Avanti Mining buys past-producing Kitsault moly mine

The current bull market in mining has been characterized by the redevelopment of many dormant deposits which were mothballed during the long slump in commodity prices. Avanti Mining (AVMI-C) is joining this trend. It has agreed to buy the dormant Kitsault molybdenum deposit and surrounding mineral tenures for US$20 million from a subsidiary of Alcoa (AA-N), and is hoping to bring it back to production. And Avanti’s CEO Craig Nelsen believes that Kitsault is one of the top five molybdenum development assets worldwide

In addition to the purchase price, a finder’s fee in Avanti common shares valued at about US$1.29 million, plus a success fee of 500,000 Avanti common shares, are payable on the deal. The acquisition is subject to due diligence by Avanti, which expects to close the deal by October.

Within 90 days of getting a feasibility study, the Alcoa subsidiary can elect to receive either: a further US$10 million in cash or in Avanti shares at commercial production; or a 1% net smelter royalty (NSR) on future production. In addition, the mine is subject to a 9.22% net profit interest royalty, owned by a subsidiary of Amax. This royalty is payable on revenues less operating expenses, and Avanti will only start paying it once the capital expenditures on mine reactivation are fully repaid by revenues less operating expenses.

The past-producing mine is located on Lime Creek at the head of the Alice Arm inlet in northern British Columbia, 140 km northwest of Prince Rupert. The mine site has road access, and also access to the BC Hydro transmission grid. The nearby town of Kitsault has been vacant since the mine was closed. The town has recently been bought by another company planning to turn it into a vacation resort, and Avanti Mining may be interested in making use of the town once the mine is restarted.

The mine was a producer of molybdenum, initially between 1967 and 1972, when it was owned by Kennecott, processing a total of 9.3 million tonnes grading 0.112% molybdenum. Later, from 1981 to 1982, under the ownership of Amax, 4 million tonnes were milled, grading 0.076% molybdenum. Total production during both periods was about 30 million lb. of molybdenum.

The mine ceased operations in 1982 due to low molybdenum prices, but considerable historical resources remain in place. Based on Amax’s 10-K Report dated 1985, which is not compliant with National Instrument 43-101, proven and probable resources were 104 million tonnes grading 0.112% molybdenum, equivalent to 258 million lb. of molybdenum. Although these resources are historic in nature, Avanti believes this estimate is both relevant and reliable. Based upon its assessment of the calculation methodology and classification of these resources, Avanti believes that it can produce a NI 43-101 -compliant measured and indicated resource that will form the basis of a new feasibility study that it plans to initiate immediately thereafter.

In a news release, CEO Nelsen says that the company will work diligently with the local communities and the Nisga’a Lisims government, which is the government of the local First Nation. A revised bankable feasibility study will be prepared, with a view to put the mine back into production at the earliest possible date. Avanti personnel have been reviewing the extensive archival data, and the company expects to have teams of professionals on site to immediately advance due diligence and development assessment work.

In an interview, Nelsen estimates that historic molybdenum recoveries were in the order of 90%, using flotation. He describes the mineralized zone as an annular cylinder, about 200 metres high, with the core of the cylinder not mineralized. Horizontal thickness of the mineralized zone is 30 to 50 metres. Nelsen anticipates starting to mine the deposit as an open pit. He plans to spend approximately $4 million on initial evaluation. The treasury has $10 million, and Nelsen is planning to raise about $20 million on the capital markets in the near future.

Nelsen reports that nothing is left of the old plant, so the new mill will have to be built from scratch. One thing he would like to change about the mine is tailings disposal methods:”One of the controversial aspects of this project when it operated was that it used submarine tailings deposition. That was done under a special act of parliament. We don’t think that that’s an acceptable solution. And so one of the challenges will be to find a suitable land-based tailings site, and also a tailings-deposition process that is able to withstand the high snowfalls and high rainfalls in that part of the world.”

He adds: “One of the big challenges, both from an engineering and an environmental point of view, is the tailings deposition. We’ve done a bit of work on that already in the purchase process, and we think there are viable solutions, but it is a challenge, and I don’t want to minimize that aspect of the property.”

There are a number of aspects that Nelsen likes about Kitsault: “The real attractive thing about this asset is that it’s moderately high grade. Of all the development assets that are primary moly, it’s one of the highest grade. It’s been proven as a producer, it has a proven metallurgy and all the [road and electricity] infrastructure for the mine is still there, so it’s relatively low-risk in that sense. But the tailings and the environmental aspects of the project because of the high rainfall are some of the challenges that we’ll be working on, but we’re using some of the best consultants in the business to help us there.”

The Kitsault property also contains the historic Bell Moly and Roundy Creek resources. According to historic (not NI-43-101) reports by Amax, Bell Moly contains an unclassified resource of about 96 million tonnes grading 0.054% molybdenum, equivalent to 115 million lb. of molybdenum. Roundy Creek is reported to contain an unclassified resource of approximately 7 million tonnes grading 0.066% molybdenum, equivalent to 10.2 million lb. of molybdenum according to the BC Minfile report on this occurrence. These resources are also historic; and, likewise, it is believed by Avanti that these estimates are both relevant and reliable.

Avanti’s registered office is in Vancouver, and its administrative office is in Denver, Co. The company is preparing a NI 43-101 technical report summarizing the historical information and making recommendations for future work to redevelop the mine. It expects the report to be filed by August.