Canadian Mining Journal December 2018

c a n a d a

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m i n i n g

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Mining in the age of

USMCA

DECEMBER 2018 | www.canadianminingjournal.com | PM # 40069240

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CANADIANMINING

DECEMBER 2018 VOL. 139, NO. 10

JOURNAL

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CMJ

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• • MINING IN THE AGE OF USMCA

C13 A N ARob D I AMcEwen N M I Nand I N GMAC J O Uweigh R N Ain L on the changing relationship between Canada, and the U.S. 19 Endeavour Silver CEO Bradford Cooke discusses the ins and outs of mining in Mexico.

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23 Pros and cons of the new NAFTA: the USMCA.

FEATURES 25 Caterpillar aims to please miners.

29 Bringing autonomous haulage to the oilsands.

UNDERGROUND MINING

32 Why more operations should consider block caving to extend their mine lives.

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DEPARTMENTS 4 EDITORIAL | North America’s disrupted equilibrium.

6 CSR & MINING | Jane Church and Carolyn Burns of NetPositive discuss how miners can measure social performance.

8 LAW | Graham Scott of Bennett Jones on the rise of investor rights

agreements accompanying private placements.

10 UNEARTHING TRENDS | Michelle Grant of EY discusses how miners can manage the impacts of shifting tariffs on their business.

11 FAST NEWS | Updates from across the mining ecosystem.

www.canadianminingjournal.com DECEMBER 2018

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ABOUT THE COVER

Endeavour Silver’s Guanacevi mine, in Durango state, Mexico. Credit: Endeavour Silver

Coming in January Canadian Mining Journal looks at base metals and battery metals, plus a feature report on B.C., Yukon and the Northwest Territories.

For More Information

Please visit www.canadianminingjournal.com for regular updates on what’s happening with Canadian mining companies and their personnel both here and abroad. A digital version of the magazine is also available at www.digital.canadianminingjournal.com

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FROM THE EDITOR DECEMBER 2018 Vol. 139 – No. 10

CANADIANMINING North America’s disrupted equilibrium Alisha Hiyate

JOURNAL

CMJ

Editor-in-Chief Alisha Hiyate 416-510-6742 ahiyate@canadianminingjournal.com Twitter: @Cdn_Mining_Jrnl

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CANADIAN MINING JOURNAL

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very year, we dedicate one issue of CMJ to looking outside of Canada’s borders to the business climate in North America as a whole. Last December, we noted that there was a marked homecoming trend among Canadian miners with heavy international exposure, with many acquiring assets in Canada. In an environment that was becoming riskier abroad, Canada looked like a friendlier and safer place to invest.

This year, which has been dominated by the NAFTA renegotiations with the United States and the subsequent United States-Mexico-Canada Agreement, has also been marked by uncertainty. (At presstime, it looked like the USMCA would be signed in late November.)

In addition, U.S. domestic reform of taxes and regulations have put the squeeze on Canada, prompting Finance Minister Bill Morneau to include billions in tax incentives for Canadian business in his recent fall economic statement.

And the separate issue of steep tariffs imposed by the U.S. earlier this year on Canadian steel and aluminum has not yet been resolved.

Not only is U.S. policy throwing us for a loop, but Canadian miners in Mexico are also facing a changing landscape. While Mexico has been an attractive place for mining over the past 15 years, it’s losing some of its competitive advantages. “It’s now no better or worse than Canada or the U.S., or Peru or Chile,” says Bradford Cooke, CEO of Endeavour Silver (see Page 19).

One unknown for the industry is the election of a new left-of-centre government in Mexico under President Andrés Manuel López Obrador. After he’s sworn in on Dec. 1, more changes for miners may be yet to come.

For Canada’s mine supply companies, an interesting effect of the U.S. turning inward under Trump could be to look for new business opportunities with new partners. Canadian companies don’t seem to be making the most of the Comprehensive Economic and Trade Agreement (CETA), which only came into effect last year, says Dalton Albrecht, a partner at EY who specializes in international trade law.

While Canada’s exports to EU countries have gone up 3.8% since September 2017, exports to the rest of the world have increased by 5.4%. Meanwhile, EU exports to Canada went up 13%, Albrecht notes.

“That suggests that Canadian companies aren’t taking advantage of CETA the way EU companies are and there are some advantages, particularly for mining companies,” Albrecht said.

Under CETA, tariffs on mined products that were an average of 2.5 to 8% and on mining tools and equipment of 4-6% have been eliminated. “All those are duty free right now.”

Companies can also look to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The agreement will come into force on Jan. 1, 2019 for six of the 11 countries involved – Canada, Japan, Mexico, Australia, New Zealand and Singapore.

CMJ 4 | CANADIAN

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News Editor Marilyn Scales mscales@canadianminingjournal.com Production Manager Jessica Jubb jjubb@glacierbizinfo.com Art Director Barbara Burrows Manager of Product Distribution Jackie Dupuis 403-209-3507 jdupuis@jwnenergy.com Publisher & Sales Robert Seagraves 416-510-6891 rseagraves@canadianminingjournal.com Sales, Western Canada George Agelopoulos 416-510-5104 gagelopoulos@northernminer.com Toll Free Canada & U.S.A.: 1-888-502-3456 ext 2 or 43734 Circulation Toll Free Canada & U.S.A.: 1-800-387-2446 ext 3505 Group Publisher Anthony Vaccaro Established 1882

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2018-11-26 4:24 PM

Cheers, Beers, 20 Years!

We haven’t started a brewery, we left that to the experts at New Ontario Brewing Co. But twenty years ago we did start a mine contracting company.

With great people, Clients who placed their faith in us, and partners who supported us from day one, we have been building mines safely for 20 years.

We don’t brew beer, but when it comes to celebrating our 20th anniversary we like to tilt a few with our friends.

This round is on us.

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CSR & MINING

Mature social performance resourcing delivers better social performance.

What does that look like?

By Jane Church & Carolyn Burns

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he connection between the size and structure of a mining company’s community relations team and its social performance is debated regularly in corporate offices and at mine sites. The standard response is that there is no one-size-fits-all approach and the right structure will depend on the context in which a company operates. This is certainly true – local context matters. But, the design and structure of corporate systems, including the size and structure of teams, are a key part of getting company social performance right and in ensuring positive social outcomes for local communities.

Companies need the right people in place to do the work needed to meet their commitments to social performance and more importantly, to develop meaningful relationships with communities and integrate social considerations in decisionmaking. Doing the bare minimum does not cut it anymore, especially in Canada. Communities want to, and deserve to be, treated as legitimate equal partners in mining development.

They want to be see sustained positive outcomes from mining activities that affect them. That requires effort and expertise on behalf of mining companies.

This does not mean that mining companies need bloated community relations teams or scores of consultants. In fact, hiring too many of the wrong people, or relying on consultants too much, can backfire. What matters the most when designing the size and structure of a community relations or social performance team are a few key factors.

Deliberately identifying the right number of experienced people needed to tackle social performance. What does this look like at

both the corporate and site level? The right number of people is based on different factors, most notably the location of operations, nature of risks, the company’s history, compliance requirements from governments or lenders, as well as the nature of the company’s relationship with communities and other stakeholder groups. Typically, the more complex the operating environment, the more dedicated focus on social performance that is required and the more specific the expertise needed within the organization on topics like Indigenous Peoples, local procurement, or human rights.

Traditionally, companies operating in more complex environments hired larger social performance teams to manage social investment activities. As companies have learned that social investment may not deliver the best bang for the buck 6 | CANADIAN

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Leading companies are using their enterprise risk management systems and valuation processes as tools to integrate social performance and their social experts into their decision-making processes. Integration ensures social risks are being communicated to senior management and managed throughout the organization. when poorly designed and implemented and when the company is not first focusing on managing its environmental and social impacts, they are moving away from this approach. Instead, more mature companies are thinking about the people needed to integrate social performance into the operation.

