Exploration pays off for Falconbridge

The exploration success that Falconbridge (FL-T) is enjoying in the Sudbury mining camp, especially with the discovery of the new high-grade Nickel Rim South deposit, ensures its Sudbury operations will continue for at least the next 20 years.

At the end of the second quarter, Falconbridge added a further 500,000 tonnes in new resources to the Nickel Rim South discovery through additional surface drilling. Nickel Rim South has developed into a large high-grade deposit. Inferred resources now stand at 13.7 million tonnes grading 1.7% nickel, 3.6% copper and 0.04% cobalt, plus 0.8 gram gold, 2 grams platinum and 2.2 grams palladium.

In March, the company announced the start of a 5-year, US$368-million underground program to develop Nickel Rim South for initial production in 2008. Once completed, a further US$185 million will be required to bring the mine into full production by 2010. After taking into account pre-production revenues of US$141 million, the overall net capital cost will be US$413 million.

“Because of high-grades, Nickel Rim South will be one of the lowest-cost mines in the history of Falconbridge at Sudbury,” Joseph Laezza, president of Falconbridge nickel operations, told delegates attending a Scotia Capital materials conference held in June.

The compact nature of the deposit lends itself to bulk mining methods. The new mine is expected to have very low, negative cash costs of US60-70 per lb. nickel, net of by-product credits. At US$3.25 nickel and US90 copper, the project generates an internal rate of return above 40%.

Falconbridge has been in the Sudbury camp of Ontario since 1928, when founder Thayer Lindsley purchased the original Falconbridge property for $2.5 million, based on a rich 5.1-million-tonne nickel-copper deposit that had been drilled down to the 150-metre level. The property was put into production a year later.

Today, Falconbridge, owned 59.2% by Noranda (NRD-T), is an international mining and metals company, with five major operations that are concentrated in nickel and copper. Its nickel business is handled under the Integrated Nickel Operations (INO) banner and includes its Sudbury mines and smelter, the Raglan mine in northern Quebec and the Nikkelverk refinery in Norway. In addition, Falconbridge owns an 85.3% stake in the Falcondo nickel laterite operation in the Dominican Republic. The Falcondo division produces ferronickel.

Its copper operations consist of the fully integrated Kidd Creek complex in Timmins, Ont., plus the Lomas Bayas and 44%-owned Collahuasi mining operations in Chile. Falconbridge is the third-largest producer of refined nickel and eleventh-largest copper producer in the world, with a market capitalization of over $5.8 billion.

For the year 2003, Falconbridge pocketed US$194 million (or $1.04 per share) in earnings on revenues of US$2.08 billion, compared with earnings of US$50 million (24 per share) on US$1.52 billion in sales for 2002. The year-on-year improvement reflects the turnaround in metal prices.

In 2003, approximately 49% of Falconbridge’s revenues were derived from sales of nickel and ferronickel, 33% from the copper sales, 5% from zinc and 3% from cobalt, with the remaining 10% attributed to sales of other products.

The company’s fortunes have continued to improve through the first half of 2004. Earnings totalled US$323 million ($1.78 per share) on sales revenue of US$1.44 billion, compared to US$77 million (41 per share) on US$962 million in revenues for the first six months of 2003.

“We had another solid quarter, with our earnings being driven by solid metal prices and good production,” says Aaron Regent, president and chief executive officer of Falconbridge.

Since the Sudbury operations began in 1929, Falconbridge has mined some 136 million tonnes of ore averaging 1.46% nickel and 1.05% copper from 10 different operations to the end of 2002. The company currently operates four underground mines in the Sudbury area — Craig, Fraser, Lindsley and Lockerby — plus a mill and smelter, which together employ over 1,500 people.

The ore from the Sudbury mines is processed at the 10,000-tonne-per-day Strathcona mill to produce nickel/copper concentrate and copper concentrate. The nickel/copper concentrate is then delivered to Sudbury Smelter for smelting, whereas the copper concentrate is shipped to the Kidd Metallurgical Division’s mineral-processing facilities.

At the end of 2003, the Sudbury mining operations combined for proven and probable reserves of 14.1 million tonnes grading 1.29% nickel and 1.28% copper. At planned operating rates, the remaining ore reserves are equal to about seven years of production. The Nickel Rim South discovery is expected to extend the life of the mining operations by 13-15 years.

