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B.C. mine may diversify niobium market

Taseko proposes plans to develop Aley project; further diversifies portfolio with purchase of advanced copper project in Arizona

Taseko Mines' Aley project in northern British Columbia is one step closer to diversifying the global supply of niobium, a strategic metal that currently is mined almost exclusively in Brazil. In mid-September, the company provided a broad blueprint for developing a mine at Aley that would produce roughly 9,000 metric tons of niobium per year.

In addition to providing a new North American source for niobium, a mine at Aley also would play a role in expanding and diversifying Taseko's operating assets, a key focus of the company.

Taseko President and CEO Russell Hallbauer said, "In 2007, we acquired the Aley project for C$5.4 million and after only six years and C$30 million of exploration and development work, we have proven up a project with an C$860 million net present value. The substantial shareholder value that has been created by this work has yet to be realized in the company's equity. While we advance the project through the environmental assessment phase, we will continue to optimize technical aspects to further improve the economics. The relatively low capital cost, strong operating margins and favorable operating jurisdiction make Aley another ideal growth project for Taseko."

Currently, the Gibraltar copper-molybdenum mine in British Columbia, of which Taseko owns 75 percent, is the only operating asset in Taseko's portfolio. The company has worked to add the New Prosperity Project to this list, but permitting for this copper-gold project in British Columbia has been met with resistance.

Despite the setbacks, Hallbauer believes New Prosperity will live up to its name - both for Taseko and the project's stakeholders in British Columbia.

Taseko is currently awaiting the outcome of a judicial review into a federal government decision to reject the company's proposal to develop a mine at New Prosperity.

A week before laying out plans for Aley, Taseko reported an agreement to buy Curis Resources Ltd., a company focused on developing the Florence copper project in Arizona.

"The addition of the Florence Copper project to Taseko continues to strengthen the company's near-term development pipeline with an advanced-stage project," said Hallbauer.

Cash generator

Based on proven and probable reserves of 84 million metric tons averaging 0.5 percent niobium pentoxide (Nb2O5), Taseko said a 10,000 metric ton per day mine at Aley could produce 9,000 metric tons of niobium per year in the form of ferro-niobium, an important ingredient for niobium alloying of high-strength-low-alloy steel.

The study demonstrating the reserve envisions a standard open pit mine feeding a recovery plant entailing single stage crushing followed by three stage grinding and a multi-stage flotation process to produce a niobium pentoxide concentrate. An on-site converter would further refine this concentrate to ferro-niobium, a salable finished alloy used in making specialty steels.

After intensive metallurgical work the niobium recovery rate for this operation sits at 63 percent, resulting in the production of roughly 216 million kilograms of ferro-niobium over the course of the 24-year mine-life envisioned in the study.

Ferro-niobium delivered to North America is currently fetching roughly US$50 per kilogram.

Using a long term forecast of US$45 per kilogram for niobium, the study anticipates a mine at Aley would operate at a margin of US$21 per kilogram; and achieve a pre-tax net present value (8 percent discount) of roughly C$860 million; a pre-tax internal rate of return of 17 percent; and a pay-back period of 5.5 years.

"Aley is expected to generate Canadian dollar revenues of approximately $400 million per year over its 24- year mine life, and with the anticipated operating margin, contribute significantly to Taseko's cash-flow generating ability," said Hallbauer.

The capital costs to develop such a mine at Aley are estimated to be C$870 million, including C$520 million for mine, concentrator and site infrastructure; C$180 million for the converter, C$100 million for offsite infrastructure and C$70 million for pre-stripping.

These expenditures include two years of pre-production activities that involve the construction of an electricity transmission line to Aley; upgrading and extension of current road access and mine site clearing; site infrastructure, processing; tailings starter dam construction; removal and storage of overburden; and pre-production waste development.

The 84 million metric tons of reserves represents less than half of the 184 million metric tons of measured and indicated resources averaging 0.45 percent niobium pentoxide calculated for the deposit in 2011, indicating the potential to significantly expand the proposed 24-year mine. At the time, the measured and indicated resource was estimated to encompass 739 million kilograms of niobium. An additional 323 million kilograms of niobium reported to the inferred resource category.

Niobium market

The market for niobium is small but growing at a healthy pace.

