Mindoro transitioning to producer at Agata

SITE VISIT

SURIGAO, MINDANAO, PHILIPPINES — A steep climb up a slippery hillside, sweating in the tropical heat and humidity, awaits those who want to properly appreciate Mindoro Resources’ (MIO-V) Agata nickel laterite project in the Philippines. For, once on top of the resource at Agata North, one can see just how close the ocean is for shipping and how void the deposit is of complications such as forests and people.

Mindoro wants to make the most of those advantages through a quick-start direct shipping ore (DSO) operation. Then, with cash flow established, the company will look to a more value-added and larger-scale operation.

“We’re setting it up so we can scale up the project,” says Jon Dugdale, president and CEO of Mindoro. “We’re not constraining our vision, we’ll keep progressing to mid-tier producer.”

While climbing the hillside, one also notices the iron-rich red mud that forms a thin overburden to the resource. Below that, just out of sight, sits the established limonite resource of 10.2 million measured and indicated dry tonnes grading 0.94% nickel, 0.11% cobalt and 46% iron. And below that, sits the saprolite resource of 19.6 million measured and indicated dry tonnes of 1.07% nickel, 0.03% cobalt and 11% iron.

The high-iron overburden could allow Mindoro to simply scoop it up along with the limonite for direct shipping to nearby China for nickel pig-iron production, which requires at least 1% nickel and 45% iron. The company is also looking into sending higher-grade material to Chinese electric arc furnaces or to acid-leach or ferronickel processing facilities in Australasia.

But it is the long-term growth potential that has Mindoro bullish on nickel laterite. The company has identified an exploration target up the coast that, through 5-metre hand-augured holes, shows the possibility of some 50 million to 70 million more tonnes at similar grades to Agata.

Mindoro has earned a 75% interest in a contiguous land package that covers both Agata North and the exploration target, located in the northeast corner of Mindanao. A private Philippine company, Minimax, controls the rest.

The company is now working through a 7-to 10-km drill program on the 9-sq.-km exploration target to establish hard numbers for a resource. With four rigs drilling holes around 20 metres deep, it expects to have hundreds of holes done within five months.

Once a greater resource is established, the company can more seriously consider major infrastructure projects, such as a large-scale nickel laterite processing plant with high-pressure acid leach and atmospheric leaching technologies. Capital costs for such upgrades, depending on further downstream processing capability, could run anywhere from the low hundreds of millions to well into the billion range.

“While the capex is high, the payback is also high,” says Tony Climie, chief operating officer, exploration director and man on the ground for Mindoro.

While only preliminary, some metallurgical testing has indicated 95% nickel recovery with respectable leaching times. A more thorough assessment will be done later, but for now it showed the potential for more value-added processing, rather than take the 10% of the nickel value the company will likely get from direct shipping.

“It would be a shame to waste (the resource),” says Dugdale. “We’ve got such metallurgical advantages. But it’s a trade-off: If we mine ten million tonnes and we have one hundred million tonnes, we still have plenty left.”

The company is working on a scoping study to look at larger-scale potential, but for now it is looking to make the most of a DSO operation, shipping upwards of 2 million wet tonnes for the first five years of operation. Infrastructure investments in the short-term would be more in the range of a drying facility or sintering plant to add value to the product, while larger investments could come later.

The Philippines, however, hardly tops the list of countries in which investors want to pour their money. On top of being simply over-bureaucratic, the government has a history of corruption and instability, while a Muslim-extremist insurgency in the south brings extra uncertainty.

But the investment climate is improving. In 2004, the Mining Act was enshrined, which allows for 100% foreign ownership of projects once they have reached a value threshold.

The 2010 mid-year update of the Fraser Institute’s mining survey bumped the country up from 49th place to 35th, in part thanks to clear and peaceful elections.

The insurgency, while still present, has subsided and is for the most part quite localized. Mindoro’s project is in fact on the same island as the main insurgency, but is in the Christian-dominated Surigao region in the northeast. As a previous Northern Miner writer visiting the area observed, one is far more concerned with traffic accidents than terrorism.

Foreign mining firms, meanwhile, bear some responsibility for the challenge of working in the country after some high-profile environmental disasters. In 1996, a tailings dam at Placer Dome’s and Marcopper Mining’s Mt. Taipan project partially failed, leading to a massive discharge of toxic tailings. And in 2005, there were two cyanide leaks at Australia-based Lafayette Mining’s (now Voyager Resources’ [VOR-A]) Rapu-Rapu polymetallic project, forcing the project to close and eventually leading to Lafayette selling it to a South Korean interest.

Such incidents have been fodder for a strongly anti-mining Catholic Church in the country, and led to some areas of the country also becoming staunchly against mining.

But Mindoro has positioned itself well to avoid many of the pitfalls of working in the Philippines.