In 2003, Falconbridge produced 104,410 tonnes of refined nickel, which was a new record for the company, along with 311,000 tonnes of mined copper. The Sudbury mines accounted for 24,143 tonnes of nickel-in-concentrate (representing 23% of the year’s output), 29,161 tonnes copper and 611 tonnes cobalt from the processing of 2.3 million tonnes of ore averaging 1.35% nickel and 1.48% copper. Cash operating costs for the INO division averaged US$2.64 per lb. nickel, net of by-product credits. (Falconbridge doesn’t publicly break down cash costs for each of its individual nickel operations; instead they are lumped together under the INO banner.)

Production targets of 100,000 tonnes nickel and 350,000 tonnes copper for 2004 remain unchanged following a first-half performance of 49,828 tonnes nickel and 114,696 tonnes copper. The Sudbury mine operations, which were affected by a strike during the first quarter, produced 10,132 tonnes nickel and 11,279 tonnes copper in the 6-month period. The second quarter production of 5,728 tonnes nickel from the Sudbury mines was below last year’s levels of 7,082 tonnes. The shortfall is blamed on lower ore grades averaging 1.23%, versus 1.38% a year ago.

“We had restricted access to some higher-grade stopes due to ground control issues,” Regent told analysts during the quarterly conference call. Mine production for the Sudbury operations has been revised downward to 20,000 tonnes for 2004, a drop of 2,000 tonnes. Cash costs for the INO in the second quarter were US$2.49 per lb. nickel, compared to US$2.20 per lb. a year ago.

“We have been a very successful explorer through time,” Dave Gower, general manager of nickel exploration, told delegates attending this year’s Mineral Exploration Roundup in Vancouver. “We’ve continually had new discoveries in Sudbury.”

Falconbridge has traditionally explored the Sudbury Complex contact environment for large tonnage (10-30 million tonne) deposits. “This has been the real money maker for us over the years,” says Gower. Between 1960 and 2001, the exploration group contributed 86 million tonnes of ore grading 1.45% nickel at a discovery cost of $332 million, or just US10 per lb. nickel.

From 1994 to 2000, the company focused on exploring the Sudbury Igneous Complex at deeper levels. This effort led to the discovery of a number of deposits, including Onaping Depth, Fraser Morgan, Creighten West, for a total of 27.5 million tonnes of high-grade resources averaging 2.18% nickel and 1.65% copper. Onaping Depth, alone, contains indicated resources of 14.6 million tonnes grading 2.52% nickel and 1.15% copper.

“Onaping is a high-grade resource but it is also a deep resource,” says Laezza, noting that it sits below 2,000 metres and creates a mining challenge due to very high rock stresses.

“It’s quite an attractive deposit with a positive rate of return, but technically we have difficulty extracting this at the productive rate that we need in a safe manner,” says Gower. The company had previously contemplated developing Onaping as a 1.5-million-tonne-per-year operation, but with the discovery of Pacific Rim South, Falconbridge now envisions a reduced mining plan of 500,000 tonnes per year, which would help mitigate ground control issues.

“I suspect that within a few years we are going to be ab
le to mine at depth quite successfully and profitably,” stresses Gower, noting that the company is working in partnership with 3M and Tamrock to develop technical solutions.

In 2001, the exploration group embarked on a new strategy to target higher-grade, smaller-to-medium size deposits that extend above the 1,500-metre level, based on an economic analysis that indicated a 3-million-tonne typical “contact” deposit or a 750,000-tonne typical “footwall” deposit could be viable by taking advantage of existing infrastructure.

“Closer to surface, you don’t need a lot of tonnes at all to make a profitable mine,” says Gower. “We have found a couple of deposits in 2003 that will be small open-pits.”

The shift in exploration strategy has resulted in the discovery of over 18 million tonnes of new additional high-quality resources over the past two years.

“The success we’ve had continues to demonstrate the exploration potential of Sudbury,” says Regent.

The Sudbury camp hosts two types of nickel deposits that form around the edge of the basin at the base of rocks that represent a melt sheet caused by a major meteorite impact. Contact environment deposits tend to be concentrated accumulations of massive sulphides in embayments or depressions along the crater floor, whereas footwall deposits have been formed by a migration of copper-bearing liquid sulphides into the underlying brecciated footwall rocks of the Sudbury Igneous Complex in narrow veinlets, veins and locally massive zones. The footwall deposits tend to be higher-grade in copper and platinum group elements.

Using three-dimensional digital modelling to prioritize exploration, Falconbridge’s exploration team demonstrated that 86 sq. km along the basal contact of the Sudbury basin remained untested on the company’s property package above 1,500 metres. In addition 57 cubic km of footwall within 500 metres of the contact horizon was still open for exploration. “We really hadn’t concentrated on the footwall at all,” explained Gower.

