Finance, business and geological expertise strike it big in the Sudbury Basin
The partnership between FNX Mining and Sudbury, Ontario, was forged out of the earth many years ago.
It started before FNX Mining bought mines in the Sudbury Basin in 2002. It started before that, when Chairman and worked as a geologist in the Canadian Bush.ibbon.
You could say the relationship began several billion years ago. That the world class mining town is as plentiful in minerals as it is, due to events triggered by the impact of a giant meteorite approximately 2.85 billion years ago. That meteorite created a crater which broke through into the earth’s crust, thus introducing an igneous melt sheet into the crater known today as the Sudbury Igneous Complex (SIC). The mining industry in Sudbury has been built on the expiration of the rich nickel mineral deposits at the base of the SIC. (The astronomy connection doesn’t end there. During the Apollo lunar exploration program, NASA astronauts trained in Sudbury to become familiar with unique shatter cones, rare rock forms and structures connected to meteorite impacts.)
This unique beginning has been fortuitous for the northern Ontario town, which is known for its cold winters as its mining capacity. The total ore mined in Sudbury since its discovery in 1883 is approximately 1.7 billion tons containing 40 billion pounds of nickel, 36 billion pounds of copper and 70 million ounces of platinum, palladium and gold. It is the richest mining district in North America, in fact, and it is recognized nationally and internationally as an important mining site. The mining sector of the community accounts for approximately $5 billion annually.
One of the newest producing mining companies in Sudbury is FNX Mining. The Toronto-based Canadian company has been in the Sudbury since 2001, when FNX acquired five former producing properties from conglomerate Vale Inco, and injected $600 million into bringing them to full production. FNX mining is a new kid on the mining block, but is already the number-three mineral producer in the Basin.
“FNX is very fortunate to have operations in Sudbury,” says MacGibbon. His company has a strategic position in the trillion-dollar Sudbury Basin which is, by far, the richest mining district in North America. The Sudbury Basin is a “global metallic super power”, as he puts it.
On acquiring the five Inco mines, MacGibbon explains, “We felt there was good exploration potential, and that, as a smaller company, we could operate at a lower cost.” At the time, the company knew there were smaller deposits in both mines and that they could operate at a profit. Their risk paid off. “We made over eight discoveries, four of which are now mines. We put these new mines into production in record time and at record low cost,” says MacGibbon. FNX was, therefore, able to build up a production base quickly and pay for their capital costs with the profits. After bringing three mines into production since 2003, the company has zero debt and a strong balance sheet.
Strategically, 2002 was a wise time for FNX to acquire the mines. Nickel was still recovering from its lowest recorded price and the Bre-X scandal was in full-swing and created an atmosphere of caution amongst investors. In the depressed market, FNX was able to pick the most desirable properties and people. The result was the creation of one of the biggest and most innovative exploration teams. Within a few years, FNX boosted its mineral resource inventory by more than four times, to about 43 million tonnes.
The Podolsky Mine is the current crown jewel for FNX. Located on the northeast rim of the Sudbury Basin, it achieved commercial production in 2008, when it shipped 243,239 tonnes of high grade copper-precious metal ore. The total current forecast production for 2009 is 700,000 tonnes of primarily copper-precious metal ore. Late in 2008, faced with a low nickel price, FNX suspended all primary nickel production, but still have 20 million tonnes of nickel resources in the ground available for future production.
“Aggressive exploration” is what has driven the value of FNX. Over the past seven years, they have drilled over 3 million feet of core (more than 560 miles). The extensive surface and underground infrastructure on their properties has allowed the company to quickly convert discoveries into cash flow, which positioned them to withstand the economic maelstrom of recent months.
According to MacGibbon, fiscal 2008 will be remembered for the rapid deterioration in the global economy and the precipitous drop in commodity prices. In spite of these unique challenges, FNX was well positioned to stay the course, as strong balance sheets are essential to survival. “We had a strong balance sheet, and that gave us confidence that if we did things prudently and quickly, we could thrive. And that is what we did.” Indeed, the strong balance sheet includes more than $300 million in cash and liquid assets, and zero debt which allows FNX to “take advantage of any opportunity that comes our way, either in Sudbury or elsewhere”.
MacGibbon credits the success of FNX to the company’s philosophy of being credible and communicative to the shareholders.
