Greenland’s timeless allure

Avannaa Resources is a privately held exploration company founded by three geologists from Britain and Denmark who pooled their interest and experience in Greenland. It may be an unfamiliar name to many, but over the last nine months, the London-based junior has signed deals with two large-cap miners to explore for base metals in Greenland.

In February, Avannaa signed an agreement with Swedish metals giant Boliden (BOL-S)to explore for zinc in northern Greenland, and in November 2012 completed an option and joint-venture agreement with Anglo American (AAUKY-Q) to explore for sedimentary hosted copper in parts of eastern Greenland.

“There are no significant operating mines at present, so the potential is really in the future,” says Avannaa’s president and chief executive Nicholas Rose, a geologist with a PhD from Stanford University that focused on Greenland. “Our main interest is the substantial base-metal potential, and we see the sedimentary basins bordering the northern and eastern margins of the Greenland Shield as being particularly prospective for copper, lead and zinc.”

One of the things going for Greenland is its coastal access, Rose adds. “It has a long coastline with fjord systems that penetrate deep inland, so that can definitely be an advantage, compared to landlocked countries that require large land-line bases of communication and infrastructure.”

Avannaa and Anglo American did not comment on the specifics of their exploration agreement, but the deal highlights a growing undercurrent of interest in the island’s resource potential. And while there is only one producing gold mine in Greenland today, mining executives seem to agree that it’s only a matter of time before the island’s mineral wealth breeds greater investment.

“There are certainly bigger companies sniffing around — we’ve seen delegations from China and Korea,” says Jamie Tuer, Vancouver-based president and chief executive of Hudson Resources (HUD-V), which is developing an anorthosite deposit on tidewater in West Greenland. “We’re seeing a lot of activity, and I don’t see why we won’t see more.”

Australian junior Ironbark Zinc (IBG-A), for instance, is working with China Non-ferrous Metal Industry’s Foreign Engineering and Construction Co. on an integrated development and funding proposal for its Citronen zinc-lead project. It is located on the edge of a fjord in northern Greenland that can be accessed by sea for three months a year when the ice melts. In January, Ironbark said its memorandum of understanding with China Non-ferrous involves a lump-sum, fixed-price construction and commissioning contract, with an associated 70% debt funding through Chinese banks that would allow China Non-ferrous to buy a 20% direct investment in the project.

Ironbark also entered into an agreement in 2011 with Glencore International [now Glencore Xstrata (GLEN-L)] for a US$50-million funding facility in exchange for off-take agreements. According to a feasibility study tabled in April, Citronen has a mine life of 14 years with life-of-mine revenues of US$5.7 billion and operating costs of US$3.4 billion. The project’s post-tax net present value was estimated at US$354 million with a 22.2% post-tax internal rate of return. Capital expenditure was pegged at US$429 million.

“The Asian governments have probably been the most interested of the foreign entities,” says John Mair, executive chairman of Greenland Minerals and Energy (GGG-A, GDLNF-Q), which is advancing the enormous Kvanefjeld rare earth elements-uranium-zinc project in southern Greenland. “There is a growing interest coming from North America and Europe as well, but part of that has been catalyzed by some of the interest from the Asian states.”

Danish companies are paying close attention to Greenland’s mineral sector, Mair adds, including corporations that provide equipment to the mining industry, as well as financial groups and funds that are looking to help develop the resource industry. In the Fraser Institute’s latest mining survey, Greenland ranked first in the category of “current mineral potential assuming current regulations and land-use restrictions.”

And as new shipping routes open to the Arctic, more companies are likely to scout Greenland for untapped resources. “Retreating glaciers offer the promise of finding more minerals,” says Ole Christiansen, chief executive of NunaMinerals, an exploration company from Greenland that’s listed in Denmark. “We have a gold project in south Greenland, and because of the melting ice, the glacier had retreated so much that we could access ground and sample it.”

Christiansen is in talks with a handful of foreign mining companies that are interested in Greenland, and in September 2012 the company, which is 33% owned by the Greenland government, signed an agreement with state-owned Korea Resources Corp. to look for joint-venture opportunities. NunaMinerals is mostly looking for gold, rare earths, tungsten, antimony, platinum, copper and zinc.

