Saturday, September 22, 2018Canada's Leading Online Business Magazine

Arianne Phosphate

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Success within sight

After 14 years of hard work and patience, Quebec-based Arianne Phosphate is now just three years away from bringing its igneous phosphate rock project into production

Patience is often essential to developing a successful mining project and Arianne Phosphate (TSX-V: DAN) has it in spades. The Canadian mineral exploration company explored properties around the Lac à Paul sector in 1999, but waited a decade for phosphate prices to improve before beginning to move it towards production.

The company has transitioned rapidly since then from an explorer to a developer, replacing its exploration-focused board and management team with people experienced in mine building and changing its name from Arianne Resources to Arianne Phosphate, to reflect its new focus. “It’s a completely different company to what it was just a year ago,” says Jim Cowley, Director and President.

Cowley joined the company in 2011, following 12 years running the marketing, sales and distribution for Rio Tinto in Utah, where it was producing 1.1Mt of sulphuric acid annually. This role gave him a solid knowledge of phosphate that he has since utilised to develop the Lac à Paul project.

Patience is a Virtue

Arianne Phosphate’s Lac à Paul project, located 200 km north of Saguenay, Que., differs to the majority of current phosphate mines in comprising igneous rather than sedimentary rock.

“The Lac à Paul property had been drilled in 1997 by Mines Virginia and SOQUEM, returning promising intersections,” explains Cowley. “Arianne founder Bernard Lapointe recognized that it would suit very high-grade concentrate production.” This persuaded Lapointe to buy claims in that sector, despite phosphate prices being very low at the time.

“Back then, the price of phosphate rock was in the US$50/t range, but Bernard believed it would go up again because it is driven by world population growth and change in people’s diets. He felt that India and China, two very populous countries, would be increasing the protein in their diets by eating more meat, which would increase demand for animal feed and fertilizer [phosphate, nitrogen and potash] to help grow it.”

The phosphate price rocketed up to $450/t for a brief period of time and although it has since fallen between $160/t and $170/t, Cowley believes that prices have now stabilized at a price at which Arianne’s phosphate rock is profitable.

“From our rock we can achieve a high-grade phosphate concentrate that’s free from deleterious elements, which is very important because certain applications require a very pure grade of phosphoric acid,” he says. “These applications, most notably animal food products and food preservatives, make up about 13 per cent of overall phosphate consumption.

“Moroccan phosphate rock, which dominates the market, comes from sedimentary formations so tends to have too many deleterious elements to be used in such applications. Moroccan phosphate miners can’t get achieve much more than 30% phosphate content compared with the 40 per cent achievable from our rock.”

Lac à Paul Statistics

Arianne plans to mine the Lac à Paul phosphate mine at a rate of 3Mtpa for 17 years, using open-pit mining with a low 0.8 strip ratio. It will be a conventional truck and shovel, crushing, grinding, floatation operation on the Paul and Manouane ore zones, recovering 90 per cent of the igneous phosphate content.

The Pre-Feasibility Study calculated a total capital cost of $814 million, a capital payback before tax of 3.9 years, an internal rate of return (IRR) before tax of 23.2 per cent and a net present value of $985 million. The latest resource estimate for the Paul ore zone is 336.76Mt Measured and 253.48Mt Inferred, at grades of 7.22 per cent and 7.02 per cent, respectively.

One of the mine’s biggest advantages is its location next to existing infrastructure. Located 200 km north of Saguenay, the 27,000-hectare Lac à Paul property is close by a heavy-duty logging road to a rail line. “Our plan is to truck our concentrate 200 km to the rail and then rail it either to a port or to North American consumers,” says Cowley.

“Right now, North America is importing 4-5Mtpa and our production will be 3Mtpa. It will depend on what price we can negotiate, because some purified phosphoric acid producers in Europe might be willing to pay us more than the fertilizer producers. We’ll go for the highest net return that we can, wherever that may be.”

The mine is also well positioned in terms of power, sitting close to two facilities generating hydropower from which it has secured a well-priced electricity supply. Power will be the largest cost to upgrading the rock’s phosphate content from seven per cent to 40 per cent, making this arrangement a major cost-saving advantage.

“The great thing about the Lac à Paul project is that all the infrastructure is already here; all we need to do is make the connections,” Cowley adds.

Development Plan

Arianne is currently in the midst of Lac à Paul’s Bankable Feasibility Study (BFS), after which it will move on to project financing. “We’ve been working with Integer Group and Commodities Research Unit (CRU) in London,” says Cowley. “CRU has given us a long-term outlook on the growth of phosphate and an expectation for the benchmark pricing; Integer has given us a more focused target market and the quantities of phosphate rock that various companies are consuming at the moment, so that we can assess demand.”

The company is fully funded for its BFS, having received $7.5 million in financing at the end of July. Cowley believes this will be the last financing Arianne does before reaching its project financing stage, so that it avoids diluting its existing shareholder base further. “We feel very fortunate we’ve got some very strong shareholder interest,” he adds.

Arianne expects the regulators to grant its permits in around a years’ time and with two years of construction following that, Arianne expects to begin production at the mine in 2016. It has no intention of diversifying its portfolio, having just divested its non-phosphate assets in January this year. Instead, the focus lies entirely on developing Lac à Paul.

“We have 590Mt of Measured and Indicated resource only on the Paul Zone, which is more than 25 years’ worth of mining at our current production rate,” says Cowley.

“At full production, this mine is going to be generating $750Mt revenue annually, or close to $1 billion if prices return to what they were last year – it’s a very short capital payback. Once we have reached that level, our shareholders will be very happy and we might expand the operations further. Our ultimate goal is to become a major phosphate rock producer and to be a supplier to the global phosphate industry.”

www.arianne-inc.com

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