Through this process of data compilation and 3-D visualization, a number of targets were prioritized. Gower says the one that “jumped off the page” was an area of the east range, about 3 km north of the airport and 5 km north of the smelter.

This well-mineralized area showed potential, being in a contact environment with an interesting looking footwall. Plus, there were a number of showings and a past producer in the area.

In 1992, Falconbridge had drilled the down-plunge extension of Inco‘s (n-t) Victor deposit and intersected nickel at a 2,000-metre depth in the so-called Rim deposit. A 1.6-million-tonne resource of 1.6% nickel and 10% copper, plus 2.5 grams gold, 4.2 grams platinum and 3.5 grams palladium was drilled off in 1994.

In 1996, Falconbridge further investigated the area with a series of 500-metre stepout holes to the southeast. Several of the holes were promising: “We had interesting mineralization at the contact in Mac 99, but more importantly Mac 100 had a 37-metre massive chalcopyrite vein at about 100 metres below the contact,” says Gower.

Subsequently Falconbridge went back down this hole with a UTEM low-frequency geophysical survey that outlined two distinct anomalies; one at the contact and one further down in the footwall.

Wedging off the original hole, Falconbridge intercepted 5.3 metres of 2.86% nickel, 1.19% copper and some interesting change in the contact zone. More importantly, says Gower, they intercepted nearly 90 metres of the footwall zone grading 1.76% nickel and 6.45% copper, plus 8.7 grams gold, 5.2 grams platinum, and 6.5 grams palladium in the discovery hole of Nickel Rim South, drilled early in November 2001.

By March 2004, when the decision was made to go underground, Falconbridge had spent $11 million on the project, completing more than 72,000 metres of surface drilling. The Nickel Rim South body occurs between 1,200 and 1,750 metres below surface and is typical of the Sudbury basin deposit model. Prior to the most-recent resource update, the footwall zone contained a 6.5-million tonne inferred resource grading 1.5% nickel, 5.8% copper and 0.02% cobalt, plus 1.4 grams gold, 25 grams silver, 3.3 grams platinum and 3.9 grams palladium. The overlying main contact zone held 6.4 million tonnes grading 2% nickel, 1.3% copper and 0.05% cobalt, plus 0.2 gram gold, 6.2 grams silver, 0.6 gram platinum and 0.6 gram palladium. An up-dip extension of the contact zone contained an additional 300,000 tonnes grading 2.4% nickel, 0.3% copper and 0.06% cobalt, plus 2.1 grams silver, 0.1 gram platinum and 0.1 gram palladium.

The deposit holds further expansion potential in the up-dip direction, and an ongoing 24,000-metre planned surface exploration drilling program has already added 500,000 tonnes of additional resources to the end of June. The surface drilling is also following up on other promising mineralized intercepts that occur as much as 1.5 km away from the Nickel Rim South deposit.

“We do see opportunity to further expand the resource base in the immediate area,” says Gower.

The underground definition program is designed to upgrade enough resources to the measured and indicated category to support a feasibility study of a nominal 1-million-tonne-per-year operation. The underground drilling program will consist of three phases totalling 104,000 metres. The program involves simultaneously sinking a 7.6-metre diameter main shaft to a depth of 1,785 metres and a ventilation shaft to 1,675 metres.

The company will then proceed with over 10,000 metres of lateral development for definition drilling and pre-production. The footwall and contact zone will be developed independently of one another. The pre-development will also include permanent service and production hoists, ore and waste handling infrastructure and a dewatering system.

Site preparation work is currently proceeding as planned in preparation of shaft sinking, which is scheduled to begin in February 2005. Once in full production, Nickel Rim South is expected to produce between 12,000 and 15,000 tonnes nickel and 35,000 to 45,000 tonnes copper per year, with significant platinum-palladium-gold.

Fraser Morgan is another recent success story for Falconbridge. It was first discovered in 1996, about 1.6-2.5 km southeast of the Fraser mine. While it’s still early days, 2003 drilling increase the inferred resource by 158% to where it now stands at 6.3 million tonnes grading 1.6% nickel, 0.5% copper and 0.05% cobalt. The deposit is accessible through existing infrastructure, which will reduce capital costs for development and shorten the timeframe. To date, three separate zones have been discovered and it has become apparent that Falconbridge has discovered a new mineralized trend. A recently drilled surface hole, 450 metres to the northeast of the resource boundary, intersected 35.6 metres of 1.8% nickel and 0.7% copper.

Most of its holding in the Sudbury camp are 100% owned, though Falconbridge has farmed out a number of specific properties and formed joint ventures with Aurora Platinum (ARP-V), Wallbridge Mining (WM-T) and Ursa Major Minerals (UMJ-V).