Avanti buys past-producing Kitsault moly mine

The current bull market in mining has been characterized by the redevelopment of many deposits that were mothballed during the long slump in commodity prices. Avanti Mining (AVMI-C, AVNMF-O) is joining this trend with the purchase of the dormant Kitsault molybdenum deposit, in northern B. C.

Avanti will buy Kitsault and surrounding holdings for US$20 million from a subsidiary of Alcoa (AA-N).

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

Within 90 days of Avanti delivering 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 return 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 capital spend- ing on mine reactivation is fully repaid.

The past-producing mine is located on Lime Creek at the head of the Alice Arm inlet, 140 km northwest of Prince Rupert. The mine site has access to a road and to the BC Hydro transmission grid. The nearby town of Kitsault has been vacant since the mine was closed, but it was bought recently by another company planning to turn it into a vacation resort.

The mine was a moly producer 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 lbs. molybdenum.

The mine shut down in 1982 due to low moly prices, but considerable historical resources remain. Based on a historical Amax report from 1985, proven and probable reserves (not compliant with National Instrument 43-101) were 104 million tonnes grading 0.112% molybdenum, equivalent to 258 million lbs. moly. Based upon its assessment of the calculation methodology and classification of these reserves, Avanti believes that it can produce an NI 43-101- compliant measured and indicated resource that will form the basis of a new feasibility study.

In a news release, Avanti CEO Craig Nelsen said he believes Kitsault is one of the top five molybdenum development assets worldwide. A revised bankable feasibility study will be prepared, with a view to put the mine back into production as soon as possible. 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.

The company plans to work with the local communities and the Nisga’a Lisims First Nations government.

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 a barren core.

Horizontal thickness of the mineralized zone is 30 to 50 metres. Nelsen anticipates starting to mine the deposit as an open pit and plans to spend about $4 million on initial evaluation. With about $10 million in the treasury, Avanti is planning to raise about $20 million on the capital markets in the near future.

Nelsen says that nothing is left of the old plant, so the new mill will have to be built from scratch.

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,” he says. “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.”

Still, there is one challenging aspect of the project, namely 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,” Nelson says.

“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 the company has hired leading consultants to help with the tailings and environmental challenges.

The Kitsault property also contains the historic Bell Moly and Roundy Creek deposits. According to historic Amax reports, Bell Moly contains an unclassified resource of about 96 million tonnes grading 0.054% molybdenum, equivalent to 115 million lbs. molybdenum. Roundy Creek is reported to contain an unclassified resource of about 7 million tonnes grading 0.066% molybdenum, equivalent to 10.2 million lbs. moly, according to a BC Minfile report.

Avanti is preparing an 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.