Nichromet’s Ricardo Valls rises to life’s challenges — and nickel’s

Three years after the Bre-X scandal and subsequent decline of the mining industry, geologist Ricardo Valls found himself standing at the edge of a subway platform.

The Cuban immigrant had been working a steady string of low-paying jobs — at a milk factory, doing construction — whatever he could find to pay the bills. His wife, also highly educated, did her part by washing dishes.

“I’m a very optimistic person but after the third year, I was feeling so down,” Valls says. “I decided to jump. It was too much for me. It was almost Christmas. Everyone jumps at Christmas.”

But Valls didn’t jump. Instead he took a seat in the front car of the arriving train.

“At the next station, right in front of my eyes, a guy jumps in front of the train,” Valls recounts. “I saw the impact. The guy falls. I felt the wheels run over him. The train stops, I get out, and when I get out, he’s right there below me.”

After the tragic ordeal was over, Valls says he looked skyward and proclaimed, “I got the message.”

Now president of the privately held Nichromet Extraction — a company with extensive nickel holdings in Guatemala and Quebec — Valls is a living example of the yields life can offer those who persevere in hard times.

But it took a phone call from Geomaque Explorations (now part of Rio Narcea Gold Mines [RNG-T, RNO-X]) — remarkably, on the same day as the subway incident — to get Valls back into the industry he loves.

The Geomaque stint was the first in a string of geological jobs that eventually led to Valls becoming chief geologist with Jaguar Nickel (JNI-T, JGNKF-O) — a company whose mere mention elicits a reaction from him.

“Although it’s been almost a year and a half (since leaving Jaguar), I’m still hurt,” Valls says over lunch at a Toronto restaurant. “It’s the principle of it. They had such a beautiful thing and they aren’t using it. They’re wasting it.”

At the end of November, Jaguar announced it was advising shareholders to vote in favour of the sale of all shares of its wholly owned Guatemalan subsidiary, Jaguar Nickel, S.A. to BHP Billiton (BHP-N, BLT-L) for $19 million. Jaguar has roughly 700 sq. km of prospective nickel property in the Central American country, much of it staked by Valls.

“The deal now is a horrible deal,” he says. “They’re going to give BHP all the property for $19 million and a bunch of marginal properties that BHP would never touch . . . They’re doing it because they are desperate. Anything they do is better than what they are doing now.”

Shareholders voted in favour of the deal at a Jan. 26 meeting in Montreal.

In the early part of 2004, Jaguar’s shares were trading over $1.80, but since early 2005, they’ve traded in the 20-30 range.

Ironically, Valls says, the seeds of Jaguar’s market devaluation were sown with its success in 2004.

On the strength of significant nickel discoveries in Guatemala over 2004, the company was able to lure former Falconbridge (FAL.LV-T, FAL-N) personnel to the board and to management. Valls says management began to run Jaguar as if it were a big company — one that could set its own terms and didn’t have to be as responsive to investors. He believes the change in attitude was responsible for eroding the company’s market capitalization, eventually putting it in a position where it was forced to make a bad deal with BHP Billiton.

“Some people there at Jaguar started thinking they were bigger than Inco,” he says in reference to the Canadian-based major Inco (N-T, N-N), which also has a significant presence in Guatemala. “The money went to their heads. There’s no other way to say it.”

And while the Jaguar experience has left a bitter taste in Valls’ mouth, it hasn’t spoiled him on Guatemala.

With Nichromet, Valls has racked up eight permits covering 2,244 sq. km within the three most prospective belts in Guatemala. In fact, Nichromet has the largest prospective landholding in the country.

While Valls has long been convinced of Guatemala’s nickel potential, he says larger players have been slower to come to the same conclusion.

“People say, ‘why didn’t Inco find all this nickel?'” he says. “But the answer is simple. They didn’t have to. They already had all they needed.”

