BC Business
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With commodity prices soaring, the B.C. mining climate has been enjoying a revival, but recent regulatory decisions have put the chill on a couple of projects. In this new, suddenly frosty market, we take a look at the major players hoping to escape the freeze.
For NovaGold Resources Inc., a company that began its life nine years ago in the basement of Rick Van Nieuwenhuyse’s California home, securing the right to develop one of B.C.’s biggest-ever metal mines has been something of a coup. In June Vancouver-based NovaGold received the permits required to begin constructing a $2.2-billion open-pit mine in the Galore Creek Valley, a remote area of northwestern B.C. known for its heavy snowfall and rugged glacial topography. Scheduled for start-up in 2011, Galore Creek is expected to rival Highland Valley Copper, an iconic presence in the Kamloops region for more than 40 years, by producing 432 million pounds of copper, 341,000 ounces of gold and 4 million ounces of silver annually in concentrates during its early years in operation. “This is a very significant project, one of the largest in B.C.’s history,’’ says Michael McPhie, CEO of the Mining Association of B.C. Vancouver metals giant Teck Cominco Ltd. is spending $520 million to earn a 50-per-cent stake in the site and split the development costs, in the expectation that Galore Creek will double Teck’s gold output in 2012 and increase its global copper production by 30 per cent. Mining projects on that scale are not usually developed by junior companies such as NovaGold, which Van Nieuwenhuyse launched in 1998 after resigning as VP of exploration for Placer Dome Inc. (The Vancouver gold miner was swallowed last year by Barrick Gold Corp. of Toronto.) But a combination of factors appears to have created an opportunity for the 52-year-old geologist and his company.They include Galore’s awkward location and a deep mining-industry slump that prevailed around the time that Van Nieuwenhuyse decided to go out on his own, working initially from his home in San Jose, California. He moved to Vancouver in 2003. “It wasn’t the best time to be starting a company,’’ he says, referring to the years between 1998 and 2001, when major companies such as Placer were slashing budgets and dumping exploration properties that didn’t warrant immediate development. “But there were lots of opportunities out there if you could find someone to finance them,’’ he says. A native of Gent, Belgium, who got his first taste of mining at the age of 14 when he was invited to work at an Alaska mercury mine, Van Nieuwenhuyse knew where the opportunities lay because he had spent his career running exploration projects in Alaska, Africa and Kazakhstan. Thanks to his connections, NovaGold won the right to earn a 70-per-cent stake in the Donlin Creek project in Alaska from Placer Dome in April 2001. One of the largest undeveloped gold deposits in North America, it made NovaGold the target of a long-running but unsuccessful takeover attempt by Barrick Gold last year. When Placer stalled on building Donlin Creek, Van Nieuwenhuyse went looking for another project that would give investors a reason to buy shares in his company. In April 2003, NovaGold secured an option to earn 100 per cent of Galore Creek from subsidiaries of Rio Tinto PLC and Anglo American PLC because the ownership stake held by each of those companies was too small to motivate them to develop the site. “Geologically, it’s a great deposit; it’s just in a very difficult location,’’ says Tom Schroeter, a former senior geologist with the B.C. Ministry of Energy, Mines and Petroleum Resources. After starting construction on June 1, NovaGold is using a giant Russian Mi-26 helicopter to move trailers and other heavy equipment into seven construction camps that are set up along the proposed route of a 132-kilometre access road. When it is completed in 2009, the road will provide transportation links from the Galore Creek Valley to Highway 37, the main route to the port of Stewart. It will also be a pathway for a $100-million hydro line and two pipelines. One pipeline will carry metal-bearing concentrates in the form of slurry, and the other will pump fuel to the mine site. NovaGold could never have undertaken a project of that scale if it wasn’t for the surge in gold and copper prices that has occurred since it acquired the exploration rights in 2003. But Van Nieuwenhuyse says the support of First Nations has been equally important. “Talks with First Nations were crucial,’’ he says, adding that “the local community has to see a direct benefit from a project like this.’’ Curtis Rattray agrees. He chairs the Tahltan Central Council, which deals with Aboriginal rights and title issues on behalf of about 5,000 members in Telegraph Lake, Dease Lake and Iskut. Rattray says NovaGold gained the support of the Tahltan because it followed the proper protocol by asking permission from the Tahltan and explaining what it planned to do before making any approach to the provincial government. “It allowed our people to understand the project and express their concerns,’’ he says. Under a revenue-sharing deal, a Tahltan-administered trust fund will receive a minimum annual payout of $1 million, plus royalties, and a role in monitoring environmental impacts. Rattray says his members hope they will eventually gain the skills that are needed to work in all areas of the operation. For NovaGold, Galore Creek will be a stepping stone on the route to becoming a mid-tier mining company with annual gold production of 300,000 to one million ounces. Its first mine – the Rock Creek near Nome, Alaska – is expected to be in production