True North Gems builds Greenland’s first ruby mine

True North Gems (TSXV: TGX; US-OTC: TNGMF) kicked off its first field season in Greenland a decade ago, but is finally closing in on the prize: an open-pit mine that will produce ruby and pink sapphire gemstones starting next year, and running until at least 2024.

The Vancouver-based company received a 30-year mining licence in March and a construction permit in July for the Aappaluttoq project in southwestern Greenland.

Corundum ore mined from Aappaluttoq will be crushed, screened and sorted at a processing facility at the mine using dense media separation and optical sorting to extract a rough corundum concentrate. The concentrate will be sent for more processing at a company-owned facility in Nuuk, Greenland’s capital, 150 km north.   

Corundum is a mineral known for its extreme hardness and found in igneous, metamorphic and sedimentary rocks. Gemstone-quality red specimens of the mineral are known as rubies, while gemstone-quality blue specimens of corundum are known as sapphires.

Total capital costs are estimated to come in at US$38 million, with operating costs over the nine-year mine life averaging $11 million a year. Revenues over the mine life are forecast to total US$197 million.

True North Gems is developing the mine with joint-venture partner LNSG, a company in Greenland that is majority owned by international Arctic contractor Leonhard Nilsen & Sonner of Norway. LNSG will earn a 20% stake in the project by spending $23 million on infrastructure to bring the mine to operational status.

In September LNSG agreed to invest another US$3 million to raise its stake in the project once in production to 27%. It also agreed to contribute another US$5 million of the construction costs through a capital loan, and bought $3 million worth of True North’s shares at 1.05¢ per share.

Nicholas Houghton, the company’s president and CEO, explains that the combined financing package will help True North restructure its share of capital expenses and minimize shareholder dilution.

“The mining industry is in turmoil and we’ve managed to get this project financed and in construction while keeping the dilution factor down to a minimum for our shareholders, so I’m really pleased — that to me is a win,” Houghton says, adding that the company didn’t need a second partner. 

LNSG is mobilizing equipment and readying the port, and has completed a kilometre of roadway. Houghton says that the camp’s blueprints  are “magnificent.”

“It’s got a sauna, a gymnasium — everything. When you’re in Greenland, you look after your crew. Our kitchen facilities could be on the Food Channel.”

The company expects production by the end of 2015, and the quick start after receiving its permits comes from having a joint-venture based in the country, Houghton says. “Normally when you get to this position you start mobilizing equipment from offshore, getting it set up,” he explains. “But our joint-venture partners are there, and all my equipment is there already. I don’t have containers filled with piping, backhoes, diggers or trucks — they’re in Greenland — they just put them on a barge and landed them.”

“LNSG have been working on this for the last twelve months, taking a big risk that we’d get the permitting, so they believe in us as much as we believe in them,” he continues.

True North Gems was formed on an emerald discovery in the Yukon and moved to a sapphire discovery on Baffin Island, before turning its attention to gemstones in Greenland.

The company first visited Greenland to look at its potential to host gemstone deposits in 2004 over just a week, and revisited the next year to look in earnest. That trip led to the exploration team taking bulk samples in 2006 and 2007, and drilling in 2008. In 2011 True North submitted a draft application for an exploitation permit and completed public hearings in late 2013.

“The permitting stage was tough — we were negotiating permits for a 30-year mine life,” Houghton concedes. “The T’s were double-crossed and the I’s were double dotted, and that was from both sides.”

“It’s a steep learning curve when you’re basically the first mining company going through it with the commodity that we have,” Houghton says. “It’s an education for everyone, so we had to go through all of that. But as soon as we got past that and went into the public hearings, and explained everything … we gained their trust.” (Negotiating and signing the impact-benefits agreement took three months from start to finish.)

“We kept 90% of the people happy — 10% you can never keep happy — and from there it was a matter of being open and honest with everybody all the way through the process,” Houghton says. “It worked well … the village has endorsed it emphatically.”

The Aappaluttoq mine and processing facility in Nuuk would create up to 80 jobs and pay a 5.5% gross revenue royalty to the government of Greenland on all ruby and pink sapphire sales. The royalty will be paid each year that the total aggregate is paid by True North in corporate taxes — withholding that taxes and surplus royalty are less than the calculated gross royalty.

A surplus royalty is calculated at a 15% rate on earnings before financial items and tax on any profit in the calendar year to the extent that annual profit exceeds the 40% net profit margin.

Houghton says that once True North permits the mine, it will be easier for other mining projects to move through Greenland’s regulatory system. “We knocked the corners off the system for them, really,” he says. “It won’t be fast-tracked, but it will be smoother to get into production for the other mining groups. The tough problem is going to be raising your capital and that, unfortunately, has nothing to do with Greenland and all to do with mining in general.”