Some majors are taking heed of the country’s potential. Companhia Vale do Rio Doce (CVRD) (RIO-N) recently signed a deal with Nichromet for its Guatemalan property. CVRD will finance the exploration of all targets to a bankable feasibility study. At that point, it will earn a large portion of Nichromet’s Guatemalan subsidiary and the two will become partners.

Far from the forests of Guatemala is the Thetford mine in Quebec. The mine has some 500 million tonnes of asbestos tailings and Nichromet has plans to extract the 0.25% nickel the tailings contain. If it succeeds, it will have a resource large enough to produce $12 billion worth of nickel with a profit margin of $70 per tonne.

Nichromet has the rights to 80% of the tailings and now must raise $6 million to build a pilot plant that will test the nickel-extraction technology. If successful, the plant will prove the economic feasibility of the process, and convert the tailings into reserves.

But the extraction technology is a source of some controversy, which extends back to Valls’ time with Jaguar.

In basic terms, the process involves: crushing the material, doing a magnetic separation, dissolving the magnetic fraction with hydrochloric leaching, using the non-magnetic fraction to control the acidity, and then using a resin to extract the nickel and cobalt from the acid brine while obtaining the magnesium chloride by letting the brine cool down.

But when Jaguar experimented with a form of hydrochloric acid leaching, it failed — a fact it infamously announced at last year’s Prospectors and Developers Association of Canada (PDAC) Convention in Toronto.

“It’s not that it doesn’t work,” Valls says. “It was that it wasn’t economical the way they were doing it.”

Valls explains there are several differences between the process being promoted by Nichromet and the one tried by Jaguar.

Jaguar wanted to control the amount of magnesium oxide coming into the brine by adding magnesium chloride to the hydrochloric acid. Valls says while the technique worked on paper, a pilot test by Jaguar was unsuccessful, as more and more magnesium oxide got into the brine.

In contrast, Valls says, Nichromet is not trying to prevent the magnesium oxide from entering the brine.

“On the contrary,” he says. “The more the better, since we will be producing magnesium products.”

The other big issue that stumped Jaguar, but which Valls says Nichromet is managing, is the elimination of iron from the ore.

“We eliminate iron by simply bubbling air — not oxygen, plain air — in the brine,” Valls says.

The process causes the iron to precipitate in a varied form. Jaguar never got to the point of finding a solution for the iron problem, according to Valls.

As for the cost associated with using hydrochloric acid (it is much more expensive than sulphuric acid), Valls says hydrochloric acid will be manufactured by mixing cheap sulphuric acid with salt to produce a 100%-pure gaseous hydrochloric acid. The process will also produce energy, which will be used at a later point within the plant, as well as a product called “salt cake.” Nichromet plans to sell the salt cake to the paper industry, which uses it during manufacturing, providing Nichromet with income that will offset processing costs.

The technology is the brainchild of chemist Jean-Marc Lalancette, professor emeritus of chemistry at the University of Sherbrooke in Quebec. With funding from the Quebec government, Lalancette was working with hydrochloric acid to extract magnesium, but soon realized the potential in the byproduct of the process — nickel.

As vice-president of devel
opment and a major shareholder in Nichromet, Lalancette is involved in tailoring the process to the company’s projects.

With the experience of Jaguar now behind him, Valls is focused on pushing ahead with Nichromet. His next steps are to attract a larger partner in Guatemala and to get the financing in place so the pilot project in Quebec can get under way.

While it’s a lot for an executive to have on his plate, Valls is determined. This, after all, is a man who, with only $50 in his pocket, defected from his native Cuba by leaping out of the back door of a plane refuelling in Newfoundland to start a new life in a foreign land with his wife and 7-year-old son.

Life has not been short on challenges for Valls, and as president of Nichromet, he feels he’s finally in a position to fully draw from his vast experiences in a positive way.

“Now I’m in charge,” he says with an expression that is at once proud and defiant. “I wasn’t in charge at Jaguar.”