Mining and the Economic Crisis in CanadaPublished by MAC on 2008-11-10
Canada's mining press has of late been dominated by stories about slow downs, shut downs and. Critics of the industry are hopeful that the current economic situation will provide some breathing space for affected communities. At the same time, there are fears that it may also provide excuses to further subsidise the industry or loosen regulations, monitoring and enforcement.
International miners giving TSX a pass
'Wait-And-See Game'; Australians put off plans to list
Financial Post (Canada)
5th November 2008
The weak commodity markets are taking their toll on the Toronto Stock Exchange, as international miners are deciding to stay home rather than list their shares in Canada amid the global economic turmoil.
In the past several weeks, at least four mining companies from Australia alone have put off plans to list in Toronto: Magma Metals Ltd., Perseus Mining Ltd., Albidon Ltd. and Regis Resources Ltd.
Richard Nadeau, head of listings for the TSX, said those miners are part of a larger group that took initial steps toward a TSX listing but are now playing the "wait-and-see" game in hopes that valuations and investor appetite will improve soon.
"There have been a lot of companies sitting on the sidelines for all the right reasons," he said.
The TSX has had great success drawing foreign mining companies to its exchange in recent years, since they like the sophisticated investors and access to capital that Bay Street offers.
Australian miners in particular have found a welcome home on the TSX -- Brisbane based Lihir Gold Ltd. was the single-biggest listing in Toronto last year, and the breakout success of companies such as Equinox Minerals Ltd., which came to Toronto in 2004, inspired others to follow suit. Investment bankers from Cormark Securities, CIBC World Markets and Paradigm Capital have worked diligently to draw more of them here.
But those plans have been derailed by the markets: the big board has not generated any foreign mining listing since Tiger Resources Ltd. in July, which was before commodity prices began their massive collapse. U. S. miner PBS Coals Inc. also sought out an initial public offering on the TSX recently, but is getting bought out instead.
Keith Watkins, managing director of Magma Metals, said his firm still plans to list in Toronto next year, but the timing will depend on the state of the financial markets and whether there is a renewed investor appetite for junior exploration companies.
"It's too early to be specific on this," he said.
Richard Taylor, spokesman for Perseus Mining, added that there is now "no compelling reason" to list in Canada, versus Australia, from a capital-raising perspective, especially given the cost of extra compliance the company would need to pay to come here.
Despite the poor market conditions, Mr. Nadeau said the TSX has not changed its marketing plans, and that it continues to generate plenty of interest from foreign companies on its road shows. He expects the interest to carry through the tough times and that companies will be ready to list when the markets improve.
"We'll get through the storm. Our value proposition remains very attractive and that's what we're building on," he said.
Miners getting crushed by commodity price crash
Toronto Globe and Mail
1st November 2008
The global credit crisis and commodities collapse has pushed High River Gold Mines Ltd. to the brink of insolvency in what could foreshadow a wave of liquidity crises at mining companies.
Delays in starting up gold mines in Burkina Faso and Russia put the Toronto company offside with lending arrangements and it is now scrambling to sell assets or secure an emergency cash infusion.
"We are looking at all of the alternatives. From a sale of assets to strategic investors to strategic financings to other financial alternatives," High River chairman Terry Lyons said in an interview.
High River is among the first mining firms to hit a wall as commodity prices plunge and corporate financing dries up amid the global financial crisis.
Analysts say there are scores of other cash-strapped miners, including Canadian zinc producer Breakwater Resources Ltd. that are struggling to survive.
High River has breached the covenants of a $35-million loan from Denver royalty company Royal Gold Inc. High River's Taparko-Bouroum mine failed to achieve "project completion" by Oct. 1 - a stipulation of the financing deal.
Royal Gold is not willing to relieve High River of its obligations and could foreclose on the mine, although Mr. Lyons said that was unlikely. Royal Gold officials did not respond to a request for comment.
High River also has a looming deadline with another lender, Russia's Nomos Bank. A loan repayment of $15.2-million (U.S.) from a High River subsidiary is due to be paid to Nomos on Nov. 21.
High River has just $4.1-million (Canadian) in cash on hand and 8,300 ounces of unsold gold worth about $6.2-million (U.S.). As of Sept. 30, the company's outstanding short-term payables amounted to $32.9-million (Canadian). High River's overall debt load totalled $187-million at the end of its second quarter.
"The ability of the company to continue as a going concern is therefore dependent on the ongoing discussion with and/or forbearance of lenders, accommodations from trade creditors, establishing steady production at the two new mines and obtaining additional financing," High River said in a statement.