“The sea ice around Greenland is extensive in some places, but it’s thinning out and reducing from year to year, and that means Greenland is becoming more accessible,” Christiansen says. “There are a lot of fjords that you can access now . . . making it much easier to access remote parts like in the north, where we have zinc, copper and gold potential.”

The Greenland government appears to welcome foreign investment in resource extraction as part of a broad effort to become more independent of Denmark. The island, which became a Danish colony in 1814, was granted self-rule in 1979 and given responsibility over its own judicial affairs, policing and natural resources in 2009. But it remains part of the Kingdom of Denmark, and the Danes retain responsibility over Greenland’s foreign policy and subsidize its economy, with a block grant to the tune of US$600 million a year.

In mid-March, Greenland voters went to the polls and elected a new ruling party — the social-democratic Siumut party — which has stated publicly that it intends to overturn a zero-tolerance policy on uranium when it is naturally present in raw materials that mining companies wish to extract, such as rare earth elements, and has promised more taxes or royalties on foreign mining companies.

Greenland Minerals and Energy’s Mair calls the election results a major milestone and speculates that the new government under Prime Minister Aleqa Hammond, Greenland’s first female prime minister, is likely to endorse a policy that allows uranium to be exploited from deposits where uranium oxide (U₃O₈) is coincident with other metals, or one of a number of economic components.

In the company’s case, uranium from its Kvanefjeld project could be sold to utilities operating nuclear power plants in the U.S., Asia or Europe, and its rare earths to emerging refiners in South Korea and North America, with excess going to existing refining capacity in China.

“When we set out in 2007, uranium was something that wasn’t even up for discussion,” Mair recalls. “Since then, the level of understanding has come in leaps and bounds.” He points out that the government has taken several steps to better understand what is involved in mining uranium. It has paid visits to operating mines in Canada’s uranium-rich Athabasca basin and held discussions with stakeholders, including thos
e from the country’s First Nations.

Mair says that Greenland sees Kvanefjeld as a big project, and something of a test case. “What they’re trying to do is create a framework to allow Kvanefjeld to move through permitting and into production without necessarily opening up Greenland to a sudden flood of uranium exploration,” he explains. “They’re looking at putting in a threshold where uranium is not particularly high-grade, and Kvanefjeld is the main project.”

He says Kvanefjeld could become a world-class production centre for specialty metals, as it is one of the world’s largest resources of rare earth elements. (Its overall resource inventory, or the sum of the delineated deposits in the project area, stands at 956 million tonnes containing 575 million lb. U₃O₈ at 0.027% U₃O₈, 10.3 million tonnes of rare earth oxide and 2.3 million tonnes of zinc.)

“It’s not just the size of the resource and the fact that the resources are more or less sticking out of the ground,” Mair continues, “it’s that the uranium and rare earth-rich minerals can be concentrated through a simple flotation process, which captures most of the value in less than 10% of starting mass. It’s an outstanding result, particularly given that these value minerals are non-refractory.”

Elsewhere in Greenland, London Mining (LOND-L) is awaiting construction and exploitation licences for its Isua iron ore project, 150 km northeast of the capital of Nuuk and 110 km from a proposed deep-sea port. In February, Bloomberg Businessweek reported the company is seeking Chinese backing and had talked with potential Chinese partners, including state-owned Sichuan Xinye Mining Investment. 

When contacted by The Northern Miner, however, London Mining declined to confirm or deny Chinese involvement, and said it was speaking with all interested parties and could not comment on any specific talks or discussions. “London Mining is looking at a number of international options for funding the project and speaking to a range of possible partners,” Thomas Credland, a company spokesman, wrote in an email response to questions. “London Mining is also mindful of Greenland’s long history and close relationship with Denmark. The company has engaged with potential investors in Denmark and is open to funding discussions from all potential international partners, not least in the Nordic region.” 

The Isua project is expected to produce a premium-quality, 70% iron pellet-feed concentrate with low impurities. The company expects to have all of the approvals it needs before year-end. The company acquired the iron ore project in 2005 from Rio Tinto (RIO-N) and completed a bankable feasibility study in March 2012, based on a 15-million-tonne-per-year operation tapping into a resource of over 1.1 billion tonnes.

