Iamgold sees big potential at Niobec (May 23, 2011)

By re-evaluating the mining method at its niobium-producing Niobec mine in Quebec, Iamgold (IMG-T, IAG-N) found that it could significantly increase the contained resource and production rates with a switch to bulk mining.

A preliminary economic assessment looked at both open-pit and block cave mining as ways to increase throughput and in turn unlock greater value from the company’s only producing non-gold asset.  

By incorporating the pillars and other resources that would not be mined through current underground mining, the company has managed to increase the measured and indicated resource by 691% compared with a December 2010 resource. The company achieved the resource increase despite ending the resource at 725 metres below surface, compared with 1,036 metres in the previous resource estimate, due to the constraints of the pit shell.

Niobec now hosts an estimated 458.1 million tonnes grading 0.42% niobium pentoxide for 1.93 billion contained kg of niobium pentoxide. The inferred resource now stands at 336.5 million tonnes of 0.37% niobium pentoxide for a further 1.24 billion contained kg, a 292% increase.

The resource increase was also achieved by using a cutoff grade of 0.2% niobium, compared with a cutoff of 0.45% niobium for the previous resource, achievable thanks to the bulk mining methods. The resource also benefited from the significant increase in the price of niobium, with the company factoring in a price of US$42 per kg compared with US$25 per kg for the previous resource.

Either bulk mining method, meanwhile, would allow the company to increase throughput from 2.2 million tonnes a year to 10 million tonnes. That in turn would result in a roughly threefold increase in annual production to 15 million kg of niobium with an open-pit, or 13 million kg niobium though block caving. Operating margins would jump from US$18 per kg to US$28 per kg, thanks both to higher production and prices.

“The niobium margins estimated in the study are consistent on a percentage basis with the realized margins from our gold business,” stated Steve Letwin, president and CEO of Iamgold, “making Niobec analogous to over 20 million oz. of gold equivalent resources.”

Open-pit mining has a slightly lower initial capital cost at US$830 million compared with US$840 million for block caving, and would also result in better values and returns, with an after-tax net present value of US$2 billion and after-tax internal rate of return of 24%, compared with US$1.6 billion and 21% for block caving.

The block caving allows access to the whole orebody, but the open pit would allow for underground mining once the pit is mined out. Plus, with the current resource, the pit should be mineable for 40 years, despite the significant increase in production. It is not clear, however, how easy it will be to switch the mine, sitting 25 km northwest of Ville de Saguenay and within the limits of the municipality of Saint-Honoré, to an open pit.

In a statement Gord Stothart, executive vice-president and chief operating officer, said: “The 2011 prefeasibility study will help us determine which mining method will provide the best financial returns, while remaining true to the environmental and community sustainability ideals embodied in our zero-harm approach.”

The Niobec mine, already operational for 34 years, is one of only three major niobium producers worldwide and the only one in North America. To add to its current 40-year life, Iamgold has initiated a 5-year drilling program that will include 75,000 metres of delineation drilling and 32,000 metres of resource development drilling, at a cost of US$8.4 million.

The company is also exploring the rare-earth element potential around the project, including a US$2.5-million surface exploration program.

On May 4, the day the study was released, Iamgold’s share price moved up $1.07 to $19.77 on 4.6 million shares traded.