by the end of this year. Proving that you don’t have to be big to succeed, Roca Mines Inc. is cashing in on the soaring global demand for molybdenum after recently bringing its Max mine in southeastern B.C. into production at a cost of about $25 million. Located about 60 kilometres southeast of Revelstoke, it is the first new metal mine to reach the production stage in B.C. since Northgate Minerals Corp.’s Kemess South gold mine reached its commercial production stage in October 1998. Roca, a small Vancouver company, went public in 2002 in a bid to finance exploration at its Foremore gold project in northwestern B.C. But the rising price of molybdenum – an alloying element used in the production of steel and cast iron – convinced Roca executives to turn their attention to the Max project in January 2004, when the company acquired a key block of claims that host high-grade deposits. At that time, molybdenum was selling for about US$8 a pound. But rising demand from the Chinese steel industry has since sent prices rocketing over the US$32 a pound mark, a level that promises to make the production of molybdenum highly profitable for companies such as Roca. “When we acquired the project, it was obvious that investors and shareholders wanted us to focus on what was going to create the most value,” says Roca CEO Scott Broughton. There was no question in Broughton’s mind that the value lay in developing the Max project. The next step was to tie up additional ground in the region, which was controlled by U.S. gold-mining giant Newmont Mining Corp. It had explored the region from 1975 to 1982 with Esso Minerals Canada Ltd., spending $15 million to build an underground tunnel at the site. Roca wound up buying a database containing information about Newmont’s exploration work, including surface and underground drilling. In November 2005, it received a permit from the B.C. government allowing it to fast-track development of a small high-grade zone – 280,000 tonnes of molybdenite – within the larger ore body. If everything goes according to plan, the company will produce about three million pounds of molybdenum this year, metal contained in powder-like concentrates that will be sold to British metals-trading giant Derek Raphael & Co. Ltd. By getting the mine into production, Roca has joined a small club of primary molybdenum producers, which includes the likes of Thompson Creek Metals Co. Inc. and Freeport-McMoRan Copper & Gold Inc. Having reached that goal, Roca now plans to use cash flow from Max to fund exploration on its other properties, including Foremore, a project that will benefit from the development of the access road that NovaGold is building at its Galore Creek mine. When the road is built, Roca exploration officials will be able to drive to the site instead of flying there in a helicopter, Broughton says. Depending on how molybdenum prices perform, Broughton is also mulling an expansion at Max. “I see prices increasing in the near term,’’ says the Roca CEO. “But how much higher, I’m not sure.’’ Production start-up is an achievement for Broughton, a 45-year-old engineering consultant who got caught up in the ripple effect of the Bre-X scandal when he launched a junior company in the weeks before the scandal broke. He quickly found that investors had lost their appetite for junior exploration plays. After biding his time through some lean years between 1997 and 2003, he chose to work from offices in Vancouver’s Yaletown district with partners John Mirko and David Skerlec, a Roca director and CFO, respectively. Yaletown – a district of downtown Vancouver best known for its restaurants and high-tech start-ups – has not traditionally been a hangout for the mining crowd. But Broughton says it suits him because it’s away from the Howe Street hubbub and allows him to walk to work from his Yaletown condominium. Still, despite its low-key location, Roca has not escaped the attention of the investment community. Sprott Molybdenum Participation Corp., a group of funds set up by Toronto-based Sprott Securities Inc. (now Cormack Securities Inc.) to invest in molybdenum producers and the underlying commodity, owns close to 20 per cent of the company. Wayne Hewgill, a mining analyst with Research Capital Corp. in Vancouver, says he likes the fact that Roca is mining a high-grade zone that can be developed quickly but is not big enough to glut the market. “They will be able to benefit from high prices,” he says. At the age of 50, Rob Pease has seen his career come full circle since he became CEO of Terrane Metals Corp., a junior company with plans to develop the Mount Milligan copper-gold project in central B.C. Twenty-six years ago, he got his start working as a summer student for Placer Dome Inc. in Vancouver while taking a degree in geology at the University of Waterloo in Ontario. Hired to work at Placer’s former Equity Silver mine near Houston, B.C. in 1982, he rose through the Placer ranks to become GM of Canadian exploration, a role that required him to oversee dozens of Placer exploration projects. They included the large but low-grade Mount Milligan copper-gold project, located on the same geological structure as Northgate Minerals Corp.’s Kemess gold mine, about 160 kilometres northwest of Prince George. So when Placer was acquired by Barrick Gold Corp. in March 2006 and Pease found himself looking for a new job, he quickly moved to acquire Mount Milligan, along with a basket of other B.C. mining assets that Barrick had turned around and sold to Vancouver-based Goldcorp Inc. “I approached Goldcorp and suggested that perhaps these assets are not a good strategic fit, so let’s try and work out a deal,’’ explains Pease. In exchange for $120 