London Mining has been active in Greenland for the last eight years and says its extensive resources and pro-mining government are major selling points. “Greenland’s rich reserves of iron ore and the government’s welcome to investment to develop these resources in the best interests of the Greenlandic people have made it an attractive prospect,” Credland says.

The company whipped up controversy in Greenland late last year, however, over plans to import thousands of Chinese workers. The new government has said it may revise a law that allows mining companies developing large-scale projects to employ foreign labour and introduce legislation that would make foreign companies negotiate deals with local labour unions first to ensure that imported foreign labour is not underpaid. 

Credland says the company will employ local people “wherever possible” and “provide skills and training to build a Greenlandic workforce,” but says it will need to import foreign workers during the construction phase, “as the Greenlandic workforce would be adversely affected if London Mining employed exclusively Greenlandic people who were taken out of other important local work.” He also notes that building the mine would require “highly qualified engineers and miners who cannot be sourced in Greenland.” 

Tuer of Hudson Resources describes Greenland’s government as being “pragmatic” about wanting to put mines into production. Mining companies only have to deal with one regulatory body — the Bureau of Minerals and Petroleum — for everything from exploration permits to production licences, which makes the process relatively painless, he says.

“Your application for an exploitation licence and mining permit are made to the same people that you’ve dealt with at the exploration stage — that’s why it’s so
attractive,” he maintains. “If you have a bankable project and satisfy the social and environmental requirements, it’s pretty much a six-month process to move from an exploration licence to an exploitation licence.”

Tuer, who spent time earlier in his career working on diamond exploration in Greenland, also notes that when he compares the permitting process in Greenland with those of countries like Canada, Greenland wins hands-down.

“When we looked at some of our competitors in diamond exploration working in places like Baffin Island, which is just across the Davis Strait, they were dealing with multiple jurisdictions: the federal government, the provincial government, the territorial government and the aboriginal government,” he says. “Just to get a drill permit, which included water and other rights, took them a long time.”

But mining in Greenland is not without its challenges. Angel Mining, which acquired the Danish protectorate’s only active gold mine — Nalunaq — from Crew Gold  for $1.5 million in 2009, is having trouble making the mine in southern Greenland profitable, and in March the company appointed administrators to work with its creditors and help restructure the company.

Angel Mining’s main project, which it acquired in 2003, is the Black Angel zinc-lead mine, 900 km north of the gold mine. According to a 2011 research report by Michael Green from U.K.-based Growth Equities & Co. Research, by 2008 the company had received a mining licence and produced a bankable feasibility study, but “became another victim of the credit crunch.”

Black Angel is an “old, high-grade zinc-lead mine that is perched 600 metres up a rock face on the edge of a fjord that needs to be reached by a 1.7 km cable car,” Green writes, and “if it wasn’t such high grade, it would not be worth the effort.”Cominco operated the mine for 17 years before  closing it in 1990.

Infrastructure and labour shortages — as well as the challenge and expense of working in an Arctic climate — can also make Greenland a hard place to operate. “Mining companies will have to create their own infrastructure, so many companies go after large-scale projects with more robust economics,” Avannaa’s Rose explains. 

“Working in Greenland can be frustrating, but it is also quite transparent — we know where we stand,” says Nicholas Houghton, president and chief executive of True North Gems (TGX-V), which is working its way through permitting its Aappaluttoq ruby-pink sapphire deposit, 30 km southeast of Qeqertarsuatsiaat in western Greenland.

True North Gems was formed on an emerald discovery in the Yukon and went on to look at a sapphire discovery on Baff
in Island, before turning its attention to gemstones in Greenland. Houghton first visited Greenland to look at its potential to host gemstone deposits in 2004, and stayed for just a week. He returned the following year to look in earnest, took bulk samples in 2006 and 2007, drilled in 2008 and submitted a draft application for an exploitation permit in 2011. “Going from 2004 to submitting a draft with a prefeasibility study in 2011 is pretty quick,” he says.

“What the new government in Greenland is seeing is that they need to create jobs and revenue, and they want to move forward — they want to be more proactive with mining and they want to develop it,” he says. “They’re tending to see the bigger picture. The previous government was pro-mining, but can you give me an example of a mine they put into production? No.”