Mr. Lyons, who joined the beleaguered company in September, conceded that High River had failed to conserve enough cash to weather the unexpected credit crisis, its mine start-up problems, and the plunge in commodity prices, including gold.
"They really didn't have enough rainy day capital at the parent company level to anticipate all of the situations," he said.
Two of the company's directors, Graham Farquharson and Robert Buchan, have resigned, the company said yesterday.
High River shares plummeted 21 per cent to 11 cents on the Toronto Stock Exchange yesterday. They had traded as high as $3.50 this year.
Chief executive officer David Mosher was in Moscow yesterday seeking financing. "I have been having meetings with a number of interested parties who are considering taking an investment in High River," he said in an e-mail.
High River has four gold mines in Russia and West Africa that the company has said could annually produce 300,000 ounces of gold.
High River is unlikely to be an isolated case. Other mining firms, both large and small, are facing liquidity issues in varying degrees.
Breakwater Resources shuttered two zinc mines this week in response to dismal prices but analysts believe that may not be enough to save it.
"We question the company's ability to continue as a going concern despite the production cuts announced earlier this week. At current spot copper and zinc prices and exchange rates our model indicates that the company's cash reserves could be drawn down to minimal levels by year end," TD Newcrest analyst Greg Barnes said in a note to clients.
Even mining majors are reeling from the credit crunch and the worst monthly fall in commodity prices in more than half a century that has already put about $50-billion (U.S.) worth of development projects on hold.
AngloGold Ashanti, the world's third-biggest gold producer is reviewing its capital spending and may sell assets because it is having trouble refinancing a $1-billion convertible bond that is set to mature.
First Nickel, FNX add to mine closure list
The Northern Miner,
3rd November 2008
In the wake of crumbling nickel prices and mine closures, development has been temporarily suspended at a string of nickel projects, among them, First Nickel's Lockerby mine and FNX Mining's Levack nickel contact deposits, both in Ontario's Sudbury basin.
At presstime, nickel was trading at US$4.66 per lb. Prices for the metal have plunged by about 60% since the start of the year.
First Nickel announced in mid- October that it is suspending production at its 100%-owned Lockerby mine and has put it on care and maintenance due to low metal prices and the "challenging financial environment."
The company said it had analyzed mining scenarios and near-term metal price projections, all of which ruled out keeping the mine open. Management describes Lockerby, southwest of the city of Sudbury, as the cornerstone of its Sudbury operations.
While First Nickel has tried to cut costs this year, current nickel prices are below Lockerby's cash costs per lb. of payable nickel, according to William Anderson, the company's president and chief executive.
"We believe this is the best option to conserve cash," Anderson said in a statement. "The decision to put the mine on care and maintenance has not been taken lightly and the company recognizes the impact upon our employees, their families and the community. In the weeks ahead, we will continue to firm up our plans and pursue ways to bring the operation back online when conditions improve."
Meanwhile FNX says it will make a decision at the end of the year whether to prolong the suspension, put the Levack nickel contact deposits on long-term care and maintenance, or reactivate commercial production from this part of the Levack complex.
That decision obviously will depend on the nickel price and final metal accountabilities.
Mining from the Levack nickel deposits will continue during the fourth quarter to produce about 35,000 tons of metallurgical test production, FNX says.
Those tons will be stockpiled until a critical volume is achieved and will then be shipped to the company's processor for batch processing.
This batch test, along with other metallurgical test work, will help finalize metal accountabilities for the Levack nickel contact deposits.
The company says it doesn't expect the suspension will cause any layoffs. Employees affected by the decision will be transferred to FNX's McCreedy West mine, Rob's deposit, Podolsky mine, or development work on the Levack footwall deposit.
The Levack nickel contact deposits do not contain any precious metals and the suspension from these deposits will not affect FNX's precious metal production and its agreements with Wheaton Gold Corp. ,FNX maintains.
The Levack complex consists of the Levack nickel contact deposits, Rob's transitional copper-nickel-precious metal deposit, the Levack footwall high-grade copper-nickel- precious metal deposit, McCreedy West nickel contact deposits and the McCreedy West PM copper-precious metals deposit.
The suspension -- combined with operational changes during the third quarter -- will lower production this year.
FNX expects to produce about 1.3 million tons of ore yielding payable metal of about 13.5 million lbs. of nickel, 38 million lbs. of copper and a total of 56,000 oz. of precious metals.
The tons and payable metal produced from the Levack metallurgical batch test and the bulk sample in the first quarter of 2008 from the Levack footwall deposit, were not included in the new forecast.
The company says it will now concentrate on its highest-margin and most profitable deposits and development programs at the Levack footwall deposit, Rob's deposit and the Podolsky mine will continue to move forward.
