Economy

Amid diamond gloom, smaller projects sound notes of optimism


While NWT residents spent the recent election campaign being told the territory's mining prospects are bleak, two projects trying to get off the ground say they're making significant progress.

The man behind the proposed Nechalacho rare-earth minerals mine, east of Yellowknife, says he'll take an innovative "demonstration plant" approach to opening a small operation, potentially in the next two years.

And TerraX, which is working to open a new gold mine just outside Yellowknife, recently reached what its executives consider to be a "major milestone." The company published, for the first time, a mineral resource estimate completed in accordance with national standards – suggesting at least 735,000 ounces of gold are available to be mined.

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The type of estimate is known as a 43-101 after the document that governs how Canadian mining projects should disclose information.

"From the point of view of people looking at you and valuing you, a 43-101 resource estimate gives you a number you can use to say, 'OK, you have this in hand, and I have something I can value on,'" said Joe Campbell, chief operating officer of TerraX.

There's a high level of demand, and there's a lot of pressure across the US, Canada, and Australia to establish new supply chains.

GEOFF ATKINS, CHEETAH RESOURCES

"Up to that point, any valuation people have given you is based on an expectation ... from a stream of news releases.

"We've had five years of putting out good results on the project, but have never quantified those into a resource. This is the first time we've done that. People can look at us and compare us."

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Giant Mine, the former gold mine outside Yellowknife now being remediated by the federal government, produced an estimated seven million gold ounces over a 50-year span – equating to an average of 140,000 ounces per year.

However, Campbell said TerraX's 735,000-ounce estimate is not yet enough to turn the heads of companies capable of transforming the project into a working mine.

"The initial milestone people look for is one million ounces," he told Cabin Radio. "Even at that, in order to turn the heads of major companies, they're looking for things in the order of three to five million ounces that they can see in your basket.

"We still have a ways to go to get up to those numbers. We believe that we will get there. It's just going to take a considerable amount of money and hard work to get there."

Getting to those numbers will require much more drilling, costing millions of dollars. Campbell said TerraX, for now, has the money to continue its operations. The 735,000-ounce figure, he added, was "quite a conservative" number.

"We know where [more gold] is, we just have to do more drilling to bring it forward," said Campbell. "We expect, over the next few years, we'll vastly increase that number."

Nechalacho 'will start small'

Meanwhile, to the east of Yellowknife near Blachford Lake, a company named Cheetah Resources believe it has found the key to getting a rare-earth minerals mine started.

Geoff Atkins, Cheetah's managing director, believes his company's lean approach – involving far fewer staff, initially, than an ordinary mine might require – will demonstrate Nechalacho's longer-term viability.

"We're not looking to set up a large, typical mining operation," Atkins said earlier this month. "What we're starting with is actually a small-scale demonstration plant. The nature of the rare-earth business is such that we need to start small to prove to our customers that we're able to provide a product ... so by starting small, it enables us to move a lot faster than what you would with a typical operation."

Atkins said the small scale of the demonstration plant would mean around 30 people on-site.

The people put into cabinet are all sound, capable people. It'll be interesting to see how they manage.

JOE CAMPBELL, TERRAX

"It's a very simple operation," he said. "We have some rock, we crush it, and we separate out the red rocks from the white rocks. In a nutshell, that's all it is. The sorter which separates the red from the white comes in a 40-foot shipping container.

"The key focus for the company is ... to get into operations in the nearest possible time frame. So from our perspective, and with the weather conditions here, that really leaves two options: we either go forward next summer or, if we miss that, it's the following summer."

Nechalacho, on Thor Lake, has been the subject of interest as a potential mine for decades. Avalon, which recently sold its near-surface mineral rights at Nechalacho to Cheetah, says rare-earth deposits in the area include neodymium, praseodymium, lithium, zirconium, beryllium, niobium, and tantalum.

"Rare-earths get used in new technologies for energy efficiency and renewable energy ... in terms of power, electronics, electric vehicles. That's where the demand for rare-earths comes from. So it's a growing market and it's a green product," said Atkins.

"They are classified as a strategic mineral, there's a high level of demand, and there's a lot of pressure across the US, Canada, and Australia to establish new supply chains outside of China."

Dominion bond 'shocking'

The NWT doesn't have any new, large diamond mines "in the hopper," to quote a presentation by mining executives to the territory's incoming MLAs last month – which pointed out that while projects driven by the likes of TerraX and Cheetah are encouraging, they don't come close to replacing the three major mines set to close in the next decade: Ekati, Diavik, and Gahcho Kué. Together, those mines employ thousands.

News from the diamond sector has, of late, been bleak.

In a news release last week, Mountain Province Diamonds – which owns 49 percent of Gahcho Kué – said its third-quarter net revenue fell 27 percent compared to 2018. Its chief executive, Stuart Brown, said 2019 "was always going to be a difficult year."

At the same time, De Beers was reported to be cutting prices globally in response to oversupply of polished diamonds.

And there is continued concern over the long-term prospects of Dominion Diamond Mines – which holds significant interest in the Ekati and Diavik diamond mines – in part fuelled by the uncertain fate of a $550-million bond Dominion's owner, the Washington group of companies, took to purchase the company in 2017.

Bonds are a way to raise money for big investments like buying a mine. Investors buying bonds are told they'll get their money back when the bond matures (at a fixed point in the future) and will get interest payments in the interim.

The risk is that the company or project dissolves before you can get your money back. The riskier the bond, the more interest you can expect to be offered as an incentive.

A view of the Diavik diamond mine's A21 project during construction

A view of the Diavik diamond mine's A21 project during construction. Rio Tinto/Facebook

To the intrigue of outside observers, the Dominion bond has lost half of its value this year – implying some investors don't expect to receive anything like the bond's face value when it matures in November 2022, and are settling for what they can get.

"It's shocking to see a bond so seriously distressed. Bonds are typically not that volatile," said a mining executive with knowledge of Dominion and its operations. "Obviously, something happened that has spooked some of the bond holders."

While Dominion's owners routinely communicate with bond holders, those communications are private.

"This is the bond holders saying there is not a lot of opportunity for the mine to extend itself beyond 2022 or 2023," said the executive. "That's why they don't have a lot of confidence that they're going to get the face value of the bond back."

Whatever the bond holders are being told, it isn't filling them with confidence that anything will be done to extend the lives of the Ekati and Diavik mines.

In May 2018, the Ekati mine halted work on its planned Jay pipe expansion. Turning the Jay kimberlite pipe into an open pit was supposed to keep the mine operational for as much as an additional decade.

The NWT government has committed to "increasing resource exploration and development" in its list of 22 initial priorities published following last month's election.

"Looking at all the fresh faces on the MLA list right now – and in cabinet, for that matter, these are all brand-new people that have come into the government," said Campbell, from TerraX. "I suspect there will be a fresh approach to how they're going to move forward.

"The people put into cabinet are all sound, capable people. It'll be interesting to see how they manage in a territory where, as we all know, there might be some tough times ahead in terms of the economy.

"We have to build business, and part of that is building the mining industry."

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