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Confidence returns to mining

February 21, 2018
by Norm Tollinsky
In: Exploration, Featured

Exploration spending up 30 per cent

First Cobalt is hunting for a mineral that’s tripled in value since 2015, largely due to anticipated demand from electric car makers. The company’s merger with CobalTech Mining and Cobalt One give the combined enterprise a large land package with 50 former silver mines, a mill and refinery.

The mood at this year’s PDAC March 4 through 7 at the Metro Toronto Convention Centre is sure to be more upbeat as the global mineral exploration industry emerges from four long years of misery.

“We see confidence returning,” said PDAC president Greg Mullan. “There are more financings, more investors, and more people attending conventions. Companies are still cautious, but they’re exploring more than last year. Our drilling friends would echo that. There’s a significant uptick, no question about it.”

Oddly enough, noted Mullan, who is also president and CEO of Golden Valley Mines and chair of Abitibi Royalties, the turnaround isn’t attributable to increasing commodity prices.

“Commodity prices have been relatively flat, so that’s not what spawned a return to the table. It was that people gradually lost their fear of speculative mining ventures, so the expectations are more optimistic going into this year than they were last year when there was still a fair amount of reticence.”

Michael Gravelle, Ontario Minister of Northern Development of Mines, notes that 2017 exploration and deposit appraisal expenditures for Ontario are projected to be $485 million – a 30 per cent improvement over the 2016 total of $371.1 million.

“Ontario remains one of the most attractive jurisdictions in North America for mineral exploration and the outlook for mining in Ontario is very positive,” he said, noting that the value of Ontario mineral production has exceeded $10 billion in each of the last four years.

The $485 million spent in 2017 pales in comparison to the $1 billion that went into the ground in Ontario at the height of the mineral exploration frenzy in 2011, but a 30 per cent increase in spending is good news for everyone in the industry.
Senior mining companies accounted for $351 million of the total, an increase over the $275 million they spent in 2016, while juniors put $135 million in the ground, a 40 per cent increase over the $96.1 million they spent in 2016.

The commodities of most interest were precious metals – primarily gold – accounting for $402.9 million, or 83 per cent of total spending. Base metals accounted for most of the rest.

There’s never a guaranty that exploration spending will pay off and when it does, it can take a decade or more to result in a new mine, an achievement celebrated in 2017 when New Gold commenced processing ore at its Rainy River Mine, 65 kilometres northwest of Fort Frances September 14th. The company completed its first gold pour October 5th,

produced 37,047 ounces to finish off the year and projects between 310,000 and 350,000 ounces of production this year.
More good news continued to flow in January as Vale, Glencore and Kirkland Lake Gold all announced major capital spending projects. Vale’s Sudbury Operations received approval for its long-delayed Copper Cliff expansion project, Glencore announced a $1 billion investment for the development of Onaping Depth and Kirkland Lake Gold revealed plans to spend $320 million for a new 21.5-foot diameter, 7,000-foot deep shaft at its seemingly inexhaustible Macassa Mine.

Exploring for ore in already well-established areas of mineral endowment is always a good bet, and could pay off for both McEwen Mining in the Timmins camp, as well as for Pure Gold in Red Lake.

Rob McEwen, executive chairman and chief owner of McEwen Mining, learned about the wisdom of not giving up on seemingly depleted old mines when, as founder and former chairman of Goldcorp, he staged a dramatic turnaround at the company’s Red Lake Mine. Now, he’s trying the same magic in Timmins, having purchased the four former producing Lexam properties and the Black Fox mine and mill down the road.

Stealing a page from McEwen’s tome of wisdom, Pure Gold is intent on breathing new life into the former producing Madsen Mine in Red Lake. The company has completed more than one million metres of drilling on the property, a feasibility study is underway and a production decision is scheduled before the end of this year. Madsen boasts an indicated resource of 1.6 million ounces of gold, underground infrastructure, a mill, tailings facility, paved highway access, power, water and the availability of a skilled workforce. A preliminary economic analysis published in September projects a 14-year mine life.

