A decade ago, it would have been impossible for a Canadian junior to gain a foothold into the mining and metallurgical complex operated by state-owned Baiyin Non-Ferrous Metals Corp. (BNMC) in north-central China’s Gansu province. But backed by two Canadian majors —
The cornerstone of this cultural, technical and economic exchange is the White Silver Mountain project, a joint venture between Minco and BNMC, covering a mining camp with remarkable similarities to those producing base metals in eastern Canada.
Minco President Ken Cai, a native of China with degrees in geology from both Chinese and Canadian universities, candidly admits that negotiating the terms of the deal was not easy, particularly in the early stages when some factions of government were hesitant to open the doors to foreign investment in the strategically important mining sector.
“The first three years were very frustrating, but we’ve seen enormous changes in the past year,” he told The Northern Miner during a recent tour of the project. “The legal framework and fiscal policy are improving, and people are becoming more and more open. Attitudes here are changing.”
Even so, Cai doesn’t hesitate to stress the importance of White Silver Mountain as a test case to show that joint ventures between local companies and foreign partners can work in China.
“Other companies have had well-publicized problems, and the perception is that it is difficult to work here. The mining world is watching this project, and success here will go a long way to restoring confidence.”
Minco’s initial effort at White Silver Mountain is aimed at defining a new zone of mineralization directly below the Xiaotieshan base metal mine, currently being operated by BNMC.
Xiaotieshan has a proven reserve of 10.7 million tonnes grading 1.1% copper, 3.3% lead and 5.1% zinc, plus 2.1 grams gold and 100 grams silver per tonne, and is producing at the rate of 750 tonnes per day.
Minco hopes to define at least 10 million tonnes of additional base and precious metals reserves below the existing underground operation and to find new volcanogenic massive sulphide (VMS) targets on the surrounding property.
The underground drilling program has already produced encouraging results (TNM, March 15/99) and, in the process, turned once-skeptical Chinese drillers into converts because of the rapid progress made possible by Canadian equipment.
During the visit, Minco was drilling its sixth hole. It is expected to intersect the target mineralized zone at a depth of about 625 metres, which is 200 metres beneath the mineralized zone encountered in hole 05.
Hole 05 returned a 29.9-metre intersection (from 411.8 to 441.7 metres) grading 1.29% copper, 3.94% lead, 7.65% zinc, 1.62 grams gold and 78.74 grams silver. This intersection includes a higher-grade, 4.9-metre interval grading 2.77% copper, 15.52% lead, 25.19% zinc, 2.74 grams gold and 206.73 grams silver.
“These results demonstrate much higher grades and greater widths than in previous drill holes,” Cai said.
Minco plans to drill roughly 8,000 metres in a second-phase program to test the continuity of the deposit along strike, to the east and west. As part of this program, a 200-metre-long drift was driven eastwards towards a new drill station. Additional drill stations are planned on three other sections.
Majors involved
Minco is earning an 80% interest in the non-producing areas of the 110-sq.-km White Silver Mountain project, and acting as operator. Baiyin holds the balance. To vest its interest, Minco is required to spend US$4.8 million on exploration over six years.
Teck, in turn, can earn 70% of Minco’s interest in the project and become operator by assuming all costs of subsequent work after the first phase of drilling, leaving Minco with a 24% carried interest to production.
Cominco can exercise a back-in right at any time prior to the prefeasibility stage by paying Teck and Minco one-and-a-half times the total project costs, up to the date of the back-in. If that occurs, ownership will be 20% Cominco, 19% Minco, 41% Teck and 20% Baiyin, and Cominco would be required to pay its pro rata share of feasibility and development costs.
“Minco’s agreements with Teck and Cominco give us credibility in China,” Cai told The Northern Miner.
Since the newly discovered zone is directly under current mining operations, rapid development and production can be achieved at low capital costs, Cai added.
Although the existing mine employs 1,000 people, wages are low, relative to western standards. Government policy in China has always stressed jobs over productivity, and Xiaotieshan is no exception.
Minco and its partners hope to generate early cash flow by placing reserves into production as quickly as possible, and then develop new reserves from other prospective zones within the 100-sq.-km licence.
Processing would most likely take place at Baiyin’s existing metallurgical complex, which includes zinc and copper concentrators, two lead-zinc smelters and one copper smelter.
Baiyin’s Northwest zinc-lead smelter is producing 120,000 tonnes of refined zinc annually (20,000 tonnes over normal capacity), owing to the relative strength of the zinc market. With processing cash costs below the world average of US18 cents per lb., the zinc smelter is reported to be Baiyin’s most profitable unit.
Because of strong domestic demand, Chinese zinc producers obtain a 5% to 10% premium on the world price for their metal. However, only 30% of Northwest smelter’s feed comes from Gansu province; the rest comes from other provinces plus some imports.
Northwest’s lead smelter is not handling concentrates at the moment, in part because of low prices, but mostly because of ongoing problems with the QSL process. Teck and Cominco officials expressed sympathy, understanding full well the limitations of the QSL process to handle certain types of lead concentrates (namely those with some zinc in them).
