It means we're going to have to build a road and port, which adds substantially to operating costs," MacFarlane said. "These are significant financial issues. We think we can address them and make money. We did a prefeasibility study in 2008 and found the costs were such that we couldn't justify a move forward. In 2009, we re-evaluated, (completing a scoping study in December). We shortened the proposed road by 80 kilometers, or 50 miles, and looked at operating the mine only during the summer months. We also looked at ways to use the old Lupin gold mine, currently on care and maintenance."
The proposals, developed after MMG changed ownership, potentially could cut capital costs for developing Izok by about 25 percent to C$900 million. It also could increase operating costs by nearly 19 percent to C$114 million.
"The savings are not entirely lost in increased operating costs," MacFarlane said.
The changes would boost net present value of the project to C$348 million from C$22 million and the internal rate of return to 15.4 percent from 8.7 percent. These projections are based on the following metals prices: zinc at US$1.00/lb; copper fetching US$2.20/lb; lead selling for US50 cents per lb; and silver getting US$11 per ounce; and an exchange rate of one Canadian dollar equaling US85 cents.
A mine at Izok Lake would generate 380 construction jobs and 400-500 permanent jobs, according to MMG estimates.
MMG's board approved a budget of C$4 million to complete a new prefeasibility study in 2010, incorporating the new ideas, including a more detailed road design, a mill location trade-off study (Izok vs. Lupin), revised site layouts at Izok and Lupin and capital cost and operating cost updates.
MacFarlane said MMG also will spend another C$1.3 million in 2010 to verify the remaining gold resource and exploration potential of Lupin and on additional water discharge and site maintenance at the old mine property. In 2009, MMG discharged water from retention and sewage ponds at Lupin to lower storage levels and began a general program of site maintenance to prevent deterioration.
If the new development concept for Izok proves to be cost effective, the project could begin shipments of base metals and silver ore in 2017, according to MMG.