million worth of convertible shares in Terrane, Goldcorp completed the sale of the B.C. properties in July 2006. Since then the junior miner has launched an $18-million study to determine the feasibility of developing an open-pit copper-gold mine at Mount Milligan, which it expects will cost around $750 million. Any future mine plan would be based on estimates that the site contains 1.9 billion pounds of copper and 5.5 million ounces of gold. Pease says attempts to develop the site are facilitated by the fact that Placer launched a feasibility study in 1991 and obtained the necessary mine permits to commence production. But after investing about $270 million in the project, Placer shelved its development plans when the price of copper fell below US$1 a pound. Now that copper is trading above US$3.60 a pound on the London Metal Exchange, Pease is betting it will be feasible to build a 60,000-tonne-a-day mine, producing 90 million pounds of copper and 300,000 ounces of gold annually. “We are looking at coming online in the second quarter of 2011,’’ says the Terrane CEO. Because metal grades in the Mount Milligan deposit are low by industry standards, copper would have to trade above US$2 a pound for a sustained period in order to make development economically feasible, says Wayne Hewgill, a mining analyst with Research Capital Corp. in Vancouver. “It is a decent project that needs metal prices to stay high,” he says. Another key project in Terrane’s asset portfolio is the Berg copper-molybdenum deposit, which is located 80 kilometres south of Houston. It was one of the first projects that Pease worked on during his summer student days at Placer. Terrane is spending $4.5 million this year on a drilling program aimed at confirming the existence of a deposit outlined by Placer and estimated to contain 238 million tonnes of material, grading 0.40 per cent copper and 0.05 per cent molybdenum sulphide. By the end of this year, the company hopes to deliver a technical report that will require a Terrane official to confirm that resource estimates for Berg are in compliance with guidelines set out by the Canadian Institute of Mining, Metallurgy and Petroleum. Northgate Minerals Corp.’s Kemess gold-copper mine is by far the largest metal mine to have been developed in B.C. in the last decade. But time is running out for the central B.C. operation as Kemess approaches its 10th birthday next year; its survival depends on a controversial plan to develop a nearby deposit that would extend the life of the operation until 2020. The plan to mine the $190-million Kemess North deposit is controversial because Northgate cannot proceed unless it is granted permission to dump acid-generating mine tailings and other waste rock into a freshwater lake near the proposed mine site, 250 kilometres northeast of Smithers. However, the likelihood that this will happen is in doubt following a recent ruling by a joint review panel formed by the B.C. and federal governments. After taking into account the views expressed in public hearings and by affected First Nations, the panel said it could not support the project as it is now proposed. Kemess North could still proceed if the federal and provincial environment ministers decide to ignore the recommendations of the panel. But the head of one of the affected First Nations vowed that any such decision will be challenged all the way to the Supreme Court of Canada. “We are gravely concerned about the ability of a destroyed lake to support future generations of Gitxsan,” says Gordon Sebastian, a hereditary chief with the 12,000-member Gitxsan Nation. Even mining-industry officials have expressed reservations about that plan. Rob Pease, CEO of Vancouver-based Terrane Metals Inc., says dumping tailings into a freshwater lake is the equivalent of “neanderthal mining.” For its part, Northgate has said it will review the contents of the panel report before deciding how it should proceed. In an interview prior to the report’s release on September 17, 2007, Northgate CEO Ken Stowe was clearly irritated by the length of time it has taken a joint federal and provincial review panel to issue a recommendation. “This has been a long, drawn-out, frustrating process,” said Stowe. “The panel was supposed to [issue a recommendation] within nine months. But the process has continued for three years.’’ Northgate has offered to compensate for the destruction of Duncan Lake by transplanting its population of Dolly Varden fish into other lakes in the Toodoggone River system. Having already invested about $5 million to fund the cost of the project review, Stowe says he just wanted the panel to issue a decision so that the company can get on with business. If Kemess North cannot be developed, it will not be the end of Northgate, he says. The company had $317 million in cash in the second quarter and is developing a second mine, the Young-Davidson, near Kirkland Lake, Ontario. “We will go on,” he says. “We are not disappearing.” When Imperial Metals Corp. won a high-profile takeover battle for control of bcMetals Corp. in February 2007, it was aiming to secure the right to develop a northwestern B.C. gold-copper project billed as the most production-ready mining asset in the province. Located about 18 kilometres southeast of Iskut, the $228-million Red Chris open-pit mine was expected to produce 110 million pounds of copper and 75,000 ounces of gold in concentrates annually during its first five years in operation. Imperial Metals waged a protracted battle with Vancouver rival Taseko Mines Ltd. for control of the project because Red Chris would provide a long-term replacement for its existing Mount Polley and Huckleberry mines, which are also located in