First Point's new nickel mining method is creating a stir in the big leagues.
A B.C. company has found an innovative new way to mine for nickel, attracting the attention – and investment dollars – of one of the industry’s biggest players.
Junior mining companies populate the world’s stock exchanges in the thousands, each one touting itself as the best thing since sliced bread, the next big thing, guaranteed to outperform; pick your cliché.
A handful of those companies actually grow, prosper and amount to something. Another handful are scams, occasionally spectacular such as Bre-X, and give investors and regulators fits. The vast majority live for a while, attract enough investment capital to take a run at a prospective gold deposit or a copper play and make (and lose) money for shareholders who get lucky (or unlucky) as the stock prices go from 10 cents to 20 cents, down to five cents and back up again.
For most of its life, Vancouver-based First Point Minerals Corp., trading on the TSX Venture Exchange, fit into the latter category. Established in 1995, the company has spent the last 15 years raising money to go after base and precious metals in Canada, the U.S. and Mexico, with not much to show for it.
A year ago, that status changed dramatically, leading some market players to wonder whether First Point Minerals does indeed fall into the “builder of a better mousetrap” category. The jury is still out, but in December of 2009, First Point reached an agreement with U.S. industrial giant Cliffs Natural Resources Inc. that will see Cliffs spend up to US$4.5 million over four years on First Point’s potential nickel deposit at Decar in northwestern B.C.
Cliffs Natural Resources Inc.
A supplier of raw materials for the steel industry, Cliffs is a Fortune 1,000 company with a market capitalization of about $8 billion. It trades on both the New York and Paris stock exchanges, has coal mines and iron ore mines all over the world, and has been in business for 163 years. Of all the gin joints in the world, why did Cliffs walk into First Point’s?
“They are thinking outside the box,” says John Kaiser, whose online mining newsletter at kaiserbottomfish.com seeks out those junior mining companies that appear to have a leg up on the rest of the pack. (A disclosure: Kaiser owns shares in First Point.)
Kaiser explains that what First Point is proposing in its Decar nickel property is a brand new concept in nickel mining: an open-pit bulk-tonnage mine exploiting low-grade nickel in deposits that are very hard to identify and that fall outside of traditional nickel exploration. He believes it could in time become a significant source of nickel worldwide, and not only is no one else doing this but, for now, no one else knows how to do it.
The kind of alloy First Point is looking for is called awaruite, a naturally occurring alloy that contains stainless steel and whose nickel composition ranges from 63 per cent to 83 per cent, while the rest is iron. This alloy, however, is found in very low concentrations; First Point hopes to process huge quantities of rock taken from open-pit mines, whose total concentration of nickel would be only in the 0.1 to 0.25 per cent range. This is far below nickel concentrations found in more traditional nickel deposits.
The world’s major nickel producers currently produce nickel from either high-grade sulphide deposits or laterite deposits. Both of these operations are highly capital intensive, have major pollution issues to deal with because of the sulphur present in both systems and have to send the ore to a smelter before the nickel can be shipped to a steel mill.
First Point’s approach is to find a low-grade awaruite deposit and develop an open-pit mine that can mechanically process bulk tonnage of ore by crushing the ore and separating the nickel through a combination of gravity and the magnetism of the ore. There is no sulphur present, and therefore no acid mine drainage, and the nickel can go directly to a steel mill without the need for a smelter.
First Point CEO Peter Bradshaw explains that the mechanical processing system First Point will use is identical to the processes Cliffs uses in its iron ore mines: bulk tonnage, open pit, very modest grade and the use of magnetic and/or gravity separation. “The only difference,” Bradshaw says, “is that we’re getting nickel, which is worth $2,000 a tonne, while the iron ore is worth about $100 a tonne.”
If it’s that simple, why didn’t the big nickel-mining companies of the world jump into this style of mining years ago? That’s where the better mousetrap comes into play. The challenge is identifying these low-grade nickel deposits that have the characteristics necessary to allow the bulk tonnage processing system.
The better mousetrap
Bradshaw and Ron Britten, First Point’s vice-president of exploration, have taken more than 10 years to develop a proprietary system that can quickly and efficiently assess the deposits in question. While Cliffs is on board with the hope of developing the company’s deposit at Decar, it is this proprietary system of technical analysis – the better mousetrap – that people such as John Kaiser are interested in.
“These properties are very hard to spot in the field,” Bradshaw explains. “There are no visual clues. What geologists look for is a good rusty rock. Rusty rocks are caused by iron sulphides breaking down. [The Decar property] doesn’t have any of that because it isn’t iron sulphides; it’s stainless steel. I can absolutely guarantee you could take a very competent exploration geologist, camp on that rock all summer and he would not get excited about it at all.”
First Point’s closely guarded secret is a series of analytical mechanical tests, assays and chemical processes designed to identify all the characteristics of the samples being tested. A positive conclusion requires all of them to be on target. Bradshaw says there are other commercial processes out there that provide the same results but at such a prohibitive cost and over such a long time frame that no one would take the chance.
Brian Soregaroli, First Point’s vice-president of corporate development, details the lengths the company goes to to make sure no one figures out what the system is and how it works: “The conditions under which these deposits are formed are very particular and specific to a geological period. We send samples to different labs for different parts of the analysis so that no one lab knows the whole process.”