At the corporate and site level, companies have focused on identifying the right size of team to ensure senior leadership can focus on understanding and developing strategies, while lower-level staff can focus on more routine management tasks.

For example, a recent NetPositive review of Canadian mid-tier gold companies showed that corporate offices have an average of four staff. Most of those teams are led by a more senior person (for example, a vice-president who may cover environment or health and safety in addition to social performance), supported by managers or analysts dedicated to social performance issues.

Social performance teams must be integrated into decisionmaking processes. While many companies have built internal

capacity to address community-related topics, it is often siloed in separate social performance or community relations teams.

In the past decade, companies have learned that a large siloed team is often worse than a small highly integrated team taking a matrix approach. Instead, leading companies are using their enterprise risk management systems and valuation processes as tools to integrate social performance and their social experts in these processes. Integration ensures social risks are being communicated to senior management and managed throughout the organization. www.canadianminingjournal.com

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Ensuring that there is consistency and continuity throughout the project cycle. At a site level, social performance teams need to

be in place throughout the project cycle. Stakeholder engagement must start as early as possible but will change over the course of a project. This means that the right number of people and expertise required will also change over the course of a project. Consultants can help supplement a team, but a core in-house team improves consistency and relationships with key stakeholders.

Clear accountability is critical for ensuring consistency.

NetPositive’s research has found that companies with fewer social performance resources rely more on informal systems for managing social issues, such as building and maintaining external relationships and resolving complaints and grievances. In these cases, roles and responsibilities are not typically clearly defined which can lead to confusion both internally and externally and a loss of trust with communities. Having dedicated social performance resources can mitigate these challenges.

The factors listed above are signs of a company’s maturity, which is what really matters when it comes to following through on commitments to responsible mining and achieving long-term positive social outcomes. Maturity does not mean a

company has had a community relations policy for 20 years, but instead that it has the mindset and integrated system to manage social issues properly.

From a long-term value and business sustainability perspective, delivering positive social outcomes is the core reason for devoting resources and expertise to social performance.

Yet there is clearly a strong business case for the short-term as well. Companies with small and poorly structured social performance functions face risks to their business. The loss of a lone social performance resource can mean the loss of institutional memory and relationships within the organization and key stakeholders. Furthermore, with growing requirements for external reporting and compliance with regulations and lender and investor standards, smaller teams more often spend their time in ‘firefighting’ mode, keeping up with these requirements. As a result, the company is less able to keep track of and manage social risks and emerging issues which can affect its social licence to operate.

CMJ CAROLYN BURNS is director of operations at NetPositive, a non-profit that works with diverse stakeholders to help local communities see sustained positive outcomes from mining.

JANE CHURCH is a co-founder and director of collaboration with NetPositive.

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LAW

Investor rights agreements: Are they right for you?

By Graham H. Scott

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apital raising for exploration companies in Canada’s mining sector has become progressively more difficult over the last few years. During the “boom years” ending in 2011, exploration companies routinely raised millions of dollars by private placements to dozens of investors. In the years since then, private placements have increasingly been conducted with private equity interests and with senior mining companies.

Private placements to one or two investors are now common.

The gross proceeds from private placements remain relatively high, and on closing, the investors frequently hold more than 10% of the then-issued shares of the exploration company.

Investors acquiring significant shareholdings in a listed exploration company take the position that they are entitled to impose conditions on the investment. This has led to a proliferation of “investor rights agreements” which accompany a private placement. Some rights favour the investor, some favour the company, and others are neutral.

Rights favouring the investor 1. Participation right: For so long as the investor holds a minimum shareholding in the company, the investor has the right to participate in equity offerings in order to maintain the investor’s then current shareholding in the company. The minimum shareholding is typically 5% or 10%, depending on the size of the original investment.

2. Top-up right: Similar to the participation right, a top-up right entitles the investor to maintain a specific percentage shareholding in the company in circumstances where the participation right does not apply, such as the exercise of incentive stock options or non-cash share issuances.

3. Right of first refusal: If the investor is itself in the mining business, and made its investment in part because of the potential of one or more of the company’s properties, it will likely wish to have a right of first refusal in connection with the proposed disposition of an interest in the properties. Similarly, if the investor is a royalty/streaming company, it will wish to have a right of first refusal or right of first offer in connection with any proposed royalty sale or streaming transaction.

Rights favouring the company 1. Trading restrictions. For many reasons, a listed company does not wish to have a major shareholder sell its shares in an unstructured and uncontrolled manner. The perception that 8 | CANADIAN

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the shareholder is “dumping” the stock could have a domino effect among other shareholders. To mitigate this risk, companies can require trading restrictions that range from a total prohibition on trading for a certain length of time following closing, to simple notice of a proposed sale and the opportunity for the company to find a “friendly” buyer. Under the latter arrangement, the investor would give the company notice of a proposed trade, together with proposed price, and the company would have a period of time in which to find a buyer for the shares.

2. Standstill: A standstill will prohibit the investor increasing its shareholding over a certain level, or taking any other action potentially adverse to the company’s management for a finite length of time following the initial investment. The standstill may apply only to the acquisition of additional shares (typically with a cap at 19.9%), but may also extend to acquisitions of interests in the company’s properties and to actions connected with influencing management or replacing a director.

“Neutral” rights

Board representation. Again, subject to a minimum shareholding, the investor has the right to have one of its nominees appointed to the board of directors of the company.

Since a director takes on additional duties and responsibilities, not all investors exercise this right immediately, if at all.

Since the appointment of an investor nominee as a director may need to be made at a time other than the annual general meeting, the agreement may require the company to create a vacancy on the board to permit the appointment of the investor nominee. Such occasions could include the appointment of a special committee or a situation where the investor was becoming apprehensive about the direction of the company.

From the company’s perspective, having a director with a different background could bring new energy and ideas to board deliberations.

What next?

As long as “traditional” private placements remain difficult to arrange, investor rights agreements will continue to develop and to become further customized to the specific requirements of both parties. The creation of relatively large share positions will also increase the likelihood of mergers and acquisitions. CMJ GRAHAM H. SCOTT is a partner at Bennett Jones LLP, based in Vancouver.

www.canadianminingjournal.com

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UNEARTHING TRENDS

Managing the impacts of shifting tariffs

By Michelle Grant

T

rade tensions ran high during the 13 In times of uncertainty it’s easy to get caught up in months of intense North American Free short-term thinking. The companies that will come Trade Agreement (NAFTA) renegotiaout ahead are those that take a long-term view. tions, and especially since this past spring when the U.S. announced tariffs on imports of certain steel and aluminum products from Canada. In Capital allocation response to the new tariffs, the Canadian government took retalCompanies need to consider their capital allocation strategy. iatory measures by announcing its own set of surtaxes on imports How do you invest in periods of uncertainty? Taking a longof certain steel, aluminum and other products from the U.S. (to term view allows a company to cut out the “white noise” and the toll of $16.6 billion in American imports). focus on investing for the future. This could mean shifting While it remains to be seen whether signing the United resources to a jurisdiction that is seen as safer or one that is not States-Mexico-Canada Agreement (USMCA) – which will “in the line of fire.” Ultimately, a holistic approach to resource replace NAFTA – will put an end to the steel and aluminum allocation is critical to the overall competitiveness of an tariffs, one thing is certain: Canadian mining and metals execorganization. utives need to understand the potential impact of shifting tariffs on their business and prepare mitigation strategies to minimize Consolidation and diversification the impact in the short-term and in the long-term.