At presstime, FNX traded at $6.60 per share. The company has a 52-week trading range of $5.02- 39.77 and 84.7 million shares outstanding.
'The planets are aligned against us'
Quebec's high-flying miners struggle to avoid a crash landing
25th October 2008
When Majescor Resources Inc. began probing for uranium in northern Quebec in 2006, it wasn't alone, thanks to mining-friendly provincial policies, booming commodities markets and a vibrant Canadian economy.
Another 10 to 15 other uranium explorers were active in the Otish Mountains region, Majescor president and CEO Marc-André Bernier recalled this week. But that was before the global credit crunch, the financial markets' meltdown and the flight of investor capital to far safer havens.
"Now we are down to probably six or seven serious uranium explorers," said Bernier, who has seen his company's shares drop to one penny from 15 cents this year, and who is still scrambling to find financing for the 2009 exploration season.
Montreal-based Majescor is not alone. The ground has given way under Quebec's mineral exploration and mining sector. Up to 50 per cent of Quebec's exploration companies will not be operating this time next year, according to observers, analysts and sector veterans.
"The planets are now aligned against us," said André Gaumond, the head of one of Canada's leading exploration companies, Virginia Mines, from his Quebec City office. "It was only a few years ago that the planets were all aligned in our favour." Mining and exploration firms have lost millions of dollars in market capitalization as their shares plummeted in recent weeks.
The prices of the commodities those companies are seeking - or already pulling from the ground - have crashed. And most investors have lost their nerve for risky ventures.
In recent weeks, Gaumond - whose team found the Eléonore gold deposit in the James Bay region then sold it to Goldcorp Inc. in 2006 for about $420 million U.S. - has taken measures to position his company to survive forces beyond his control.
Virginia's exploration budget for 2009 has been slashed to about $10 million to $13 million, which is one-third to half of what the company will have spent this year. It's not that Virginia is cash-poor, it has $44 million in cash, Gaumond said.
It's all about timing and strategy in a cyclical sector, a wild, often irrational market and the certainty that "tough times" are here, at least for the short term, said Gaumond, who remains optimistic about the sector's mid-and long-term prospects.
"We have two big forces working against us," he said. One is the performance of the U.S. dollar - which "nobody really understands" - that is helping to drive down the price of metals. The other is a marketplace in which mining stocks "will not be the flavour of the year." Unlike Virginia, Majescor is not sitting on cash reserves. And, according to industry observers and analysts, exploration companies that don't have cash in hand or haven't already nailed down 2009 financing are facing particularly grim prospects.
"A lot of companies were preparing (to find) financing in the fall, but now nothing is happening," said Nochane Rousseau, a partner in the Montreal office of PricewaterhouseCoopers.
"That market is closed," said Rousseau, whose client base includes junior mining companies.
In September, Majescor, which recently reduced its holdings to about 8,000 mining claims at five properties in Quebec, attempted to raise about $2.2 million in financing but found "all doors closed," its president said.
On Nov. 17, shareholders are to vote on a restructuring plan that would see shares consolidated, with one new share for 10 existing shares.
That, Bernier hopes, will prepare the ground for an infusion of cash and flow-through financing needed for the 2009 exploration program, a sum pegged at about $2.5 million.
A shortfall in financing would mean that more mining claims will be let go and some projects will be dropped altogether, Bernier said.
About 15 per cent of the mineral exploration companies and junior minors operating in Quebec are now having serious problems attracting investment, according to the director of the Association de l'exploration minière du Québec.
"And if the situation doesn't improve, that figure could grow to 30 per cent in the coming months," Jean-Pierre Thomas-sin said in an interview.
Other observers estimate that as many as 50 per cent of the current crop of exploration companies and junior miners won't be in business next year. Some will go bankrupt, others will quietly shelve their projects and some will be taken over by cash-rich competitors.
Prime takeover targets in the consolidation that lies ahead will be companies with projects that have feasibility studies in hand that show the mineral resource is in the ground and economically viable, Rousseau predicted.
This month, David Garofalo, chief financial officer of Agnico-Eagle Mines Ltd. - whose flagship LaRonde mine is near Val d'Or - told Bloomberg News that current conditions for obtaining credit are worse than anything he has seen in more than two decades in the industry.
Bankruptcies among junior minors are "inevitable," said Garofalo, adding that Agnico- Eagle will wait for share prices to further decline before acquiring any of the troubled companies.
Across the industry, stock prices are being decimated.
And even well-financed juniors are having to re-jig their plans.
Osisko Mining Corp. claims to have $140 million in cash, enough to cover coming preparatory work for an open-pit gold mine in Malartic, near Val d'Or. This month, the Montreal-based company announced that it intends to buy back some common shares.
