Rio Algom aligns exploration strategy with Billiton

London-listed Billiton has merged the exploration activities of wholly owned subsidiary Rio Algom with its own geographically diverse exploration and development division.

Projects in the Americas will be managed from an office in Vancouver, B.C., while London will be home base for activities in Europe, the Middle East and Africa. Projects in China will be managed from Beijing, while programs in Australia, Southeast Asia and the Southwest Pacific will be conducted from an office in Melbourne.

David Whitehead, who heads Billiton’s exploration and development department, thanked Kelly O’Connor, Rio’s outgoing vice-president of exploration, for his assistance in the integration of the companies’ exploration departments, and for his role in the discovery of the Spence copper deposit in Chile.

Billiton has operations and exploration projects throughout the world, including joint ventures with numerous Canadian juniors. One of its more recent deals is an agreement with Vancouver-based Aurora Gold (ARXG-O) to explore for zinc in Tunisia.

As part of the deal, Billiton bought 857,143 units (one share and one warrant) of Aurora for proceeds of $600,000. The junior plans to spend $475,000 of this on 11 permits in the Kebbouch district, 170 km southwest of the capital city of Tunis. Billiton holds an option to earn a 51% interest in the land package by spending $1 million over a 2-year period.

Billiton can increase its interest to 70% by funding further work, including feasibility studies and project development, through to commercial production.

Aurora Metals would operate the exploration programs on the properties and carry out geological investigations in the country. At present, work is focused on the Hammala permit and 10 contiguous permits, which are considered prospective for the discovery of high-grade zinc mineralization of sedimentary-exhalative origin associated with the limestone-marl of the Bahloul Formation.

Work to date includes mapping and soil- and rock-sampling to define the extent of anomalous zinc geochemistry. Drilling would follow.

Billiton has other joint ventures with Canadian juniors, including ones holding base metal projects in Newfoundland. In northern Quebec, the company is earning a half-interest in the Gayot nickel-platinum group metals project from partner Virginia Gold Mines (VIA-T). Ongoing drilling will target the L, Nancy and Gagnon showings.

Previous drilling on the L showing returned up to 2.2% nickel and 2.3 grams platinum-palladium over widths of between 8 and 29 metres. Holes collared on the Nancy showing revealed wider, lower-grade mineralization.

Previous channel-sampling at the Gagnon showing returned up to 2.1% nickel, 0.42% copper and 2.46 grams platinum-palladium over 4.85 metres. However, drilling returned lower grades — up to 0.62% nickel and 0.62 gram platinum-palladium over 19.4 metres.

While Billiton intends to keep a strong hand in exploration, the diversified mining house is still digesting three major acquisitions completed in the past year. The company paid US$1.49 billion for Alcoa’s 56% stake in the Worsley alumina refinery, US$1.7 billion for Rio Algom, and US$300 million for interests in two South American coal companies.

These and other deals more than doubled Billiton’s debt to US$1.18 billion. However, the company has a much broader spread of assets than it did when it was spun-off from Gencor (a South African mining house) in mid-1997. It has six operating divisions: aluminum, base metals, coal, nickel, steel and ferroalloys, and titanium minerals. (The titanium division is the most profitable. Last year it generated 18% of total operating profits from about 4% of the net operating assets.)

While aluminum remains the largest division, the Rio Algom takeover brought the base metal division up to the number-two slot from the smallest of the six divisions. The main assets acquired in this transaction were the Cerro Colorado copper mine in Chile, a 25% stake in the Bajo de la Alumbrera copper-gold mine in Argentina, and 33.6% of the Highland Valley copper mine in British Columbia. Cerro Colorado is a solid perfomer, but this can’t be said for Alumbrera, which at best turns out a modest operating profit. Highland Valley is a marginal operation nearing the end of its life.

Another important asset is a 33.75% stake in the Antamina copper-zinc project in Peru, now in the construction phase. It has proven and probable reserves of 494 million tonnes grading 1.3% copper, 1% zinc, 0.03% molybdenum and 12 grams silver per tonne.

Billiton also acquired Rio Algom’s Spence deposit, which was found by the company’s geological team in 1997. A prefeasibility study evisioned production of 225,000 tonnes of copper per year, with 80% of this recovered by coventional flotation and 20% from solvent extraction-electrowinning. The project is at the feasibility stage.

Rio Algom reported net earnings of $17 million in 2000, compared with a loss of $184 million a year earlier. A $13-million loss was reported in the last quarter, compared with net earnings of $14 million for the fourth quarter of 1999.