“The best public is a well-informed public, and the best shareholders are well-informed shareholders. It was a decision that we would have as much transparency as we could.”
Sudbury experienced a challenge in maintaining production when Vale Inco miners went on strike in May of this year. FNX was not immune to the repercussions of the strike: ore shipments were suspended when Vale Inco’s Sudbury mines and processing facilities temporarily closed down. “We arranged with Xstrata Nickel to process 150,000 tonnes of our ore under the terms of a temporary offtake agreement and then we stockpiled the rest. From an operative point of view, we are managed our cash and working capital very carefully. We also we did an equity financing which gives us an extremely strong balance sheet right now of well over $225 million,” explains MacGibbon.
At the beginning of September, FNX was notified by Vale Inco to begin delivery of the stockpiled ore and all future daily production to Inco’s Clarabelle Mill. In a press release, FNX said it had shipped 157,000 tonnes of ore to Xstrata Nickel’s Sudbury processing facility by the end of August, and since the beginning of September, FNX has continued mining operations as planned.
“Learn and adjust” is the key message MacGibbon has taken from the past few months. “We have applied that throughout the company, especially recently. We have always said to our shareholders and the public in general that we will work hard and communicate with them the best we can.”
Zero legacy impact on the environment
In the spirit of its exponential expansion, the FNX team is forward thinking. They have given special consideration to ensure the minimal environmental impact on the fecund northern land. “We have a policy of zero legacy or as close to zero legacy as we possibly can,” says MacGibbon. Some of the mines that FNX acquired were started “when things were done very differently than they are now. We decided right then and there we would do things in the best possible way” to reduce the impact on the environment.
This policy comes at a price, but being responsible and accountable is worth it. “Our bonds are in the several thousand to millions of dollars because of the way we design our operations with consideration to our legacy,” MacGibbon says. “That has been our policy since the start. Our company and shareholders will not have any environmental legacy.”
To that end, FNX are also pioneers in installing water treatment systems at their plants. Their discharged water will meet provincial water quality standards, which are much higher than mining standards. “One could probably drink the water that drains off our property. That is the highest standard and it contributes to our zero legacy.”
Canadian minerals in high demand on the global market
Of course, FNX also has the economic environment included in its long-term plans. With China and India’s growing demand for metals and the competition for metals globally expected to increase exponentially and this can potentially last for decades, the long term growth and future of FNX is on, if you pardon the metaphor, solid ground. China, a country that is short on minerals and nonferrous metals, has spent more than a trillion U.S. dollars in domestic development. The demand from China and India to support their rapidly expanding infrastructure has shown itself in the commodities market; copper has seen a five-fold price increase in five years and nickel six times. Current metal prices have certainly boosted the mining industry and FNX has been reaping the rewards of the robust commodities market.
“We are in this for the long haul,” MacGibbon says. Financial health, world-class mineral deposits and a surging market all indicate that FNX will be a vital and strong company for years. “We intend to offer shareholders value through organic growth, smart acquisitions and good geological analysis and exhaustive exploration,” he concludes.
FNX has a major and respected presence in Sudbury and the global mining industry. Intelligent leadership, a policy of complete transparency and dedication are combining to make FNX Mining a major player in one of the world’s major mineral basins.
After declining rapidly from the year’s high of US$33,000 a tonne in March 2008, to around US$9000 a tonne in December, the nickel price averaged US$21,100 a tonne for 2008 as a whole, the lowest since 2005. Prices are expected to average lower again in 2009, as current low prices are expected to persist throughout the first half of the year, with any recovery in the second half of 2009 forecast to be modest. Significant price volatility is projected to persist in the nickel market over the medium term.
Average price to halve in 2009…
In 2009, the world nickel spot price is forecast to average around US$10,500 a tonne. Prices are expected to be relatively low as demand for stainless steel remains weak and nickel stocks increase to around 6.6 weeks of world consumption. A gradual economic recovery in 2010 is forecast to result in only moderate increases in nickel prices before 2011, as demand for stainless steel is forecast to be relatively weak and stocks for both nickel and stainless steel remain high.
…with price volatility persisting in the medium term
Production cuts lagged declining consumption in 2008, resulting in rising stocks toward the end of the year. This situation is expected to reverse in 2009, as a number of producers have closed mines. As a result, nickel stocks are forecast to fall in 2009, to 6 weeks of world consumption.
