Huge, low-grade mineral deposits sit on a razor’s edge, able to generate great profits when metals prices are strong but extremely vulnerable to cyclical downturns.
• As leading open-pit miners of molybdenum, management of Thompson Creek Metals knows all about this kind of risk. Nevertheless, it’s going ahead with a bet on the giant but marginal-grade Mt. Milligan copper-gold deposit in northeastern British Columbia by tabling a friendly, cash-and-share $650-million bid for owner Terrane Metals.
In an unusual twist, Thompson Creek has done a side deal with Royal Gold, arranging to sell a quarter of Mt. Milligan’s life-of-mine gold output for US$311.5 million, of which US$226.5 million will be paid up front with the closing of the Terrane acquisition.
Mt. Milligan hosts reserves of 482 million tonnes grading 0.2% copper and 0.39 gram gold per tonne, which translates into potential annual production of 81 million lbs. copper and 200,000 oz. gold over 22 years.
Terrane has done a fine job advancing the project, but arranging financing for mine construction has been a bit too much to handle, and shareholders are likely widely appreciative that they can hand the ball off to Thompson Creek.
The most-prominent shareholder is Goldcorp, which controls 58% of Terrane through its ownership of 240 million preferred shares and 27.3 million common shares. That means Goldcorp will scoop up $240.5 million in cash and 13.9 million Thompson Creek shares, representing about 8% of Thompson Creek.
Goldcorp itself bet the farm a few years ago on the future of large, low-grade polymetallic deposits when it bought Glamis Gold to advance the Penasquito silver-gold-zinc-lead deposit in Mexico. So it’s quite a statement that even Goldcorp has been iffy on pushing Mt. Milligan into production and is happier to walk away with cash.
But for moly-focused Thompson Creek, it’s all about commodity diversification: having survived the whipsaw in moly prices in recent years, it’s ready to park some profits in the far less volatile copper market. It’s a strategy that has served other narrow-focused producers well in recent years, such as North American Palladium, which wisely hustled over into the gold sector when palladium prices tanked.
With its established Endako moly mine situated only 150 km southwest of Mt. Milligan, Denver-based Thompson Creek has plenty of experience operating a profitable open-pit mine in the province, which bodes well for Mt. Milligan’s future.
• Another Canadian junior developer perked up by a producer’s actions is Donner Metals, whose shareholders welcomed Xstrata’s sooner-than-expected positive production decision on their joint-ventured Matagami high-grade zinc project in northwestern Quebec. Donner’s stock reversed much of a gloomy year-long downtrend on the news, and is now up about 38%.
• A more complicated junior-major relationship is the one between Ivanhoe Mines and substantial shareholder Rio Tinto. With Ivanhoe’s flagship Oyu Tolgoi copper-gold mega-project back on track thanks to a development agreement settled with the Mongolian government, negotiations are shifting to the high-stakes financial aspects of the project, which requires some US$4.6 billion in capital expenditures. Complicating matters is the fact that Rio Tinto doesn’t have a direct ownership in the project, only a stake in Ivanhoe (29.6% presently).
Rio Tinto has claimed in a new filing for arbitration that Ivanhoe’s shareholders’ rights plan breached some of Rio Tinto’s rights under an October 2006 private placement agreement between the two companies. Ivanhoe retorted that “nothing in the private placement agreement prohibits Ivanhoe Mines from implementing a shareholders’ rights plan.”
On the ground, the project continues to advance on every technical front, leading most observers to see this as mere squabbling that will be sorted out to the satisfaction of both parties.
• To toot our own horn, staff writer Ian Bickis has been nominated for two Emmy awards in the U.S. for co-producing the University of British Columbia-student-made documentary “Ghana: Digital Dumping Ground”, which aired on PBS Frontline.
The categories are “Outstanding Investigative Journalism in a News Magazine” and “Outstanding Individual Achievement in a Craft: Research.” The awards are handed out in September at the Lincoln Center in New York City.
The documentary can be viewed on the PBS Frontline website at
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