"At least you've got laws on the books that you caRESOURCES: POLYMET TO REVIVE MINNESOTA REFINERY
Abandoned North American mines getting a second look
ROB DELANEY AND STEWART BAILEY
Bloomberg News
August 20, 2008
TORONTO, NEW YORK-- The population of Hoyt Lakes, a town dotted with maple and pinetrees in the hills of Minnesota, has fallen by half to 1,400 since2001, when declining metals prices forced LTV Steel Co. Inc. to close anearby iron mine and refinery.
Now, PolyMet Mining Corp. plans to revive the deposit as acopper and nickel mine using specially developed technology. That willhelp draw back some of those who left, says Robert Bartholomew,president of the town's Chamber of Commerce.
Even after the U.S. dollar's rise and fears of global recessiondragged down raw material prices in recent weeks, copper is still 300per cent higher than five years ago, nickel is up 93 per cent and goldhas more than doubled. This has encouraged a new look at abandonedmines in North America. For PolyMet, Mercator Minerals Ltd. and Franconia Minerals Corp., the risks are lower than in countries with instability, changing laws and rising royalties.
"We're seeing budding resource nationalism from Mongolia to Peru,"said Bart Melek, commodity strategist at BMO Nesbitt Burns Inc. inToronto. "We have a very stable, investor-friendly environment" inNorth America.
Investors betting on miners with projects in North America havegained more than those buying companies such as Moto Goldmines Ltd. andIvanhoe Mines Ltd., which staked their fortunes in Africa and Asia.Franconia and PolyMet have more than tripled and Mercator has jumped700 per cent in the past three years.
None of these companies are generating production revenue from theirown operations and all are digging or planning to dig their firstmines. PolyMet is less than 1/300th the size of BHP Billiton Ltd., theworld's largest mining company based on market value.
The gains in metal prices are prompting governments of emergingnations to demand more revenue from mining. Zambia and Argentina haveraised taxes; Ecuador has frozen all mining while it redrafts aminerals code; and Venezuela is planning new minerals legislation.
Governments of developing countries "see a chance to use the presentsituation as a lever for economic and social development," said MagnusEricsson, an analyst at Stockholm-based Raw Materials Group. "We'll seea lot more government interest in the mining sector in the years tocome at all levels."
In the Democratic Republic of the Congo, President Joseph Kabila'sgovernment is reviewing the terms of projects run by Freeport-McMoRanCopper & Gold Inc., First Quantum Minerals Ltd. and other foreignminers, Congolese National Radio and Television, the state broadcaster,reported in July.
In Mongolia, a tentative accord reached last year with thegovernment by Rio Tinto PLC and Ivanhoe has been derailed by a populistmovement. Mongolia is angling for more of the output from Rio'sproposed $3-billion (U.S.) copper and gold mine near the Chinese borderafter agreeing earlier to a 34-per-cent equity stake, Ivanhoe's chiefexecutive officer, John Macken, said in a June 4 interview.
"Governments are getting their hands on more commodity earnings thanever before," said Charl Malan, a hedge fund manager at Van Eck Globalin New York.
Meanwhile, the total value of all mining projects planned for theUnited States and Canada rose more than fourfold to $34.1-billion in2007 from $7.47-million in 2004, according to Raw Materials Group's Mr.Ericsson.
For the time being, big mining companies such as Xstrata PLC areleaving it to junior miners, those with a market capitalization of$2-billion or less, to determine the viability of deposits not underdevelopment, said Stephen Walker, head of global mining research at RBCDominion Securities Inc.
"The larger miners are stepping back from grassroots exploration risk," Mr. Walker said.
"For regions where Xstrata doesn't already have operations orinterests, we pursue a strategy of partnering with junior miningcompanies or keeping a close eye on the activity," Claire Divver,spokeswoman for the Swiss-based mining company, said in an interview."They have strong track records and they're typically more efficient."
Among those leading the expansion is Toronto-based FNX Mining Co.,which this year started extracting copper and nickel from a Sudbury,Ont., open-pit mine that was abandoned by Inco Ltd.
In 1985, Ernest Lehmann, a Franconia founder, paid $312 to acquire acopper and nickel deposit that U.S. Steel Corp. and Inco, which wasbought last year by Brazil's Companhia Vale do Rio Doce, considered toodifficult to mine, said Brian Gavin, chief executive officer ofFranconia, based in Spokane, Wash.
Franconia's Birch Lake deposit, 13 kilometres from PolyMet'sproject, is part of the Duluth Complex, which the company says is theworld's largest undeveloped copper, nickel and platinum-group metalresource. Platinum-group metals, often found together, includepalladium, rhodium and ruthenium.
"Ten to 15 years ago, the major mining companies said: 'It's toocomplicated in North America; let's look at greener pastures,' " Mr.Gavin said. "They're rethinking that."
Teck Cominco Ltd., Canada's largest diversified mining company, hasjoined PolyMet, based in Hoyt Lakes, and Franconia in reassessingcopper and nickel resources at the complex. Duluth abuts a mineraldeposit where iron ore was once the only material that could beextracted.
At Duluth, PolyMet is ripping out machinery that separated iron oreand installing equipment that will yield copper, nickel andplatinum-group metals. The company spent $32-million to acquire themill, a railway and 120 rail cars that would cost at least $400-millionto buy new, PolyMet chairman William Murray said.
"In all my years in the mining business, this was the most completeproject I'd ever run into, and there was nothing wrong with the plant,"Mr. Murray said.
By contrast, Vancouver-based Ivanhoe has spent five years seekingapproval for its Mongolian copper mine, Oyu Tolgoi, which partner RioTinto has called "the world's largest undeveloped copper and goldresource." In three years, Ivanhoe shares have gained 20 per cent.
Richer deposits in emerging market countries attract greaterdiscounts from investors wary of sovereign risk, BMO's Mr. Melek said.
"At least you've got laws on the books that you can deal with," saidMichael Surratt, the CEO of Kingman, Ariz.-based Mercator, which plansa fivefold increase in annual copper production from an Arizona copperprospect it acquired for about $3.3-million in 2003. The mine isscheduled to begin operating in October and produce 10.3 million poundsof molybdenum and 56 million pounds of copper a year.
"Going to the Congo, or one of those places, you never can tell when someone starts shooting and it all goes away," he said.
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