Players with strong balance sheets should consider reinvestment While the impact to steel and aluminum companies is more opportunities in order to optimize their portfolios and boost obvious, the tariffs have a broader impact on the industry shareholder value. Increased M&A activity could allow compathrough increases to input costs, which will result in higher nies to remain globally competitive, versus relying on government prices and/or reduced production. Executives should be asking subsidies or temporary trade barriers. M&A can also provide themselves how to minimize the effects of tariffs on their avenues for diversification into different metals or minerals as bottom line in the near term, and in the long run. well as different geographic regions. A well-executed M&A In the short-term, executives must focus on how the tariffs strategy will improve an organization’s overall competitiveness impact their organization’s cost structure. More specifically, and reduce its risk profile making it stand out from its peers. what is the exposure? This requires an in-depth review of the organization’s suppliers and supply chain to determine the Investment in digital technologies total exposure. Secondary markets that will be impacted Digital disruption is impacting every industry, including the include manufacturing, especially heavy machinery, and elecmining and metals sector. Investment in new and emerging trical products. These suppliers will either raise prices or technologies, such as automation and artificial intelligence, reduce production, which could lead to supply issues. will help improve safety, accelerate productivity and improve Taking a longer term view, executives need to focus on margins. Digital technologies have tremendous potential to improving overall competitiveness to withstand periods of assist mining companies to increase competitiveness. uncertainty. There are a variety of ways increasing competiIn times of uncertainty it’s easy to get caught up in shorttiveness can be achieved including: term thinking. The companies that will come out ahead are those that take a long-term view. Incorporating portfolio Portfolio optimization optimization, capital allocation, M&A and digital strategies Companies that actively and dynamically manage their portinto regular planning discussions will ensure management is folio of assets achieve better long-term returns than compafocusing on the issues at hand, allowing the business to stay nies with a buy-and-hold strategy. Robust portfolio ahead of the competition.

CMJ management not only identifies assets that become off strategy – it contributes to the long-term health of an organizaMICHELLE GRANT is the BC Mining and Metals Transaction Advisory Services Leader at tion. Those who undertake a disciplined approach will be best EY Canada. She is based in Vancouver. For more information, visit ey.com/mining. positioned for success.

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www.canadianminingjournal.com

2018-11-26 3:52 PM

FAST NEWS • EQUIPMENT |

Updates from across the mining ecosytem

Epiroc launches new generation of battery-powered machines, makes acquisitions

Battery-powered underground mining equipment from Epiroc.

CREDIT: EPIROC

E

piroc launched its second generation of battery-powered machines in November. The battery-driven underground loaders, trucks and drill rigs will create a number of benefits for mining companies globally, including improved health and safety, reduced greenhouse gas emissions and lower operating costs.

“We at Epiroc want to help our customers boost productivity, enhance safety and cut emissions – all while lowering the total cost of operation,” said Per Lindberg, Epiroc’s president and CEO. “Our second generation battery vehicles take us towards a sustainable future with less dependency on fossil fuels. We are proud to lead the charge toward sustainability in mining.”

The battery-driven products include 14- and 18-tonne loaders, a 42-tonne truck and a mid-sized drilling family including face drilling, production drilling and rock reinforcement rigs.

Customers using Epiroc’s first-generation battery-driven machines, launched in 2016, include Brazilian mining company Nexa Resources, which is using the Scooptram ST7 Battery in Peru. Other customers going electric include LKAB, the Swedish state-owned mining company, which plans to use Epiroc’s zero emission vehicles as it expands its operations in a sustainable way.

In October, Epiroc announced it has acquired a 34% stake in ASI Mining, which is based in Mendon, Utah, and is a subsidiary of Autonomous Solutions Inc. Its products include on-board hardware DECEMBER 2018

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and software that convert vehicles to autonomous operation, as well as system level software platforms for command and control of autonomous fleets across various mining applications. The solutions integrate with various mobile min-

• PARTNERSHIP |

ing equipment, regardless of make or model, and are used by mining customers globally. The business is estimated to have revenues in 2018 of more than US$6 million.

“A decade ago we started the Pit Viper automation program that has now led to a paradigm change in how drilling is done in surface mining,” said Jon Torpy, vice-president of marketing, drilling solutions at Epiroc. “We see that the ASI Mining solutions will also fundamentally change the industry toward higher productivity and improved safety. We are excited about the potential that exists when we work together to bring new solutions to the mining community.”

Epiroc also recently acquired Fordia Group, a Canadian manufacturer of exploration drilling tools.

CMJ

RSC Mining and Terra Modelling join forces

T

erra Modelling Services (TMS) and RSC Mining and Mineral Exploration have announced a co-operation agreement to integrate the companies’ services. RSC is an international resource development specialist headquartered in Australia, operating in Australasia, Africa, Asia Europe and the Middle East.

TMS is a Canadian full-service resource modelling consultancy and exploration logistics provider, servicing North and South America as well as Africa and Europe.

The companies say they are now strategically aligned to broaden their combined technical capabilities globally.

“Both companies are highly respected internationally for their technical services and are now able to offer greater value to exploration and mining clients at all stages of the mining value chain,” said Louis Fourie, TMS principal.

RSC Mining and Terra Modelling are teaming up to strengthen both companies’ positions in the North America.

CREDIT: RSC MINING AND MINERAL EXPLORATION

RSC managing director René Sterk said that it was an exciting development that would bolster RSC’s service reach throughout the Americas.

“Among other benefits, TMS consulting capabilities in economic modelling and commodity price forecasting will complement RSC’s core business”, he said.

The partnership is intended to strengthen the position of both companies in the North American market in particular.

CMJ CANADIAN MINING JOURNAL |

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FAST NEWS • WATER TREATMENT |

Updates from across the mining ecosytem

BQE Water signs on at Centerra’s Kemess Underground

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ancouver-based BQE Water has entered into an operating services agreement with a subsidiary of Centerra Gold for water treatment at the Kemess mine site, 430 km northwest of Prince George, B.C. The treatment plant will remove heavy metals and selenium. The selenium removal portion of the overall treatment will utilize BQE Water’s patented Selen-IX process and treat up to 6,400 cubic metres of mine-impacted water per day.

The initial term of the agreement is five years beginning on Jan. 1, 2020, and includes a provision for a three-year term extension subject to satisfactory plant performance.

The services provided by BQE Water under the agreement and the compensation received, will be similar to the Raglan mine water treatment agreement with Glencore where BQE Water earns treatment fees linked directly to the volume of water discharged into the environment subject to effluent water quality meeting project requirements.

“We have been working with BQE Water for the past three years to advance our Kemess Underground mine project in B.C.,” said John Fitzgerald, Centerra VP projects and techni-

Facilities at the Kemess site in B.C. in 2015.

CREDIT: CENTERRA GOLD

cal services. “After a successful pilot program, we received regulatory approvals for advancing the project with Selen-IX as the means of controlling selenium in environmental discharge over the project life.”

David Kratochvil, president and CEO of BQE Water, commented: “The signing of this agreement represents a major milestone for us. Not only does it increase the portfolio of plants operated by BQE Water and will contribute recurring revenue in North America, but crucially, it assigns the responsibility for the startup and operation of the first commercial scale Selen-IX plant to us as the technology provider.”

Detailed engineering for the plant has been issued for construction and the project is in the early stages of procurement and equipment fabrication. The plant is expected to complete commissioning by the end of 2019 with operations beginning in 2020.

CMJ

• M&A |

Environmental impacts are mitigated.

Closure is planned from the start.

Communities are bettered.

Together we can create a legacy of value.