Stocks are expected to decline to 4.9 weeks of world consumption in 2010 as producers continue to cut output and delay restarting operations until prices recover to more than US$18,000 a tonne. At prices significantly lower than this level, most producers will make only small, if any, profits. Because there are significant fixed costs associated with restarting operations, producers are likely to wait for prices to increase markedly above that level before committing to these costs. At the same time, nickel consumption is expected to begin recovering by 2010, resulting in stocks being drawn down and prices rising.
Further falls in world consumption in 2009…
World nickel consumption is expected to decline by around 2 per cent in 2009, after falling by 3 per cent in 2008. Nickel consumption is forecast to be around 1.25 million tonnes in 2009, the lowest since 2005. Non-residential construction activity and production of new transport vehicles, which account for more than one-third of nickel demand, are forecast to decline as a result of economic contraction in OECD economies and the weak growth in non-OECD economies. In addition, demand for consumer durables, which account for a further 20 per cent of nickel consumption, is expected to decline as lower consumer spending worldwide is expected to reduce demand for products such as fridges and washing machines. Demand for chemicals, paints, electronic equipment and other products in which nickel is used is also expected to decline as a result of sharply slower economic growth.
Consumption is forecast to recover slowly in 2010, increasing by around 3 per cent to 1.27 million tonnes as world economic growth gathers speed. Demand for nickel for use in industrial applications such as stainless steel and superalloys is expected to recover first, as historically, industrial production recovers more rapidly than general economic activity and industry moves in association with an improvement in market sentiment.
Over the medium term, nickel consumption is projected to grow steadily, by around 4 per cent a year, to reach 1.53 million tonnes in 2014. Growth in industrial production in many emerging economies is expected to drive significant increases in nickel consumption to 2014. Stronger economic growth during this period is expected to result in increasing construction and consumption activity, driving demand for stainless steel and, therefore, nickel.
In addition, increased demand for nickel in new types of batteries is expected to create a new market for nickel. Demand for nickel-metal-hydrid batteries is increasing as hybrid cars become more popular and cost-competitive. In addition, a variety of electronics applications such as mobile phones use nickel-metal-hydride batteries because of their superior recharge properties. Increased purchases of both electronic consumer goods and energy efficient motor vehicles, as a result of increases in real incomes, are expected to create a larger market for these batteries. A new nickel-zinc rechargeable battery is expected to become more widely available over the next few years, and is therefore expected to further increase demand for nickel in these applications.
Mine and refined production sharply lower in 2009…
World nickel mine production is forecast to decline by around 13 per cent in 2009 as low prices and high nickel stocks result in mine closures and production cuts in Canada, Australia and South America. At a price of US$11,000 a tonne (around US$5 a pound), around 30 per cent of the world’s nickel capacity is estimated to be uneconomic.
Also as a result of lower nickel prices in 2008, a number of nickel mines which were scheduled to be commissioned during 2009 are expected to be delayed as companies attempt to minimise costs. As a result, mine production is forecast to be around 1.29 million tonnes in 2009, down from 1.49 million tonnes in 2008.
As a result of lower mine production and lower expected revenues at refineries, refined nickel production is also expected to decline in 2009. A number of refineries and smelters around the world, particularly in China, Canada and the Dominican Republic, have closed or cut production. Refineries which have not specifically detailed production cuts are nevertheless expected to produce less nickel in 2009 because less ores and concentrates are available for processing.
Source: ABARE, Australian Commodities, March quarter 2009, Rebecca McCallum.
The Australian Bureau of Agricultural and Resource Economics (ABARE) is an independent economic research agency of the Australian Government.
FNX is a member of PDAC — The Prospectors and Developers Association of Canada
The Prospectors and Developers Association of Canada (PDAC) represents the interests of the Canadian mineral exploration and development industry. The association was established in 1932 in response to a proposed government regulation that threatened the livelihood of Ontario prospectors. Today, 76 years after its founding, the association is a national organization with 6,000 individual members (including prospectors, developers, geoscientists, consultants, mining executives, and students, as well as those involved in the drilling, financial, investment, legal and other support fields) and 950 corporate members (including senior, mid-size and junior mining companies and organizations providing services to the mineral industry).
