I've recently visited British Columbia and the Yukon to learn about two new mines. What struck me as noteworthy is that both the MAX moly project and the Minto copper mine have been accomplished on a budget that didnt have a billion anywhere in it. At $35 million and $100 million, respectively, their price tags are a welcome respite from the hugely expensive and complicated projects such as those undertaken by Barrick in the Andes and Sherritt in Madagascar. And talk about fast-tracking. I've now learned about just in time engineering (which Hatch found rough) and just in time banking (which Sherwood executives found stressful).
The owner of the MAX molybdenum mine, Vancouver's ROCA MINES, took advantage of advanced exploration work that had been done in the 1990s. Then-owner NEWMONT MINES had driven an adit in preparation for proposed bulk mining. That gave Roca a mine-ready project when it picked up the property in 2004.
Roca also benefited from British Columbia's small mine permitting process. The process is no less rigorous than applying for a large mine permit, but it facilitates the approval of a metal mine producing up to 75,000 tonnes of ore annually while leaving the door open for later expansion. The result is that a small mine can begin production - and cash flow for its owner - in a relatively short amount of time. This is fast-tracking without shortcuts.
SHERWOOD COPPER, also headquartered in Vancouver, has opened the Yukon's first new metal mine in a decade. The company has made itself a fast-tracking expert very quickly. It purchased the Minto property in March 2005 and began commercial production of copper concentrates in October 2007. The approach has been to do everything in parallel rather than sequentially. In practice that means the deposit was still being drilled off even as the mill equipment was being installed and the financing details were under discussion.
Big companies spend big bucks on mine development. BARRICK GOLD estimates that it will pour at least $2.3 billion into the Pascua-Lama gold mine on the Chile-Argentina border. Plus it is developing the $400-million Buzwagi gold mine in Tanzania and $2.1-billion Pueblo Viejo gold mine in the Dominican Republic. SHERRITT INTERNATIONAL announced the largest mine debt financing ever arranged, $2.1 billion, for the Ambatovy nickel project in Madagascar. The Canadian company is the operator of the project and is responsible for $840 million of the debt. The other partners are SUMITOMO CORP. (27.5%), KOREA RESOURCES (27.5%) and SNC-LAVALIN (10%).
I'm wondering if a leaner approach has lessons that could be learned by the larger companies that would cut their multi-billion-dollar development costs.
Both Roca Mines and Sherwood Copper now own cash-generating mines. These may be modest beginnings, but production was achieved without loads of debt. For either of these companies to have contemplated raising a billion dollars or more for their mines would be unthinkable. They just aren't that large.
The bottom line for the small companies is that their projects are already generating cash. That means a black bottom line for those projects very quickly. Being small in the world of mining has certain rewards, and both Roca and Sherwood are already reaping them.