We thrive on challenges golder.com

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STRACON acquires majority stake in Dumas

STRACON, a majority owned subsidiary of Ashmore Group, has acquired a 60% controlling interest in Dumas Holdings, a leading, full-service, underground mining contractor, focused on providing services to clients in Canada and Mexico. Dumas specializes in underground mine construction, mine development, production mining, mine services and engineering.

The acquisition combines STRACON’s market leading position as a full-service mining contractor specializing in open-pit mines in Latin America with Dumas’ leading underground capabilities, providing STRACON with increased access to the growing North American market. Daniel Dumas will retain a 40% shareholding and remain a member of the board of directors of Dumas.

Steve Dixon, CEO of STRACON, noted the acquisition is an important part of the company’s strategy to diversify its services and the jurisdictions where it operates.

CMJ www.canadianminingjournal.com

2018-11-26 4:28 PM

CANADA | U.S. | MEXICO

By David Godkin

MINING IN THE AGE OF

USMCA Rob McEwen, MAC weigh in

McEwen Mining’s El Gallo gold mine in Sinaloa state, Mexico. CREDIT: MCEWEN MINING DECEMBER 2018

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CANADA | U.S. | MEXICO

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ith all the talk this past year about U.S. tariffs on Canadian steel and aluminum, have we been ignoring the larger impact of trade on Canadian mining generally? Well, consider the numbers, says Brendon Marshall, vice-president, economic and northern affairs at the Mining Association of Canada (MAC). “In 2017, there was more than $99 billion in export value for Canadian mineral and mineral products or approximately one-fifth of Canada’s overall export value.”

Roughly half of the $99 billion dollars in export value in mineral and mineral products enters the U.S. every year, Marshall added. That obvious reliance of the U.S. manufacturing sector on these products adds up “to a good economic partnership and economic rationale to have greater and freer movement of materials across our shared border.”

A delicate balance And there in a nutshell lies the problem. Mining distinguishes itself from other industries in its higher risk profiles, capital intensity with long lead times and long waits for return on investment, all of this occasionally hampered by geography and 14 | CANADIAN

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I do think what America is doing to streamline their regulations in order to speed up permitting and attract capital investment is definitely going to have an adverse impact on mineral investment in Canada.

–ROB MCEWEN, CHAIRMAN AND ‘CHIEF OWNER’ OF MCEWEN MINING

Middle: Rob McEwen; Botom left: the San José mine in Argentina.

CREDIT: MCEWEN MINING

www.canadianminingjournal.com

2018-11-26 3:53 PM

Top left: El Gallo. Top right: The project Fenix redevelopment plan for the El Gallo complex would extend the mine life by 12 years. The plan involves the reprocessing of heap-leach material from El Gallo followed by open pit mining of several deposits.

CREDIT: MCEWEN MINING

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foreign government policy, for example in the U.S. under president Trump.

“I do think what America is doing to streamline their regulations in order to speed up permitting and attract capital investment is definitely going to have an adverse impact on mineral investment in Canada,” says Rob McEwen, chairman and as the company’s largest shareholder, “chief owner” of McEwen Mining. Where Canada’s regulations and permitting processes are “slow and ponderous and full of ambiguity, the U.S. is trying to get rid of that as quickly as possible,” he says.

“So then it becomes a question of balancing: do I want to put my money in Nevada or put it in British Columbia?” says McEwen, whose company has projects in Canada, the U.S., Mexico and Argentina. “I think we are at a competitive disadvantage.”

Unlike Canadian manufacturers operating in other countries, miners can’t move their foreign-based plant operations back home or to another jurisdiction. It’s that exposure that has Marshall lamenting the disappearance from NAFTA of the Investor-State Dispute Settlement mechanism (ISDS) which enabled a mining company to seek remuneration for financial losses associated with U.S. mistreatment.

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Sierra Metals proceeds with expansion plans boasting positive economics at its Bolivar and Cusi Mines in Mexico www.sierrametals.com

ZINC

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GOLD

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MCEWEN INVESTS FOR THE CO

“And then the government of the day would make a determination that they wanted to advance the case,” Marshall says.

While provisions still exist in the new trade deal to impose equivalent tariffs between both countries, they no longer provide a way for mining companies to obtain remuneration from the U.S. government.

McEwen’s view: “I don’t think a tariff being placed should entitle a company to seek compensation from any party other than maybe seeking recourse from the government that’s putting on the tariff.” Certainly the Canadian government shouldn’t be stepping in with compensation, as it did with its promise of $2-billion in assistance to this country’s steel and aluminum industries, he says.

Moreover, seeking compensation from the U.S., given its giant economy and purchase of Canadian products and goods and services, would only hurt miners on this side of the border, McEwen adds. “We don’t have a lot of defences there.”

For its part, MAC has been a big supporter of free trade, notably those deals between Canada and Europe and with South Korea. What does McEwen make of the new trade deal involving Canada, the U.S. and Mexico? Not much. Ottawa has a more important task, he says. “It should be making Canada an attractive place to make an investment and get a return early, not late and uncertain,” he says.

Nor, he added, are people talking about lifting trade barriers

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Regardless of what happens with U.S. trade, McEwen Mining is getting ready for the next commodities cycle.

McEwen, a tireless booster of gold, says the sector is starting to turn up. “We’ve already entered the bull market for commodities,” he says, although “interest rates will probably go up, too.”

He adds: “But there’ll be a growing appetite for minerals and gold and other commodities. Like the lumber and agricultural industries, the mining industry is cyclical; it has these peak cycles and we happen to be at the beginning of a new one.”

In a single sentence, McEwen sums up what his shareholders should be happiest about: “We have production growth and we’re spending quite a bit on exploration, and to me exploration is the R&D of the mining industry.”

He adds: “Right now, we’re investing heavily so we’re not generating anything really in terms of earnings. But we’re positioning ourselves for this gold market that’s coming.”

A case in point: the company’s new Gold Bar open-pit mine in Nevada.

The $81-million mine will be its largest gold producer when it begins production in early 2019, with production forecast at 55,000 oz. in its first year of operation, 74,000 oz. in its second and 68,000 oz. in its third. McEwen spent $5.2 million on exploration at Gold Bar this year. The company has also budgeted $19 million for exploration at its Black Fox complex in Timmins, Ont.

where it might really count, i.e. between provinces in greater mobility of labour and goods and services. “Our government’s looking outside when it should be looking inside.”

Consider as well how much of that “outside” is represented by the U.S. appetite for Canadian gold. At just over $4 billion, Canadian gold exports to the U.S. were less than a quarter of the total export value worldwide last year. By far our largest market for gold was Europe, which imported more than $12.5 billion of the stuff from Canada.

CMJ

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2018-11-26 5:35 PM

HE COMMODITIES UPTURN In the meantime, attributable production at the company’s 49%owned San José mine in Argentina for the first three quarters of 2018 totalled 34,730 oz. gold and 2.2 million oz. silver and El Gallo in Mexico exceeded McEwen’s full year guidance of 32,000 goldequivalent ounces. A preliminary economic study released in May for a proposed redevelopment plan to extend El Gallo’s mine life, called Fenix, envisions an average annual production rate of 47,000 oz. gold equivalent and a 12-year mine life. Using existing infrastructure would keep initial capital cost low at $41 million for Phase 1 and $30 million for Phase 2.

Investing the old fashioned way As a strong advocate of gold, McEwen is nearly as big a naysayer for one way many have chosen to invest in gold: streams. Investors love exchanging upfront capital in exchange for a percentage of the metals extracted for a much lower price and then selling those metals at current market value. McEwen believes miners give away a large part of their profit margins as a result, and do so because they’re run by “very lazy” management.

