Procon Resources, a Vancouver-based mining contractor that is majority owned by China CAMC Engineering Co., is making an $11.7 million strategic investment in Fortune Minerals (FT-T) at a price of 40¢ per share — a 14% premium over Fortune’s June 26 closing price of 35¢. China CAMC is a Beijing-based provider of international engineering, procurement and construction services.
Fortune will use the proceeds to advance its Nico gold-cobalt-bismuth project in the Northwest Territories. Fortune and Procon have also agreed to work together to advance the Nico project and aim to start construction next year. Indeed, it was Procon that conducted the underground test mining for the Nico mine in 2005 and 2006.
Nico, 160 km northwest of Yellowknife, is an iron oxide copper-gold class deposit, which contains open pit and underground resources that are expected to sustain a planned mill throughput rate of 4,650 tonnes of ore per day for a period of nearly 20 years.
Proven and probable reserves for both underground and open pit add up to 32.99 million tonnes grading 1.02 grams gold per tonne, 0.11% cobalt, 0.14% bismuth, and 0.04% copper. Nico’s total contained metal adds up to 1.09 million oz. gold, 82.27 million lb. cobalt, 102.05 million lb. bismuth, and 27.18 million lb. copper.
The ore at Nico is hosted in three lenses of brecciated ironstone up to 1.3 km in length, 550 metre in width, and a thickness of 70 metres.
Fortune calculates that about $110 million has been spent so far on the project to delineate and engineer the deposit, including front-end engineering and design studies by Jacobs Minerals Canada and other engineering companies, underground test mining and several pilot plant tests.
A hydrometallurgical plant in Saskatchewan will process the concentrates from Nico into high-value products, and the company has acquired buildings and equipment from the Golden Giant mine at Hemlo, Ontario, which were dismantled, moved and stored for relocation to Nico. The plant will produce gold doré, cobalt sulphate and or cobalt cathode, bismuth ingot and copper metal precipitate.
The mine plan envisions that the ore will be processed in two stages. At site, an average of 4,650 dry tonnes per day of ore will be processed in a crushing, grinding and flotation concentrator to produce about 180 tonnes of wet bulk concentrate a day. The bulk concentrate then will be transported by truck to Hay River in the Northwest Territories and subsequently transferred by CN rail to the Saskatchewan plant near Saskatoon. At the Saskatchewan plant, the bulk concentate will be subjected to additional grinding and flotation to produce separate gold-bearing cobalt and bismuth concentrates.
According to Fortune, the high concentration ratio of Nico’s ore is a significant attribute because it allows the company to transport high-value concentrate to southern Canada where it can achieve significant savings on processing costs, particularly lower-cost power of about 5.7¢ per kilowatt hour.
Other factors that prompted the decision were “the proactive support of the Government of Saskatchewan,” a 5-year tax holiday, and the proposed plant’s location near Saskatoon, which gives the company access to rail, as well as proximity to the Trans-Canada Highway, natural gas, lime and other reagents, and a labour pool of engineers and process plant workers.
Russell Stanley of Haywood Securities in Toronto notes that Saskatchewan has a “tax environment supportive of processing raw materials sourced from out-of-province,” and he has a “buy” rating on the stock.
In a research report, the mining analyst points out that cobalt “offers investors a play on battery demand growth (both lithium ion and nickel metal hydride), and bismuth is a play on lead-replacement initiatives in a number of industrial and electronic applications.”
Stanley estimates the mining project in the Northwest Territories and the processing plant in Saskatchewan are expected to be fully permitted within the next six months, with initial production targeted for 2015.
In January, the Mackenzie Valley Review Board concluded its environmental assessment and recommended approval of the proposed mine and mill, concluding that a full environmental review of the project was not necessary and that it should proceed to the regulatory phase for approvals.
The results of a front-end engineering & design study in 2012 that was based on a vertically integrated mine and mill put capital costs at $440.5 million. The study estimated life-of-mine average revenue would be $194 million a year and life-of-mine average operating costs would be $97 million a year. It calculated a pre-tax net present value at a 7% discount rate of $308.5 million and a pre-tax internal rate of return of 14%.
At the time of writing, the junior was trading at 37¢ per share within a 52-week range of 26¢-65¢. The company has a little over 121 million shares outstanding.
Procon is still riding