Also in Red Lake, Rubicon Minerals’ Phoenix Gold Project is progressing toward resurrection. The mine was 99 per cent completed and production underway when the ore management thought was there proved elusive, forcing a shutdown.

Under new leadership, Rubicon completed 28,500 metres of drilling to better understand the orebody, and now plans to extract a bulk sample of 15,000 to 25,000 tonnes this summer. An updated resource estimate and technical report are planned for the second half of the year.

Usually, mineral resources are firmed up prior to mine development, but in this case it’s just the opposite. Approximately $770 million has already been spent on a headframe, hoist, mill, tailings facility, powerline and nine kilometres of underground development, and the only thing that’s missing is confirmation of a resource worth mining.

On a much more positive note, Harte Gold is well on its way to developing its Sugar Zone Mine, 80 kilometres east of the Hemlo gold camp. The company drilled 138,000 metres in 2017, completed a 70,000-tonne bulk-sampling program in March and raised $32.4 million in a bought deal private placement in December and January. Underground mine services, power supply and ventilation work as well as site preparation for mill construction are underway with underground development work and mining expected to resume in Q2.

Less advanced, but promising nonetheless is Treasury Metals’ Goliath gold project near Dryden. In December, Treasury Metals closed a $4.25 million private placement and announced a 27,000-metre drilling program to boost indicated resources for a feasibility study it hopes to release in Q3. The company foresees an open pit mine feeding a 2,500 tonne per day mill with underground operations in the latter years of mine life.

Northwestern Ontario’s five mature mines include Goldcorp’s Musselwhite and Red Lake mines, North American Palladium’s Lac des Iles Mine and Barrick’s Williams Mine in the Hemlo camp.

The price of palladium in 2017 soared to US$1,100 per ounce – up from $700 at the start of the year, reinforcing a dramatic turnaround for Canada’s sole primary palladium producer. A new feasibility study released mid-year projects an extended mine life of 9.5 years and annual production of 214,400 payable ounces.

Musselwhite, 480 kilometres north of Thunder Bay, is currently in the midst of a $90 million material handling upgrade and expects to produce 265,000 ounces of gold in 2018 – up from 236,000 ounces last year. Red Lake, by comparison, produced 209,000 ounces in 2017, while guidance for this year is 235,000 ounces.

One of the most noteworthy moves on the mergers and acquisitions front in 2017 was the acquisition of Richmont Mines’ Island Gold Mine, 83 kilometres northeast of Wawa, by Alamos Gold, which also operates the Young-Davidson Mine in Matachewan, 60 kilometres west of Kirkland Lake. The all share transaction provided Richmont shareholders with a 23 per cent stake in the combined enterprise. The Island Gold Mine was on track to produce between 87,000 and 93,000 ounces of gold at all-in sustaining costs of between $725 and $765 per ounce for 2017, increasing to 125,000 ounces as a result of an expansion project scheduled for completion in the second half of 2018.

Wesdome’s Eagle River Complex, 50 kilometres west of Wawa, reported increased production of 58,980 ounces of gold in 2017 – up from the previous year’s 47,737 ounces. Guidance for 2018 projects a further increase to between 62,000 and 68,000 ounces.

A positive feasibility study released by Argonaut Gold in November for the nearby past producing Magino Mine, would be more good news for the Wawa region. The study, based on a 10,000 tonne per day open pit operation, would require a $321 million capital outlay. Gold production would average 123,000 ounces per year over a 14-year mine life.

Mines, of course, do have a finite life and, so there was also news about mine closures in 2017. In May, Vale placed Stobie Mine in Sudbury on care, and maintenance and on December 31st, Goldcorp ceased underground operations at Dome Mine in Timmins. Both mines were deemed uneconomic after more than a century of operations. Stobie began as an open pit in 1890 with underground operations beginning in 1914, while Dome Mine commenced operations in 1910.