“They say, ‘Well, we gotta build a mine and this is the only source of financing.’ Maybe they should have exercised some discipline and said, ‘Look, we’re not going to accept these terms because we’re not going to give away our shareholders’ future.’”

Instead, some investors “take the money right off the top,” to avoid conflicts with communities and Indigenous Peoples or dealing with changing government policy and permitting. Like day- to-day operational issues, all that is left to the mining company. “And there are some risks that a mine might shut down because they sold too big a stream and they don’t make any money,” McEwen says.

Measuring risk McEwen reserves some of his displeasure for the broadsheet media preoccupied with “cryptos or cannabis and who think gold is not an asset worth looking at.” Can you blame them? Not entirely, McEwen acknowledged. Many investors “got burned” after a bullish gold market from 2005 to 2011 “and the bottom fell out like a trapdoor.”

This, one of the longest and deepest bear markets of the eight that have occurred in the last 77 years, may yet hold the key to the future, McEwen says. Today, the downside risk is relatively low because the bear market is finally at an end. Over that same period, four of the six preceding bull markets, he says, produced gains of greater than 600%.

“So maybe it’s worth a moment of your time to look at gold stocks that appear to have low downside risk and attractive upside risk.”

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Bottom: McEwen Mining’s Gold Bar project, in Nevada, will begin production in early 2019. Top and left: The Black Fox mine, in Ontario. CREDIT: MCEWEN MINING

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CANADA | U.S. | MEXICO

ENDEAVOUR SILVER CEO TALKS MINING IN MEXICO

A silver pour at Endeavour Silver’s Guanacevi mine, in Durango state.

CREDIT: ENDEAVOUR SILVER

Mid-tier miner Endeavour Silver was a first mover when it acquired its Guanacevi mine in Mexico nearly 15 years ago. Now the company has four operations in the country, with construction scheduled to begin on a fifth in early 2019. In an interview with CMJ in November, Endeavour CEO Bradford Cooke discusses how doing business in Mexico has changed over the years, the company’s current operations and its plans for growth.

CMJ:

Endeavour has been in Mexico for a long time – what attracted you there initially?

CMJ:

What’s changed over the last 15 years?

The thinking to go to Mexico has displaced Peru as the largest silver proBradford Cooke: Mexico was very sim- BC: ducer in the world. Our business model, of buying ple when I founded the company in 2003. I wanted to be in the small mines in historic districts and bringing the expertise and silver business because the price of gold was already moving up and the price of silver was still relatively flat – but wherever gold goes, silver follows. The two countries that dominated silver production worldwide at the time were No. 1, Peru, and No. 2, Mexico. Mexico was a lot closer, it’s part of North America, and it had enjoyed not only an economic boom but a social boom thanks to joining NAFTA in 1993. So we chose Mexico in 2003.

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money needed to make new discoveries and expand the operations, was so successful that numerous companies copied that model quite successfully. But the low-hanging fruit has now been picked and it’s harder to find attractive new opportunities.

So we changed our business model a few years ago and our Terronera discovery, on which we published an updated prefeasibility study in September, will become our new business model. It is our first virgin greenfields discovery in a historic CONTINUED ON PAGE 20

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CANADA | U.S. | MEXICO district and it will be our first new build. Instead of our previous approach of acquiring assets and fixing them up, we’re building it from scratch. We’re also stretching our wings on the exploration front – we have a pipeline of exploration projects in Mexico and in Chile that I think are very exciting.

CMJ:

You mentioned some of the challenges of operating in Mexico now, including more competition. Are there other challenges that have to do with the jurisdiction?

Doing business in Mexico has evolved from having an BC: early mover advantage with great projects available, very quick permitting timelines, and a very reasonable tax structure. Taxes increased sharply in 2012 – that took away its competitive advantage internationally and it’s now no better or worse than Canada or the U.S., or Peru or Chile. In fact, in some ways Canada and the U.S. are safer jurisdictions and Peru and Chile have slightly lower tax rates. The main reason to be in Mexico today is that it’s still has prolific discovery potential and is the best address to find silver. There’s obviously more risk compared to the old days but we still like Mexico for its resource potential.

I mentioned permitting timelines – they’ve slowed down as the number of new projects multiplied and the government passed new laws. They did have normal environmental and social permitting procedures in place when we went there 15 years ago, but now they’re as strict as any other jurisdiction in the western world.

Top and middle photo: At Endeavour’s lowest cost mine, Bolanitos, in Guanajuato state.

CREDIT: ENDEAVOUR SILVER

CMJ:

Is there a bit of uncertainty there for you, then?

CMJ: Well we have three operations with other unions BC: and one operation with the Miners’ Union so we Not really, the only impact on the mining industry can see first-hand the difference in dealing with them. We do BC: is indirect, through what happens with the peso. So have a functioning relationship with the Miners’ Union and pre-NAFTA deal, the peso was showing a lot of weakness. we’ve gone now six full years without a work stoppage with the Has the uncertainty around NAFTA affected Endeavour at all?

Post NAFTA deal, it’s strengthened a bit. And I think having a USMCA deal is good for Mexico; it’s better than not having a deal.

Miners’ Union, which is unusual. So I think we’ve been good at adapting and working with them as best we can.

CMJ:

There have been instances of violence, threats and kidnappings that have affected other mining companies in Mexico – have you ever had any encounters of that nature?

Mineros) has a history of confrontation and violence. The other unions do not.

you refer to is the Miners’ Union trying to break collective bargaining agreements with other unions at other mines.

CMJ: It has always been a little more challenging than BC: Canada because there is an antagonistic miners’ We have not. None of our mines are located in security union there. Most new operations, including Endeavour, BC: hot spots and I think it also goes to our ability to went to other unions as a first choice. The Miners’ Union (Los build relationships with our employees. Some of the violence How would you describe the labour

situation in Mexico, for mining in particular?

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www.canadianminingjournal.com

2018-11-26 6:49 PM

Top right: El Cubo, in Guanajuato state, is Endeavour’s largest mine.

Above: El Compas, Endeavour’s newest and highest-grade mine.

CREDIT: ENDEAVOUR SILVER

CMJ:

There’s famously a lot of drug cartel activity in Mexico, although that varies by region and locale. Have you been affected by that?

BC:

No, we’re very fortunate. We don’t work in any of those areas. There was a time back in ‘08/09 where all of Mexico briefly was a battleground between cartels but we’ve never had any direct impacts with any of our sites. In the last several years, the hotspot in Mexico has been Guerrero state.

Guerrero is mostly remote and rural areas in the Sierra Madre mountains, so it’s a hot spot for criminal activity.

CMJ:

Turning to your operations and your recent third quarter results, Endeavour Silver posted a loss for the quarter. What’s your plan for restoring profitability?

The disappointment on our financial performance is BC: primarily due to metals prices, which are currently sitting at close to multi-year lows. All the gold and silver miners

are struggling with that. (At presstime, silver was at just over US$14 per oz., down from US$17 per oz. in July.) It’s also due to the underperformance of one our mines, Guanacevi. Our other two mines make good profits even at these low metals prices. The third-quarter earnings disappointment has to do with significant depreciation and depletion of Guanacevi, but if we were to adjust our earnings to remove that non-cash item, we would have done much better for the quarter.

We also have yet to realize the results of the short-term cost reduction program that we implemented late in the third quarter, specifically to address this period of low metals prices.

We do expect the full benefit of that cost reduction program plus higher production at Guanacevi, to improve our fourth quarter operational and financial performance.

CONTINUED ON PAGE 22

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The purpose of building new mines isn’t just to grow our production – it’s also to drive our costs down to the lowest quartile in the sector.