The company is working in the mining-friendly province of Surigao, where a number of other direct shipping nickel laterite operations already exist, as well as more advanced operations. Sumitomo and Nickel Asia, for example, recently started building a US$1.3-billion high-pressure acid-leach processing plant in Surigao.

“This is where the government wants mining,” says Dugdale.

And after 14 years of working responsibly in the country, the company has strong community support and is committed to making a positive contribution.

In a 2006 interview with The Northern Miner, Tony Climie said: “The ball is in our court to prove we can put these things into production without causing problems.” And he seems to have stuck with that.

Climie, who founded Mindoro, has been living in the country for years as Mindoro’s sole foreign employee. With Dugdale now head of the company, Climie is concentrating on exploration and advancing projects on the ground.

“I’m an exploration guy, I don’t like being in the office,” says Climie.

Climie has helped organize a number of community initiatives, from small-scale recycling, farming and education programs to helping build schools and bring in doctors. The company is still an exploration company with limited capital, but in the rural Philippines it takes little to make an impact.

The programs are “very basic and very effective,” according to Edsel Abrasaldo, director and vice-president of land and special projects for MRL Gold, the Philippines subsidiary of Mindoro.

While The Northern Miner visited the project, a nearby community held an opening ceremony for a new school (though strictly coincidental) with the Mindoro executives as the guests of honour. Through speeches, a charming key handover, and in giving Mindoro the honour of cutting the ribbon, the locals made it evident that they were thankful for the company’s contributions.

The company diverts roughly 11% of its exploration budget to community development, now a government requirement but which Mindoro has been doing for some time. Regulations also require a 1% net smelter return royalty be issued to indigenous peoples if the project af
fects recognized ancestral claims. The indigenous peoples near the project site are not on recognized land, but the company has agreed to contribute the 1% royalty regardless.

“Ethically, it was something we had to do,” says Climie.

Solid community relations have helped counter criticism by the Church, and has also given the company political capital.

For instance, the direct shipping project will likely require the moving of a small indigenous community of about 20 houses in the Payong- Payong bay to install the shipping pier. The majority of the village is apparently willing to move, thanks in part to the company’s proactive presence in the area.

The social programs have also attracted the attention of the International Finance Corp. (IFC), a wing of the World Bank.

The IFC made a $2.1-million investment in Mindoro in July to promote responsible mining in a poorly developed part of the country. Before investing, the IFC did extensive due diligence not only on the project but on the social and environmental aspects, including interviewing numerous locals.

The investment is the IFC’s first in a mining project in more than 20 years in the Philippines. It is a validation of the company’s efforts, and could lead to millions more being invested by the IFC.

Along with the IFC, Mindoro has relied on institutional investors Acorn Capital and Asian Lion to carry it out of the downturn and onto stable ground. In the last round of financing, Asian Lion, and its public side, Lions Selection Group, purchased 80% of the units offered, increasing its ownership to 7.8% of the company.

“If we didn’t have these key shareholders, we would have been back to bread and water,” says Dugdale, who said the institutions are there to help Mindoro succeed. “They’re all there to help us build mines.”

The latest round of financing, closed in July, raised $4 million for Agata. Mindoro now has 151 million shares outstanding, or 226.5 million fully diluted, and has been trading at around 20¢.

It was a condition of the financing that Dugdale, then a director of Mindoro (and former president of Asian Lion), be appointed president and CEO of Mindoro.

Another requirement of the financing was that Mindoro will make all reasonable efforts to list on the Australian Stock Exchange by March 2011. The company is working towards the listing, possibly achieving this in the coming months.

Dugdale has brought a hard-nosed business sense to the project, as well as unflinching optimism.

When asked what the biggest challenges were going forth, Dugdale replied: “We don’t really have any issues. We’ve just got to do it.”

Looking at the project, that does seem an accurate assessment. The biggest hold-up is establishing a detailed mine plan, which is in the works, and executing it.

The company already has the preliminary environmental and mining permits; it now has to demonstrate that it is ready to mine before receiving final approval.

Thanks to years of experience on the ground, the company is better able to weave through the bureaucracy and avoid major delays.

Dugdale explained that some projects have faced delays by going too big too fast, but Mindoro plans to start low on the radar.

“Going all at once is challenging. . . there is an established way for juniors to get into processing,” says Dugdale. “The key is getting into small-scale production first, then transition.”

The big question is just what Mindoro will transition into. Along with the potential large-scale nickel operation, the Surigao area hosts gold potential in the company’s American Tunnels prospect. Mindoro also has several gold-copper targets elsewhere in the Philippines, including ones in Batangas province being optioned in by Gold Fields (GFI-N, GFI-J).

Like the Philippines itself, Mindoro holds significant mineral potential. It just remains to be seen how much it will realize.