When Inco auctioned off five surplus properties in the Sudbury Basin in 2001 to little known Fort Knox Gold Resources, no one could have predicted that the upstart junior mining company with one employee and $300,000 in the bank would be producing 900,000 tons of ore and recording net earnings of $68.7 million by 2006.
FNX Mining Company Inc. as it’s now known, has two of those five properties in operation and another one scheduled to begin commercial ore production before the first half of 2008. This year alone, it will spend $185 million on mine development and exploration and, by 2010, it expects to double production.
The sole employee in 2001, company founder Terry MacGibbon, decided early on that the success of FNX depended first and foremost on assembling a talented exploration team. Having retired from Inco in 1997 after 30 years of service as a senior exploration executive, he had some inkling of the untapped potential of the Sudbury Basin.
He also saw potential for near-term production, but lacking expertise in mining operations, MacGibbon invited mining contractor Dynatec Corporation to take a 25 per cent interest in a joint venture. With all of the bases covered, the FNX team rolled up their sleeves and went to work.
The timing couldn’t have been better. Nickel prices went through the roof, sparking an unprecedented wave of consolidation through 2006. Inco was snapped up by CVRD, Falconbridge was acquired by Xstrata and Dynatec, which was itself morphing into a mid-tier mining company with a 45 per cent stake in the Ambatovy Nickel Project in Madagascar, was acquired by Toronto-based Sherritt International. A side deal concluded in September saw FNX purchasing Dynatec’s mining services business for $53 million.
FNX went from one employee in 2001 to a head count of 704 by the end of 2006. With the acquisition of Dynatec’s mining services business, its payroll ballooned to 1,600.
From its genesis as a junior miner with expertise in exploration, FNX has evolved into a mid-tier player with competencies in both exploration and mining, setting the stage for the company’s next phase of growth, said John Lill, who took over from MacGibbon as FNX president and COO in September.
“We have a lot of growth potential in the Sudbury Basin and that will be our first area of interest, but one of the reasons we acquired (Dynatec’s) mining services business is that we think there are a lot of other mining development opportunities.
“If someone has a good project and needs some help in terms of mine development, financing or exploration, FNX is very well positioned to help,” said Lill.
Dynatec, which accounts for 900 of FNX’s 1,600 employees and has contracts in Nevada, Utah, Saskatchewan and Ontario, will continue to operate as a mining contractor under FNX ownership.
Lill, a mining engineer who was executive vice president and chief operating officer of Dynatec prior to assuming his current role, is intimately familiar with the mining services business as well as FNX operations in the Sudbury Basin, having served as Dynatec’s representative on the FNX board.
Fast track
McCreedy West’s ramp access made it an obvious candidate for fast tracking in late 2003 and is now producing 2,000 tonnes per day. The Levack Mine, immediately adjacent to McCreedy West, took a little longer to bring on stream because of its shaft access and the need for substantial rehabilitation, but is now producing 500 to 600 tonnes a day and is on target to increase that to 2,000 tonnes per day in 2008.
Next up is the company’s Podolsky property in the northeast corner of the Sudbury Basin. Early drilling at Podolsky resulted in the discovery of the 2000 Deposit and a decision to sink a 2,650-foot exploration shaft to better understand the scope of the orebody.
“The drilling from surface led us to conclude that there were some jewel boxes down there, but it wasn’t possible to make sense of it from surface,” said Lill. The Podolsky shaft was completed by Dynatec in August 2006 and in August 2007, FNX announced that drilling from an underground exploration drift had exposed 22 feet of high grade mineralization grading 20 to 25% copper, 1% to 2% nickel and 0.25 to 0.75 oz/ton of precious metals.
A month later, the company issued another press release announcing that the high-grade mineralization extended a further 65 feet.
“It’s a spectacular discovery by any standard,” said Lill.
As a result of the exploration success it has had at Podolsky, FNX declared its intention to proceed with production and is currently busy completing the required infrastructure.
“Podolsky will be up and running before the first half of 2008, which is quite a bit earlier than our initial commitment,” said Lill.
In addition to targeting the 2000 Deposit, FNX is moving in on several other deposits through a separate ramp adit system on its Podolsky property. It is spending $18 million on 5,250 feet of lateral development to explore and develop the North and Nickel Ramp deposits. The former outcrops at surface as a smooth high-grade chalcopyrite vein dubbed the Yellow Brick Road and plunges to the south towards the 2000 Deposit to a depth of at least 600 feet. A NI43-101 compliant report estimates that the North Deposit contains an indicated resource of 130,000 tons at 6.56% copper, .66% nickel and .20 oz/ton of precious metals.
The Nickel Ramp deposit is the down plunge extension of the previously mined Whistle Pit.
Levack Footwall
Meanwhile, the company is proceeding with work to access the Levack Footwall Deposit, discovered by the FNX exploration team in 2005.
“That was a very exciting discovery,” said Lill. “It was a theory that our exploration group had from the onset of the joint venture. We’ve been working on that for two years and have done quite a bit of drilling, mostly from a distance --until recently. We have had some spectacular intersections of 26 per cent copper with high levels of precious metals and relatively high nickel grades.”
Exploration drifts are converging on the deposit from two directions. FNX is paying Xstrata Nickel to access the deposit from its Craig Mine workings and is also ramping down from the Levack side. At press time, Xstrata crews were closing in on the zone.
Underground development will provide FNX with a better understanding of the deposit and how to best exploit it. A formal production decision is still to be made, but Lill is confident that the company will be shipping Levack footwall ore sometime in 2009.
Aside from McCreedy West, Levack and Podolsky, FNX also has two additional former producing Inco properties – Victoria and Kirkwood – on which it plans to do some work in 2008. And through its acquisition of Aurora Platinum in May 2005, FNX increased its landholdings in the Sudbury Basin eight-fold. The company’s Aurora properties include eight kilometers of favourable, relatively unexplored footwall environment at the historic Falconbridge Mine and a 10-kilometre long section of the Foy Offset, which radiates from the north range of the Sudbury Basin. With all of that ground in hand, FNX is nowhere near exhausting its opportunities in Sudbury.
Could FNX itself be a target as the spike in commodity prices continues to feed industry consolidation?
“Any pubic company is for sale every morning, but our aim is to go through this development, grow the company and continue to create value,” said Lill. “If we’re fully valued in the market, it makes it much more difficult to be a target.”
In addition, the company’s strong relationship with CVRD Inco, which processes and markets its ore, makes any acquisition a little more complicated, said Lill.
Speculating about FNX’s potential to emerge as a global heavyweight, much like Barrick Gold, Xstrata and Goldcorp have grown from modest origins, Lill said, “I would hope we’d have the good luck to go that route.
We’d certainly love to do so from a shareholder value creation point of view.”
For the nine months ending September 30th, FNX reported revenue of $216.4 million compared with $119.7 million for the same period last year. Net earnings for the first nine months of the year were $77.7 million, compared with $49 million last year.