– BRADFORD COOKE, CEO OF ENDEAVOUR SILVER

will be in commercial production in the second quarter. Then we can pull out of the original orebodies and and focus on the best remaining ore.

This transition from two old deep mines to two new shallow mines is overdue. It was held up by permitting in Mexico and we finally got the permits and started development at Milache early this year.

CMJ:

You also have a couple of new projects in development – El Compas and Terronera – can you tell us about those?

CMJ: Our fourth mine, El Compas, is located in the famous Guanacevi was our first mine purchased in 2004. The BC: district of Zacatecas. It is our highest grade mine, BC: two original orebodies found in 2004, Santa Cruz and averaging more than 500 g/t of silver equivalent – it is actually Porvenir Norte, are now deep, narrow, low grade, high cost and a gold mine and the actual grades are about 6 g/t of gold and Can you give us an update on your activities at Guanacevi?

approaching the ends of their mine lives. So we’re opening up two new mines on discoveries we’ve made in recent years called Milache and Santa Cruz Sur. These will refresh the operational and financial performance of Guanacevi for years to come.

We’re in that turnaround right now – Milache has started sending development ore to the plant, and we expect it to reach 400 t/d by the end of the first quarter of 2019. Santa Cruz Sur

80 g/t of silver. It’s our smallest mine, but it’s scalable – we’re only utilizing half the plant capacity. Recent discoveries on our properties in Zacatecas should allow us to scale that project up.

So we’re budgeting to get to 250 t/d by the end of the fourth quarter, which will allow us to declare commercial production.

Next year, we’ll start permitting a new satellite discovery there called Calicanto so we can extend the mine life and ultimately double production to fill the plant.

Mine No. 5, our Terronera project in Jalisco state, is perhaps the most exciting asset in the company right now. It has the potential to become not only our largest mine but our lowest cost and our highest margin mine. At capacity, it will operate at over 5 million silver-equivalent oz. per year, about two-thirds silver and one-third gold. We have published a 10-year mine life already but we continue to drill and the next resource update will show a significant jump in reserves and resources. We’re in the final stages of permitting and securing the debt financing so we can begin construction at Terronera in the first quarter of next year. It’s about an 18-month build on the initial capex of US$75.8 million and it will be up and running in 2020.

CMJ:

Did you have anything to add about what we’ll see from Endeavour in the next six months to a year?

The purpose of building new mines isn’t just to grow BC: our production – it’s also to drive our costs down to the lowest quartile in the sector. The two new mines in

particular are low cost mines that should deliver significant free cash flow for our shareholders and Terronera falls in the lowest decile of the cost curve for silver mines in our space. Our prefeasibility study published on Terronera has cash costs of US15¢ per oz., net of the gold credit. In other words, gold pays for the mine and the silver is essentially free. And forecasted all-in sustaining costs at Terronera are US$1.36 per oz. silver, so it should become one of the lowest cost mines – not only for Endeavour but in the entire silver mining sector.

CMJ

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2018-11-26 5:33 PM

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PROS & CONS OF THE USMCA Photo: michal812; iStockimages.com

By Alisha Hiyate

W

ith the new United States-Mexico-Canada Agreement (USMCA) likely to be signed at the end of November and take the place of NAFTA by 2020, it’s worth looking at how the trade agreement will affect mining companies and suppliers.

The USMCA will provide 16 years of stabilPROS: ity for businesses in North America. After that time, the agreement will expire, unless the parties decide to

renew it. That’s a good thing for Canadian business compared to the uncertainty of the past two years under a protectionist U.S. President Donald Trump.

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And the USMCA itself is not that big a departure from NAFTA. “The changes aren’t radical.” says Clifford Sosnow, a partner and co-chair of Fasken’s international trade and investment group, although he calls some elements of the deal “troubling.”

Sosnow added: “Would I call it a major shift? No. Would I call it a scaling back in terms of greater integration of the three economies? Yes.” Dalton Albrecht a partner at EY Law specializing in international trade law, notes that the agreement keeps a lot of positive things from the old agreement, such as business employee CONTINUED ON PAGE 24

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CANADA | U.S. | MEXICO mobility provisions and Chapter 19 dispute resolution, which allows independent panels to solve disputes between companies and governments.

The biggest issue for miners Cons: and mining supply companies is that the agreement did not deal with the

The biggest issue for miners and mining supply companies is that the agreement did not deal with the 10% tariffs on steel imposed by the Trump adminstration at the end of May under Section 232 of the Trade Expansion Act. Those tariffs have the potential to affect the cost of equipment and mining infrastructure.

10% tariffs on aluminum and the 25% tariffs on steel imposed by the Trump administration at the end of May under Section 232 of the Trade Expansion Act. Those tariffs have the potential to affect the cost of equipment and mining infrastructure. Albrecht notes that the retaliatory 10-25% surtaxes that the Canadian government imposed soon after have compounded the issue.

For example, as things stand, a manufacturer could face double tariffs on an input, raising the price of the final good.

While the Canadian government has announced relief from those surtaxes for Canadian manufacturers in the form of drawbacks and remissions, it’s very time consuming and difficult for companies to deal with, Albrecht says.

It’s not necessarily possible for companies to get the type of steel and aluminum product they want from within Canada to avoid the tariffs, he adds.

“The Canadian steel industry is not subject to the surtaxes on inputs but the problem is certain types of steel and aluminum are made in the U.S. and certain types in Canada – production was rationalized under NAFTA because it’s a free trade area with a frictionless border, so you can’t get all the products you need within Canada for that reason.”

U.S. officials had floated the possibility that the USMCA deal would mean the end of the 232 tariffs. That hasn’t been the case to date, but a deal involving tariff rate quotas below which Canadian steel and aluminum would be exempt from the U.S. tariffs could be struck after the USMCA is ratified.

“There has been discussion of quotas along the lines of the national security issue, which has been incorporated into the USMCA as it deals with autos,” Sosnow says, although Canada is officially opposed to the idea.

Energy sector fragmentation Another issue is that under the USMCA, the energy space in North America will be less integrated than was previously the case, Sosnow says.

Under NAFTA, governments were prohibited from discriminating against other NAFTA party coal, uranium or petro-chemical products with import or export taxes other than duties, he explains. NAFTA parties also had to consult with respect to any new restrictions or taxes that other party believed would be a violation of the energy rules.

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“So there were consultation mechanisms, there were prohibitions on discriminating, there were prohibitions on import and export restrictions and export taxes,” Sosnow says. “That’s been removed.”

Sosnow add: “This is perfectly in line with what the president wants to do, which is a gathering in of investments that have otherwise been in Canada and Mexico and refocusing them back in to the United States.”

Investment chapter Under NAFTA, companies could invoke an arbitration mechanism when they felt their rights under the agreement had been breached, but the USMCA removes that mechanism, Sosnow says.

“Now if there are any disputes for example, Canadian investors feel that they’re being discriminated against in terms of obtaining licences or prospecting licences or consessions, they’re forced to resort to U.S. Courts as U.S. investors in Canada are forced to resort to Canadian courts. That’s always a longer process, it’s a more detailed process, and it’s typically not something that business favours. They like the arbitration process that was contained in the NAFTA because it’s quicker and the results tend to be a little bit more in line with what businesses expect.”

Sosnow adds: “Interestingly enough, Canada’s probably been the source of more disputes against it than the United States or Mexico, so in some sense, it’s a bit of a relief to the Canadian government that those rules are no longer there.”

Other takeaways The introduction of the 232 tariffs mean companies need to review their supply chains from end to end, Albrecht says.

“Talk to your supply chain partners and say ‘please confirm for me that you meet the rules under USMCA’ because that’s important, and you should know that now in advance of implementation.”