The work of the association is guided by the following mission statement:
The PDAC exists to protect and promote the interests of the Canadian mineral exploration sector and to ensure a robust mining industry in Canada. The PDAC will encourage the highest standards of technical, environmental, safety and social practices in Canada and internationally.
The association’s activities and the services it provides fall generally into three categories: advocacy, information, and networking. The association is best known for its annual convention, trade show, and investors exchange.
Health, Safety and Environment Policy
At FNX, we strive to:
• continually improve our health, safety and
environmental performance by regularly setting objectives and targets and monitoring our performance against
those objectives and targets;
• prevent injury, ill health and pollution by continually evaluating our health, safety and environmental risks and implementing appropriate controls, programs and employee training to address those risks to our business;
• meet or exceed all health, safety and environmental laws and regulations and other requirements to which we subscribe; and,
• engage our employees and other stakeholders in matters that affect their health and safety and the environment.
Operations- Podolsky Mine
The Podolsky Mine achieved commercial production on January 1, 2008. It is located on the northeast rim of the Sudbury Basin and hosts the copper-precious metal 2000 Deposit.
Adjacent to the breccia portion of the 2000 Deposit is the gray gabbro-hosted mineralization, which appears to contain potentially viable mining areas yet to be fully delineated. Also hosted at the Podolsky Property is the separate copper-precious metal, North Deposit.
The Podolsky Mine shipped 243,239 tons of ore in 2008, increasing its average daily production rate from 260 tons in the first quarter to 600 tons in the second quarter to 900 tons in the third quarter and reaching its planned rate capacity of 1,000 tons per day in December 2008.
The Company’s current 2009 plan forecasts production of 372,049 tons at Podolsky yielding 1.8 million pounds of payable nickel, 28.5 million pounds of payable copper and 27,300 ounces of payable platinum, palladium and gold.
The 2000 Deposit is being developed from a main access ramp with the principal sub-levels established at 75?ft vertical intervals (see Figure 2).
Initially, blast hole mining was utilized and backfilled with cemented rock fill. Secondary stopes are backfilled using unconsolidated waste rock. In 2009, the Company plans include 30,000 tons of narrow vein mining, where blast hole stoping is not applicable.
The Sudbury Basin, a 60 km by 30 km elliptical structure located just north of the City of Greater Sudbury (400 km north of Toronto), is generally held to be the geological expression of events triggered by the impact of a giant meteorite approximately 1.85 billion years ago.
The resulting crater penetrated the earth´s crust and resulted in the introduction of an igneous melt sheet known as the Sudbury Igneous Complex (SIC).
The original crater caused by the meteorite was more than 150 km in diameter.
Erosion has exposed the smaller, lower portion of the crater and tectonic deformation and thrusting has deformed the once circular structure into the elliptical shape of today.
Sulphide mineralization within the melt collected in traps (topographic irregularities) at and near the base of the SIC, in radiating offset dykes in the footwall rocks and also within fractured and brecciated footwall rocks (Sudbury Breccia).
The mining industry in Sudbury has been built on exploitation of the rich nickel deposits at the base of the SIC.
Nickel is found as a constituent in most meteorites and often serves as one of the criteria for distinguishing a meteorite from other minerals.
Iron meteorites, or siderites, may contain iron alloyed with from 5 per cent to nearly 20 per cent nickel.
Nickel is obtained commercially from pentlandite and pyrrhotite of the Sudbury region of Ontario, a district that produces about 30 per cent of the world’s supply of nickel.
Other deposits are found in New Caledonia, Australia, Cuba, Indonesia, and elsewhere.
It is extensively used for making stainless steel and other corrosion-resistant alloys such as Invar(R), Monel(R), Inconel(R), and the Hastelloys(R). Tubing made of copper-nickel alloy is extensively used in making desalination plants for converting sea water into fresh water.
Nickel, used extensively to make coins and nickel steel for armor plates and burglar-proof vaults, and is also a component in Nichrome(R), Permalloy(R), and constantan.
Nickel gives glass a greenish color. Nickel plating is often used to provide a protective coating for other metals, and finely divided nickel is a catalyst for hydrogenating vegetable oils. It is also used in ceramics, in the manufacture of Alnico magnets, and in the Edison(R) storage battery.