"The market for niobium continues to grow, year-over-year, at nearly double-digit rates as the demand for specialty steels become increasingly important," Hallbauer said.

According to the United States Geological Survey, Brazil accounted for roughly 90 percent of the 51,000 metric tons of niobium mined worldwide during 2013 - most of the rest of the global supply was mined in Quebec, Canada.

Nearly 80 percent of niobium used as an alloy in specialty steels. As an alloy, niobium improves the toughness, strength, formability, and weldability of specialty steels, such as those used in pipeline construction.

The aerospace industry is another big consumer of niobium, which lends its characteristics to super-alloys used in the construction of jet engines, air-frame systems, liquid rocket thruster nozzles, heat resistance and combustion systems.

According to the USGS, the apparent use of niobium in the United States has increased by roughly 138 percent in five years, from 4,210 metric tons in 2009 to an estimated 10,000 metric tons in 2013.

"The principal market for niobium is in high-strength, low-alloy steels which account for roughly 90 percent of niobium usage. The addition of niobium to these steels improves the strength-to-weight ratio making it ideal for automotive, aerospace, pipeline and shipbuilding applications," Hallbauer said. "As new grades of niobium-containing high-strength steel are developed, demand growth for niobium will out-pace the overall steel market. We also believe that an additional niobium producer will support demand growth by removing some of the risk associated with a tightly controlled market."

Taseko, which is targeting the start of construction in about two years, does not foresee any other players swooping in on the market.

"Aley is not only the highest quality niobium project being developed today, but also the most advanced. The barriers to entry into the niobium market are significant. There are very few known niobium projects around the world and none the scale of Aley. Additionally, the challenges of metallurgy are not insignificant, as evidenced by the three years it has taken Taseko's technical team to achieve the desired recoveries," he explained.

In-situ copper mine

In addition to becoming a new source for niobium, Taseko is looking to bolster its copper production by finishing what Curis Resources started at the Florence project in Arizona.

A pre-feasibility study published in 2013 outlines a unique in-situ copper operation that is forecast to produce 75 million pounds of copper per year at an average operation cost of US$1.11 per pound. It is expected to take about three years to pay back the US$208 million of initial capital needed.

"There are very few copper projects in secure jurisdictions which have first quartile operating costs, such as Florence, and the timing of anticipated production from the project could be ideal for the next copper price cycle," explains Hallbauer. "Florence's low initial capital costs should allow us to manage the project's funding requirements through to production."

Florence is a shallow porphyry copper deposit that provides the ideal metallurgical, bedrock and groundwater conditions for in-situ copper recovery, a "mining" method that involves a grid of wells injecting a mildly acidic solution into the ore-body and pumping out a copper-laden solution that would produce a pure copper cathode on-site through a solvent extraction-electrowinning process.

The project is in the final stages of permitting a 24-well pilot plant that aims to demonstrate that this modern means of extracting copper without mining works and is safe for the environment.

The purchase of Curis, and in extension the Florence project, is not a stretch for Taseko. Both companies are under the umbrella of Hunter Dickinson Inc. and Hallbauer is the chairman of Curis.

The purchase will be carried out through a share exchange which will involve Curis shareholders receiving 0.438 of a Taseko common share for each Curis common share held, representing consideration of C$1.055 per Curis share.

The deal is being touted as a win-win for both Curis and Taseko shareholders.

Upon the Sept. 8 announcement of the transaction, Curis President and CEO David Copeland said, "I believe there is an opportunity for shareholders of Curis to benefit from both retained exposure to our world-class Florence Copper project and from Taseko's operating success at the Gibraltar copper-molybdenum mine. Curis shareholders will be able to participate in a producing company with a more diversified development portfolio stemming from the New Prosperity and Aley projects. Taseko is financially strong and will allow us to forego the future dilution Curis shareholders would have faced to develop Florence on our own."

Taseko shareholders now have two potential new mines to look forward to as the battle to develop New Prosperity continues.

"Florence adds diversity to our pipeline of development projects," said Hallbauer. "With our Aley niobium project also entering the environmental assessment phase, we could potentially have two projects ready for construction in the next 24 months. In an era with few economically viable projects available, we are in an enviable position."

Author Bio

Shane Lasley, Publisher

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Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.


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