For both miners and suppliers, there could be opportunities under other trade agreements, such as the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes 11 countries.

For suppliers, Albrecht says this means that basically any manufacturing input or industrial product originating in Europe is now duty free, so companies can look to sources there.

“The rules of origin are somewhat less restrictive under CETA than NAFTA/USMCA,” Albrecht adds. “If you have fifty per cent Canadian content or even lower, depending on the product, you can generally qualify your product for most CMJ CETA rules of origin and same with the CPTPP.” www.canadianminingjournal.com

2018-11-26 4:18 PM

EQUIPMENT TRENDS Caterpillar’s new 798 AC haul truck.

CREDIT: CATERPILLAR

Caterpillar AIMS TO PLEASE OEM introduces a smorgasbord of new mining products

C

aterpillar’s mining team had a lot to talk about at its recent annual press event in Tucson, which CMJ attended in November. In October and November alone, the company introduced two new electric drive ultra-class trucks, a new drill capable of drilling at

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a negative angle, a new large dozer that meets Tier 4 emission standards and a new underground LHD. But the common theme of the twoday event, held at the company’s Tinaja Hills Demonstration and Training Center in November, was simply that it’s lis-

tening to its customers.

From the introduction of new electric drive trucks to modular equipment designs that make maintenance easier and less expensive, and improvements in its machines that decrease the total cost of CONTINUED ON PAGE 26

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ownership (TCO), the Caterpillar team repeatedly stressed how it was delivering what customers had asked for.

Mining trucks A big focus of the program was the launch of its next generation large mining trucks.

The line now includes eight trucks, including two new ultra-class electric drive trucks – the 798 AC (372-tonne payload) and the 796 AC (325-tonne payload).

CAT’s large mining trucks are known for their durability and robustness, said global product manager Sudhanshu Singh, noting that the first CAT 793, (227-tonne payload) truck it produced is still being used a mine in Arizona and has now been operating up to 170,000 hours. Some customers rebuild CAT trucks with the intention of getting up to 300,000 hours out of them.

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One of the things that we have learned is the more common you have your trucks, the better your supply chain is for getting parts, and the quicker you can actually take an order and deliver a truck to the customer.

– JEFF CASTLEMAN, PRODUCT DEVELOPMENT MANAGER

One of the big differences between CAT and its competitors is the superior system integration in its large mining trucks, Singh noted. Its 795F AC, for example, is the first single sourced electric drive mining truck.

Jeff Castleman, product development manager for large trucks, noted that the company’s “secret sauce” to its electric drive trucks is the “deep vertical integration” that leads to a lower cost per tonne.

Singh noted that this integration means that the software that runs different parts – the engine and the electric drive, for example – can communicate better, making optimization easier.

The 798 AC and 796 AC will be available starting in the second quarter of 2019, with a Tier 4 variety of both to follow soon after.

While mechanical drive is more efficient than electric drive, Castleman said there’s a debate at higher payloads which www.canadianminingjournal.com

2018-11-26 4:19 PM

A display of Caterpillar trucks at the company’s Tinaja Hills mining demonstration area in Arizona.

CREDIT: CANADIAN MINING JOURNAL

Right: The MD6200 rotary blasthole drill, launched in October, is capable of drilling at a negative angle of up to 15°.

CREDIT: CATERPILLAR

has a lower cost of ownership. CAT’s response is to offer both to customers, who had been asking for more electric drive options, and let them decide.

Castleman noted that the 798 AC has a different frame and structure design that a traditional CAT truck. That design lowers the weight of the truck below the smaller payload 795 model (326-tonne payload vs. 363 tonnes). “This is a very efficient design,” Castleman said, adding that the lower empty machine weight helps deliver more power to the ground, with overall payload and allows more efficient fuel use.

In other respects, the electric drive family of trucks are intentionally very similar.

“One of the things that, at Caterpillar, we have learned is the more common you have your trucks, the better your supply chain is for getting parts, and the quicker you can actually take an order and deliver a truck to the customer,” Castleman explained.

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Automation update Another area CAT is focused on is automation.

While miners are still focused on extending equipment life and lowering operating costs rather than buying new equipment, the company is seeing more interest in automation than ever before and is making progress on its autonomous technology.

For example, it’s working on shoring up its automated haulage offering due to customer interest. Mining technology manager Craig Watkins noted that in the larger size classes, miners with greenfield sites are asking only for quotes for automated haul trucks.

While its automated hauling system, Command for hauling, is currently available only for 797F and 793F, Caterpillar is currently conducting field trials with its 789D and the Komatsu 930E model, with other models in development.

The company also emphasizes the interoperability of its systems.

“Our systems are designed to (work with) other OEM’s vehicles,” said Jean Savage, vice-president surface mining and technology.

Bill Dears, commercial mining manager noted that CAT’s MineStar products – Fleet, Terrain, Detect and Health (respectively the company’s fleet management, machine guidance technology, safety, and machine health solutions) provide a way for companies to get some of the benefits of automation without having to adopt full autonomy right away.

“You can take those four point solutions and those are the building blocks that allow you to get between 5% and 30% (improvements in) productivity with your current manned operation,” he said.

The Command system for semi-autonomy or full autonomy can then be CONTINUED ON PAGE 28

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more easily added.

MineStar solutions for surface mining are advanced, but CAT’s making an effort now to bring its surface automation capabilities underground.

“We have, in the last year, through our relationships and our partners, (added) totally different, expanded underground offerings,” Dears said.

“So now, the ability for us to basically do what we do on surface – knowing the positions of the machines and the personnel and being able to put that underground in real time – is bringing breakthroughs in. . . efficiency and effectiveness underground.”

On the analytics side, the company launched MineStar Health Equipment Insights in October as a response to customer complaints they have lots of data about their machines, but find it difficult to use that data to make decisions. The data management tool is suited for both CAT and non-CAT products.

Drilling On the drilling side, the company reached 28 | CANADIAN

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sistent fragmentation and operator performance, that type of thing. The drill is just one of those machines that the more efficiently you drill, the larger the impact all the way downstream,” Watkins said.

As a result, the return on investment on these systems is typically under one year, and can be as short as four to five months.

Top: An LHD working semi-autonomously underground.

Bottom: The 796 AC haul truck.

CREDIT: CATERPILLAR

a milestone in its automated drilling technology in October, with its first public demonstration of the MD6250 blast hole drill operating autonomously. The autonomous function will be available in 2019 for that model.

Currently, Caterpillar offers semi-autonomous functions through its Terrain for drilling system. The system gives operators guidance on hole position, drill angle and hole depth, as well as monitoring things like time usage and efficiency.

“It’s a massive improvement for con-

Underground equipment While the company discussed one new underground product, the R1700 loadhaul dump (LHD) machine, it doesn’t yet have a battery electric vehicle, something that miners increasingly expect in its product offering.

“I haven’t gone to a meeting in the last three years where the customer hasn’t asked about battery vehicles,” noted Susan Gaugush, commercial manager for underground machines.

The company does have a battery LHD in development that should be ready to launch within two years. The fast-charge machine was recently tested at a mine in Canada in a proof-of-concept trial. CMJ www.canadianminingjournal.com

2018-11-26 4:19 PM

AUTONOMOUS MINING

BRINGING

AUTONOMOUS HAULAGE

oilsands TO THE

S

SMS Equipment reports on the importance of strong field support in implementing AHS

everal oilsands producers have started looking at the application of autonomous haulage systems and the use of driverless haul trucks to optimize transportation of oilsands from the mine to the processing facilities. This is a significant undertaking in the industry as it would be the first use of commercial autonomous haulage fleets in North America. The learning curve would be

steep, but the benefits significant.