Two other mines in northeastern Ontario – De Beers’ Victor diamond mine, 90 kilometres west of Attawapiskat, and Glencore’s Kidd Mine in Timmins – are due for closure in the next few years. De Beers produced its first diamonds at Victor in 2008 and will begin decommissioning in the first quarter of 2019, while the Kidd Mine, the deepest base metal mine in the world (three kilometres), will shut down in 2022 after more than a half century of mining.

Offsetting the closure of Kidd and Dome Mine are Goldcorp’s Century Project, which would double the depth and diameter of the Dome pit, and the company’s Borden project near Chapleau, 160 kilometres southwest of Timmins. A prefeasibility study on the Century project is in progress, while at Borden mine development and the extraction of a 30,000-tonne bulk sample are scheduled for Q4. Designed as an all-electric mine, Borden is supposed to commence commercial production in 2019, with ore trucked to Timmins for processing. Other operating mines in the Timmins area include Tahoe Resources’ Bell Creek and Timmins West Mines and Goldcorp’s Hollinger Pit and the Hoyle Pond Mine.

Despite more than a century of mining, Timmins has lost none of its allure, as illustrated by McEwen Mining’s purchase of the Lexam properties and the Black Fox Mine and mill, GFG Resources’ acquisition of Probe Metals’ West Porcupine and Osisko Mining’s Swayze properties, and Sage Gold’s bulk sampling program at its Clavos Mine.

Also in development is the Côté Gold project near Gogama, 112 kilometres south of Timmins. A joint venture of IAMGOLD (62.5%) and Sumitomo Metal Mining, Côté Gold boasts eight million measured and indicated ounces amenable to open pit extraction. A feasibility study is expected to be completed in the first half of 2019, with commercial production commencing in 2021. IAMGOLD estimates average annual production of 207,000 ounces of gold over a 17-year mine life.

While gold and base metals – especially nickel – are the primary commodities being mined and explored for in Northern Ontario, the global transition to battery-powered vehicles is also raising interest in lithium, graphite and cobalt.

Avalon Advanced Materials, for example, received a grant of $500,000 from the Ontario government in June to assist with piloting and scaling up its proprietary process for producing high purity lithium hydroxide from its Separation Rapids deposit near Kenora, and announced a winter drilling program of 1,500 metres in January.

A feasibility study released in September 2016 envisioned an open pit mine, potentially transitioning to an underground operation, with annual production of 14,600 tonnes of lithium hydroxide for a minimum of 10 years. Capital cost was estimated at $514 million.

The transition to battery-powered vehicles has led to a staking rush and consolidation of properties in the Cobalt camp in response to a predicted shortage of cobalt (see Page 26), while Zenyatta Ventures’ rare hydrothermal Albany graphite deposit near Hearst is attracting global attention for its ease of conversion into graphene, noted for its strength, light weight and conductivity.

All told, 2018 promises to be a solid year for exploration and mine development in Northern Ontario as investor interest in the sector returns and mining companies – both seniors and juniors – have money to spend. One problem though, notes Garry Clark, executive director of the Ontario Prospectors Association, is that companies with low capitalization focused on grassroots projects are still having a hard time raising money.

The brokerage houses are more interested in the bigger projects, so it’s difficult raising anything less than $1 million, he complained. “The province’s Junior Exploration Assistance Program (JEAP) helps to some extent, but needs to be retooled. Currently, it’s accessible by companies of a certain size and market capitalization, but companies with low capitalization are kind of dead in the water,” he said. “They’re trading at three cents, say, but the exchange won’t let them raise money below five cents, and if you do raise money at five cents, your shareholders are getting diluted.

“The foundation for our industry is a little crumbly because we have a lot of older projects that we’ve worked on for the last 20 years and some of them are dogs. We’ve beaten them up with exploration.”

New discoveries are needed to keep the momentum going and it’s often the smaller companies at the bottom of the feeding chain that bring new ideas and targets to the table, said Clark.


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