A novel approach to nickel mining
With First Point’s novel approach to nickel mining under development and refinement for more than a decade and with a type of mineral deposit completely alien to the world’s big nickel producers, it will come as no surprise that Bradshaw’s initial attempts to get those big players interested in making an investment went nowhere. “We really weren’t connecting with those companies,” he says.
Kaiser is more blunt in his take on the big nickel players and why they weren’t interested: “They’ve got the blinkers on. They know what works and what doesn’t and here’s some crazy guy who undermines everything they’ve been doing their whole careers.”
After getting the cold shoulder from the traditional nickel miners, First Point widened its discussions and talked to companies mining porphyry copper deposits, because copper mining entails exactly the kind of open-pit, bulk-tonnage processes envisaged for these low-grade nickel deposits.
First Point’s connection with Cliffs came from that expanded search for benefactors, and through a third-party consultant, Bradshaw says. The timing couldn’t have been better. In 2009 Cliffs embarked on a new development strategy aimed at gaining control of all the inputs required to make steel in North America, including coal, iron ore, chromium – and nickel. The company has made, and continues to make, acquisitions in North America that will help it attain that goal.
The agreement Cliffs signed has the U.S. company spending at least $4.5 million over a five-year period to earn a 51 per cent interest in First Point’s Decar property – with at least $1 million committed in 2010. If the exploratory work underway this year is successful, Cliffs can increase its share to 60 per cent by doing a scoping study, to 65 per cent by doing a pre-feasibility study and to 75 per cent by doing a bankable feasibility study that complies with the rules applied by Canada’s securities regulators for public disclosure on mining ventures. Cliffs’ further right to purchase shares in First Point means it could ultimately control 15 per cent of First Point.
While this is a very big deal for First Point, for Cliffs it’s so small it is not required to disclose any more detail than the original nuts and bolts. For that reason, Cliffs’ officials would not agree to an interview, instead agreeing to respond only to a series of emailed questions.
Asked how Cliffs found First Point, Steve Baisden, Cliffs’ communications person, would only confirm that First Point fits Cliffs’ plan “to work with junior mining companies with promising projects that are consistent with Cliffs’ strategy of building its presence and pipeline of projects in steelmaking raw materials.”
Cliffs’ investment in First Point so energized the company, and the investment community looking for potential winners, that a planned financing in the spring of 2010 – designed to raise $5 million for further exploration – was heavily oversubscribed and raised $7.5 million. Says First Point’s Soregaroli, “We were very surprised. Everyone had to be cut back by at least half, and Peter [Bradshaw] said he’s never had to tell investors he can only take half the money. That was the credibility from Cliffs. Without Cliffs, our story would be greeted with, ‘Yeah, you and a thousand other juniors.’”
That financing, according to Kaiser, is what should give First Point its opportunity to prove that the proprietary analytical process can back up the hype. The money will be used by First Point to explore other potential deposits the company has in B.C., Oregon and other parts of the world.
Working against the clock
Soregaroli estimates the company has 18 months to two years to lock up potential deposits around the world before the geological fraternity figures out how Bradshaw’s system works. After that, there won’t be very much proprietary about it. Meanwhile, First Point and its sugar daddy are moving as quickly as they can to prove up the Decar property – which, based on the global exploration effort underway now, could end up being just a pilot project that proves the concept.
And there are obstacles in B.C. to moving quickly with a mine, particularly in the northwestern part of the province. The Decar property, near Fort St. James, is part of the geography claimed by the Tl’azt’en Nation, a member of the Carrier Sekani Tribal Council. Bradshaw and other First Point officials have had several meetings with the band’s leadership, including newly elected Chief Ralph Pierre.
It is unclear how the band will respond to the proposed mine. Chief Pierre said in a telephone interview that the band was still in a fact-finding process and he was not prepared to comment in any detail about how discussions with First Point were proceeding. He did say that one of the band’s principal concerns was the health of a caribou herd in the area, and that would be an obvious priority for the band.
In the past, the Tl’azt’en Nation has imposed a moratorium on mining activity in its traditional territories when embroiled in a controversy over a mine. In 2005 the band imposed a mining moratorium after Teck Cominco Metals Ltd.’s tailings pond spilled mercury-laden water into Pinchi Lake – a resource shared by the Tl’azt’en Nation and the Nak’azdli Band.
Whether First Point’s pollution-free processing system will placate those concerned about seeing a large, open-pit mine in the region is still unclear. Nevertheless, mining watchers such as Kaiser don’t think First Point’s fortunes will be determined by success or failure at Decar. “I think Decar is not a necessary test case,” says Kaiser. “They focused on Decar because it’s very close to rail and infrastructure.” But the potential for so many of these deposits around the world combined with the fact that no one has been looking for them means there is no context for Decar, nothing to compare it to. As Kaiser points out, Decar may be the biggest and best, or it may be small and insignificant compared with what turns up over the next couple of years as First Point spends that $7.5 million.
For the time being, the idea of a better mousetrap for nickel mining, something that will alter the industry’s approach, still remains to be proven. But when a big player decides to take a gamble on a company like First Point, the answer could come sooner rather than later.