B.C. However, Federal Court Justice Luc Martineau threw up a roadblock to those plans on Sept. 25, by ruling that the federal government has an obligation to seek public input in any assessment of the project’s environmental impact before vital mining permits can be issued. The ruling comes after Ottawa-based Mining Watch Canada challenged an earlier decision by Fisheries and Oceans Canada, which elected not to subject the Red Chris project to a full-scale environmental review. Curtis Rattray, chair of the Tahltan Central Council, says, “The Tahltan First Nation is opposed to the Red Chris project until the risks have been identified and addressed.” A key concern, he says, is the impact of acid-rock drainage. But even if Imperial receives the green light, mine development must still await completion of a proposed northwest transmission line designed to connect remote mining projects such as Red Chris to the provincial hydro grid near Skeena, B.C. Expected to cost up to $400 million, the 335-kilometre transmission line will be built along Highway 37, extending the hydro grid to a new substation at Bob Quinn Lake, about 100 kilometres south of the proposed open-pit mine. “As soon as the power-line situation is sorted out, we will update the economic feasibility study, finance it and start building [the mine],” says Imperial president Brian Kynoch. Kynoch says he hopes Red Chris will be in production by 2011. However, unlike NovaGold, Imperial Metals is not looking to provide its own power if the power line doesn’t proceed. “The date of production will be determined by and when power is delivered to northwestern B.C.,’’ he says. On October 1, Imperial appeared to receive a boost when the provincial government said it had ordered B.C. Transmission Corp. to proceed with the power line. Subject to an environmental assessment and consultations with affected First Nations, it will be built in two phases and will likely take about three years to complete. The two phases include a 209-kilometre section from a substation in Terrace to Meziadin Junction and a second 126-kilometre phase from Meziadin to Bob Quinn Lake along Highway 37. The power line is scheduled to be completed by 2011. Until Serengeti Resources Inc. began drilling its Kwanika property in central B.C. last fall, there was little in the way of new discoveries to show for the $768 million being invested in mineral exploration in the province so far this decade. Even when metal prices had recovered and exploration spending soared to $260 million last year, compared to $25 million in 1999, provincial geologists in B.C. would have had trouble pinpointing a mineral discovery that was brand new. It helps to explain the stock-market reaction to the discovery of a potentially large porphyry copper-gold zone on Serengeti’s Kwanika property, which is located in a dying pine forest a 20-minute helicopter ride to the north of Fort St. James. The existence of the zone was confirmed in drilling results released in January, when the stock was trading below $0.60 on the TSX Venture Exchange. It has since soared as high as a $4.80 in late June before falling back to $1.35 at the end of September. Tom Schroeter, a former senior regional geologist with the B.C. Ministry of Energy, Mines and Petroleum Resources, describes the find as a “real turnkey” and an indication that generative, or grassroots, exploration is back in this province. He estimates that only 14 per cent of the total amount spent on mineral exploration in 2006 was earmarked for discoveries that could be considered new. Analysts who have visited the property say it is much too early to say whether or not Serengeti is sitting on a mine. “They have another year or two of hard drilling ahead of them to define the extent of this thing,’’ says Graeme Currie, mining analyst with Canaccord Adams Inc. in Vancouver. Kwanika sits on a geological structure known as the Quesnel Trough, which hosts a number of other porphyry deposits, including Kemess South and Mount Milligan. Exploration there is led by seasoned mining-industry veterans such as Serengeti CEO David Moore and chief geologist Myron Osatenko. They previously worked together as senior exploration officials with Cominco Ltd. before it merged with Vancouver affiliate Teck Corp. in July 2001. Using provincial government databases, Osatenko and Moore assembled a package of properties covering 200,000 hectares in 25 separate claim blocks. “It was a case of looking for things to do,’’ says Moore. He was working on a theory that a thick covering of gravel and boulders left behind by receding glaciers may have prevented prospectors in the 1950s and 1960s from detecting mineral occurrences in the vicinity of Kwanika. However, the geology appears to be complex and the drilling process has not been without its setbacks. Serengeti’s stock price took a steep tumble on July 11, the same day the company flew a group of financial analysts up to the Kwanika property, where the company has set up a 20-man exploration camp. The sell recommendation by Vancouver investment newsletter the Hard Rock Analyst sent the stock down 36 per cent to $2.69 after copper and gold grades in a batch of drill results released on the morning of the site visit did not meet investor expectations. “It’s been like riding a rocket ship in the last six months,’’ says Moore, referring to the recent stock-market gyrations. However, with $24 million in the treasury, the company can easily afford to continue drilling Kwanika and other properties in its portfolio. Click here to view a slide show of the faces behind some of B.C.’s most prominent mining companies. Related Stories: Mineral Explosion (July 2007) Rock Stars (September 2006)