"Management has taken the decision to help stabilize downward pressure in our share price, which we believe is largely due to turbulent financial markets," president and CEO Sean Roosen said in a statement.
Exploration and mining projects in northern Quebec will face particular challenges, according to Thomassin and Michel Champagne, general manager of the Diversification of Exploration Investment Partnership - known as SIDEX - established by the provincial government and the Quebec Federation of Labour's Solidarity Fund to invest in mineral exploration firms.
Their costs are considerably higher than companies operating in established mining regions, the men said.
Indeed, one of Quebec's more promising northern ventures has already had to consider "strategic alternatives." Canadian Royalties Inc., which is developing the $600-million Nunavik nickel project announced this month that it halted construction of the mine and the concentrator because of financing difficulties.
Exploration on its properties is continuing as the company seeks new financing, the company said..
The future of Western Troy Capital Resources Inc., which has a molybdenum/copper project at MacLeod Lake, about 275 kilometres north of Chibougamau, is largely tied to commodity prices, president Rex Loesby said in an interview.
"If prices for copper and molybdenum continue to decline below current levels, we would probably delay some of the work we are doing just to maintain things for a while," he said.
The company expects the feasibility study for its mine to be released in the spring.
The outlook for Quebec's mining and exploration sector is not completely black, according to those interviewed this week.
The province, considered one of the most mining-friendly in the world, still offers a number of tax and regulatory advantages to the sector. And funds, such as SIDEX and the Quebec government mining development agency SOQUEM, have money to invest in the sector.
As the downturn becomes more entrenched, SIDEX anticipates "more business, better projects," and to pay less for the shares of companies it will invest in, Champagne said.
Last year, SIDEX invested about $6 million. What it will spend for 2009 exploration is unclear.
"It is up to the companies to present us with (exploration) projects. Maybe they will decide to wait it out," Champagne said.
Exploration in Quebec will probably decline by 50 per cent in 2009 but it won't stop, Gaumond said. (Natural Resources Canada statistics indicate that almost $470 million was spent on mineral exploration and resource development in Quebec in 2007 and an estimated $533 million was expected to be spent in 2008.) And it's not what you spend but how you spend it that is often the deciding factor, he said, adding that most of the his discoveries came during lean times.
"When we discovered Éléo-nore, our (exploration) budget was $7 million," Gaumond said.
That gold deposit is still one of several bright spots on the horizon for Quebec's mining sector. Éléonore is on Goldcorp's books to become a producing mine by late 2010. A full feasibility study is expected to be completed by the end of this year.
To the northeast of that project is a venture that could yield Quebec's first diamond mine.
Stornoway Diamond Corp. and joint venture partner SOQUEM have had promising results from a bulk sample program undertaken at their Foxtrot property near the Otish Mountains in 2007. A prefeasibility study is expected to be released soon.
Meanwhile, near Fermont and the border with Labrador, Consolidated Thompson Iron Mines Ltd. is going ahead with a $450-million mine and concentrator at its Lac Bloom site.
That announcement was made in the spring, well before the cold front set in. © The Gazette (Montreal) 2008
Breakwater closes two zinc mines
28th October 2008
Breakwater Resources has decided to suspend operations at its Langlois mine 200 km north of Val d'Or Que. and the Myra Falls mine on Vancouver Island, BC.
The company says falling commodity prices and the general deterioration of the short term economic outlook globally prompted the shutdown. Zinc fell to about US49¢ a lb. today, a low not seen since 2004.
Breakwater says the operational changes it made to the mines have been mitigated by the slowdown.
In 2007, the Langlois mine produced more than 28,000 tonnes of zinc in concentrate, 1,300 tonnes of copper in concentrate and 160 million oz. of silver. The mine operates at 2,000 tonnes per day, five days a week.
Last year at Myra falls, nearly 30,000 tonnes zinc in concentrate, 6,000 tonnes copper in concentrate, 811,000 oz. silver and 19,000 oz. gold was produced.
Breakwater also operated the El Mochito zinc mine in Honduras and the El Toqui mine in Chile, which will now make up all of Breakwater's income. El Mochito produced 29,000 tonnes zinc in concentrate, 10,000 tonnes of lead in concentrate and 1.7 million oz. silver in 2007. El Toqui produced about 32,000 tonnes of zinc in contrite, 37,000 oz. gold and 156,000 oz. silver last year.
Breakwater also has a 20% interest in Blue Note Mining's (BN-T, BNMFF-O) Caribou and Restigouche zinc-lead mines in Bathurst, NB. Blue Note recently decided to put those mines on care and maintenance, because commodity prices have made the mines unprofitable as well.