Signs Of Life In Base Metals

There was yet another sign in Western Canada of a recovery in base metals markets during the 31st trading week of the year.

• Teck is bringing the zinc-smelter portion of its Trail metallurgical complex in B. C. back to full capacity of 25,000 tonnes zinc per month, beginning in September. The company cites a strong uptick in demand from steel companies coupled with dwindling manufacturers’ inventories.

Last November, Teck announced sweeping cutbacks across the corporation, including a 20% reduction in output at its Trail zinc-lead metallurgical complex to 20,000 tonnes zinc per month for at least six months.

In recent weeks, zinc prices have climbed to US81¢ per lb. from break-even levels around US70¢ in mid-July, even as London Metal Exchange inventories have soared above 420,000 tonnes from under 360,000 tonnes in late July.

• A wave of optimism and financing dollars swept across the players in the base metals-rich Democratic Republic of the Congo, even as a few majors were left in the lurch. The DRC government effectively concluded its drawn-out review of 61 mining contracts that were signed between it and foreign mining companies during the 1998- 2003 civil war and the following three-year transition.

With its place in the country settled, Australia’s Anvil Mining, an established copper miner in the DRC, immediately struck a US$200-million debt and equity financing from Trafigura — an impressively large sum for a junior in such a high-risk country. The money will be used to restart construction of the second stage of Anvil’s Kinsevere project. The expanded operation will produce 60,000 tonnes of copper per year using solvent extraction-electrowinning methods.

Other majors with key government approvals newly in hand for their projects are AngloGold Ashanti, Banro and Gold Fields.

On the loser side of the ledger was First Quantum Minerals, which apparently had its contract cancelled by the DRC government at the half-finished Kolwezi project. The decision looks at first glance to be final, but First Quantum is pleading with the government to reconsider.

Another big copper project in limbo for a couple more months is Tenke Fungurume, being developed by Phelps Dodge and Lundin Mining.

• There was an interesting wrinkle in the ever-evolving China story. Vancouver-based junior Goldbrook Ventures teamed up with integrated Chinese nickel producer Jilin Jien Nickel Industry Co. to launch an unusual hostile takeover of Glen Mullan’s Canadian Royalties, with an offer of $148.5 million cash for all outstanding shares and convertible debentures.

The prize is Canadian Royalties’ Nunavik nickel-copper project in Quebec’s northernmost Ungava region, near Xstrata’s Raglan nickel mine. Goldbrook has substantial exploration assets in the region, but nothing as advanced as the modest Nunavik project.

Nunavik has a reserve of only 11.3 million tonnes grading 0.97% nickel and 1.13% copper, plus byproduct credits. Until this bid, with Xstrata not showing much interest, nickel markets in the dumper and development costs estimated at an un-financeable half a billion dollars, the project looked set to sit on the shelf for years to come.

With Xstrata busy with larger issues such as its proposed merger with Anglo American, a bidding war now looks unlikely and we’d guess Canadian Royalties share and debenture holders will eventually pocket the cash and move on. After all, CZZ shares were only 17¢ in April and are now at 57¢ thanks to this bid.

The bar is set high, though, with a two-thirds acceptance level needed for both the shares and the debentures, so a little sweetener might be called for to close the deal.

• The Prospectors and Developers Association of Canada, after months of hard work and consideration, has come out strongly against the Ontario government’s Bill 191, the proposed Far North Act, as well as Bill 173, the proposed Mining Amendment Act.

The PDAC has filed a detailed submission on the Ontario Environmental Registry, available at www.pdac.ca, that argues that Bill 191 lets down northern Ontario’s First Nations and permanently removes far too much land from staking.

The Ontario Mining Association struck a more conciliatory tone in its submission, but is still seeking significant clarifications on both bills, particularly with respect to the government’s duty to consult with First Nations, mine-closure plan consultation rules and the makeup of tribunals.