But unlike Cominco, which scrapped its new QSL lead smelter at Trail, B.C., before ever producing any metal, in favour of the Russian Kivcet process, Baiyin is still trying to modify the smelter with the help of Korea Zinc (another unlucky purchaser of the ill-fated smelting technology).
Baiyin officials say some progress has been made, based on Korea Zinc’s hard-won success in modifying the system. The Chinese firm also owns a smaller zinc-lead smelter, this one using conventional technology.
On the copper side, Baiyin is desperate for feed. China uses far more copper than it can produce domestically and, because of this chronic shortage, domestic producers enjoy a 10% premium over world prices.
Baiyin’s copper concentrator is currently operating at about one-third of its 13,500-tonne-per-day capacity. It was built in 1959 to handle ore from the Heyoushan open pit (now exhausted) and the underlying Deep Copper (Jeyoushan) mine, which has resources of 100 million tonnes grading between 1% and 2% copper (at least 20 more years at current rates). However, the Deep Copper mine currently supplies only 20% of the concentrates being processed at Baiyin’s copper concentrator. Minco has rights to explore for depth extensions of the Deep Copper mine, though the jury is still out as to whether this target offers much potential.
Baiyin’s copper smelter, which has a capacity of 75,000-80,000 tonnes of metal per year, is also operating at about one-third capacity.
China has a total copper-smelting capacity of 1.2 million tonnes — just above domestic demand of 1.1 million tonnes — yet only 400,000 tonnes of copper metal are produced in the country each year. There is also extra zinc smelting capacity, though domestic demand and supply of metal are almost balanced.
“It’s not difficult to see that this region will benefit enormously from
any new discoveries,” Cai said.
Baiyin officials agreed, pointing out that, on the basis of this joint venture, they have “new hope.”
Cai said Baiyin has the first right of refusal to buy and process concentrates from any discoveries made by the joint venture.
“But they [Baiyin] must be competitive,” he added. “The whole philosophy here is to put people back to work and to make money.”
Exploration
One of the peculiarities of China’s traditional mining industry was the specialized nature of the numerous state-owned enterprises.
Some produced metals, whereas others only explored for them. Gold agencies had little if anything to do with their base metal counterparts. Data were rarely integrated and shared.
Baiyin, for example, did not discover any of the deposit it operates and, with central government funding expected to dry up in three years, it has opted to gain exposure to geological talent through a foreign joint venture.
Paul Johnston, a senior geologist with Teck, is overseeing the underground exploration program at White Silver Mountain, as well as the regional exploration effort aimed at discovering more VMS deposits.
By most accounts, the region is a look-alike to the massive sulphide camps of eastern Canada (with the Horne camp in Quebec mentioned most often), yet relatively underexplored.
“The Chinese did widespread mapping and geophysics in this region, but the data is all over the place, and some is lost,” Johnston explained. “We’ve done a fair bit of mapping, and now we’ll be doing our own geochemical and geophysical programs to generate drilling targets for next year.”
All known deposits in the region are spatially associated with iron and manganese-bearing, siliceous rock units that are interpreted as silica-exhalite horizons related to the massive sulphide deposition.
Johnston’s team has already identified a highly prospective target dubbed the Dynamite zone, which features one of the largest exposures of the exhalite horizon, as well as a favourable alteration package.
“Everything points to starting here first,” Johnston said.
Farther afield, in Inner Mongolia, Minco is evaluating some gold targets that are believed to have potential for Carlin-type mineralization.
Changba-Lijigou
Minco’s co-operation agreement with Baiyin includes the right to earn a 75% interest in the Changba-Lijiagou zinc-lead property, also in Gansu province. To do so, it must develop a mine capable of producing 3,500 tonnes per day.
Baiyin has already spent US$90 million on mine development and construction of a 3,500-tonne-per-day mill. Feed comes from the Changba open-pit deposit (not included in the agreement), which has been mined since 1998 at a rate of 1,500 tonnes per day. The Lijiagou deposit is the undeveloped extension of the Changba deposit, to the east.
BBMC is contributing resources defined at Lijiagou, the Deep Changba area, and the Joint Area (between the two deposits), as well as the existing mill and related infrastructure. These resources total 34 million tonnes averaging 11% zinc and 1.9% lead.
Of this total, the Lijiagou deposit hosts 13.5 million tonnes grading 11% zinc and 1.9% lead below the 1,205-metre elevation. This resource was calculated by MRDI Canada, based on data from about 120 holes, drilled on sections spaced at 50-100 metres apart and along a strike length of more than 1,000 metres. The “sedex-type” mineralization is within three steeply dipping, sulphide lenses that have a maximum horizontal width of 40 metres.
The resource estimates for Deep Changba and the Joint Area were calculated by Baiyin, based on 100 holes spaced at 50-100 metres. Deep Changba hosts 10.1 million tonnes grading 9.6% zinc and 1.9% lead below the 1,205-metre elevation, whereas the Joint Area hosts 10.5 million tonnes grading 12.2% zinc and 2% lead between 700 and 1,100 metres.
Cai said this project is not Minco’s immediate priority, as it will require the deep pockets of a major to develop. And the majors — in this case, Teck and Cominco — are not likely to pursue this larger, more complex project without having proof in hand that White Silver Mountain is well on its way and working as planned.
Caution, it seems, is a trait not confined to the Chinese.
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