In 2013, Komatsu started the oilsands autonomous haulage system (AHS) journey with its Canadian dealer, SMS Equipment. At the time, the only AHS operations were in hard rock mines in Chile and Australia, so the system had to be adapted for the Canadian oilsands environment. Favourable results led to a six-truck commercial-scale AHS evalu-

ation in a production environment from early 2016 to mid-2017 that verified the parameters needed for full production level deployment of AHS in the oilsands.

Scott Schellenberg, senior manager autonomous haulage systems at SMS Equipment, says many learnings were taken from the trials in order to make AHS a viable solution in the oilsands.

CONTINUED ON PAGE 30

Komatsu and SMS Equipment started working on applying autonomous haulage systems in the oilsands in 2013. CREDIT: SMS EQUIPMENT

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For our customers to be successful, we need to be more than just a supplier of technology. We need to support our customers in all aspects of the change management journey. It is a complete rethink from delivering equipment to managing a business transformation.

– SCOTT SCHELLENBERG, SENIOR MANAGER, AHS AT SMS EQUIPMENT.

He explains a major one: “A strength of the system is its accuracy and repeatability — the trucks drive exactly where they are supposed to, every time. But that proves to be an issue in the soft conditions of the oilsands when the trucks drive in the same spot every time — it ruts out the roads. So, with Komatsu, we developed multi-trajectory functionality which allows the trucks to travel different paths, or trajectories, within their lanes.”

The critical support role The test project underlines the importance of OEM team synergy and support.

Komatsu owns the autonomous truck technology and the software solution to safely manage a complex fleet of vehi30 | CANADIAN

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cles. SMS Equipment provides the critical service, support and implementation pieces. This synergistic model is critical, ensuring that the best AHS technology can be properly deployed and sustained in a remote environment.

“AHS is much more than deploying the latest technologies,” Schellenberg says. “The Komatsu FrontRunner AHS is a mining material movement solution which requires our customers to challenge their current processes and procedures.” Computer-controlled vehicles introduce a revolutionary level of control sophistication that is unmatched in the industry. It calls for constant communication with mine operations teams as the FrontRunner autonomous software solu-

tion and the fleet management system have the potential to take the place of equipment operators. Having the proper processes and procedures in place is just as important as the technology itself.

“SMS Equipment understands that for our customers to be successful, we need to be more than just a supplier of technology,” Schellenberg says. “We need to support our customers in all aspects of the change management journey. It is a complete rethink from delivering equipment to managing a business transformation.”

Having highly skilled technicians and engineering resources is just one part of the SMS Equipment technology support model. SMS Equipment also provides industry experts to assist its developing www.canadianminingjournal.com

2018-11-26 4:20 PM

SMS Equipment provided critical services and support to help oilsands clients implement Komatsu’s autonomous haulage system.

CREDIT: SMS EQUIPMENT

team competencies with all aspects of AHS implementation such as policy, procedure, and safe work practice development.

Relationship development Training on the new systems is critical.

SMS Equipment along with Komatsu continue perfecting their world-class training program to get customers up and running as quickly as possible.

“When we first started, we relied heavily on physical trainers working with trainees in the pit,” Schellenberg recalls. “Today, we use a whole suite of products from cloud-based e-learning modules, production and equipment simulators to other tablet-based training tools that compleDECEMBER 2018

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ment classroom and field training.” And with its OEM partners, SMS Equipment has built a state-of-the-art control centre simulator in Fort McMurray to assist in training AHS dispatch supervisors.

Successfully supporting autonomous deployments demands a new level of relationship between the distributor and the OEM. Rather than the traditional model where the distributor supports the customer and relies on the OEM for factory support, the AHS integrated support team based in Fort McMurray consists of engineering and technical resources from Modular Mining Systems, Komatsu and SMS Equipment, under the latter’s program management leadership. Each organization supplies its core expertise on different areas of the system. Moreover, the team is fully integrated into the customer’s work processes.

It’s a big challenge for today’s customer as the mining technology space becomes increasingly complex with deployments in more challenging, remote locations.

“It is difficult to assess all the different technologies available today and find the right solution and support model that will give the returns our customers are looking for,” Schellenberg says. “Many technologies that can enhance staffed operations are coming from autonomous technology development.”

Examples include guided spotting technology to assist operators to efficiently spot at shovels and dumps, and safety enhancements such as obstacle detection and collision avoidance technologies. A fully autonomous mining solution will not be a fit for all customers, so SMS Equipment works with them to determine the right technology to deliver on their needs.

As more and more mines adopt AHS technology, new savings soon become apparent. In addition to the enhanced safety margins, “as operators learn to manage their production environment to maximize the capabilities of the system, they begin to realize substantial production gains over staffed operations,” Schellenberg says. “This means our customers can do the same amount of work with less equipment.”

Maintenance costs are also optimized with Komatsu customers reporting on average a 10% reduction in costs. One area of note is tires — each truck has six

tires so reports of 40% increases in tire life add up to big savings.

Momentum grows Advances in Komatsu’s AHS technology with joint SMS Equipment support continue apace. For example, mines can now run multiple sizes of autonomous trucks: the 930E-AT (320-tonne capacity) and the new 980E-AT (400-tonne capacity) in the same system. The planned enhancements will enable manned haul trucks of any make to safely interoperate with Komatsu AHS trucks in a blended fleet operation; and safety systems are further bolstered with new technology deployments like the ODS3 obstacle detection system.

It’s not about to end there. “In the near term, I think we will see the use of drone technology to enhance autonomous system performance,” Schellenberg says.

“The ability to do work such as surveying and site production observations/feedback without having to send a human into the pit will increase safety and system productivity.” New technologies will be leveraged to connect front-line maintenance technicians via live video links with global subject matter experts in real-time to support the efficient diagnosis and repair of equipment.

What’s on the horizon? SMS Equipment sees a steady progression from the standalone AHS to a more integrated total autonomous mining solution: drill automation is well under way and semi-autonomous dig unit technology is already being implemented. And in parallel with machine control technology advancements is the data analytics stream, to better monitor production and understand how to fully optimize the fleet. It all adds up to a technology revolution merging connected data and control technology to continuously optimize production, maximize reliability, all in a safe operating environment.

“As these two technologies begin to mature in the mining space, the use of artificial intelligence tools to merge them together will further disrupt the conventional mining business,” Schellenberg CMJ predicts.

This article was provided by SMS Equipment.

For more details, visit www.smsequip.com/ equipment/advanced-technologies/autonomoushaulage-systems.html.

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UNDERGROUND MINING

BLOCK CAVING

By David Sprott

W

hen planning to develop a new mine, or to extend the life of an open pit operation, mine planners have an alternative mining method to consider: block caving. Some deposits are either too deep to economically extract by open pit methods or are of insufďŹ cient value to justify other more costly and conventional underground methods. In the right conditions, the advantages of block caving make it an alternative that is

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now being considered more often.

Block cave mining is an underground mass mining method that allows for the bulk extraction of large, relatively lower-grade ore deposits with substantial vertical dimension. In block caving, a large section of ore is initially undercut by drilling and blasting, creating a large unsupported roof that will start to collapse under its own weight and instability. The broken ore then breaks apart

and falls into a series of pre-constructed funnels, or drawbells, and access tunnels developed underneath the caving rock mass to form ore extraction drawpoints.

As many surface mines exhaust viable reserves using conventional open pit methods, they are seeking to extend their operations by going underground to continue extracting ore. The lower operating cost of underground block cave mining can be comparable with open pit methods

Image oxygen64; Adobeimages.com

Some considerations for extending the life of open pit mines

www.canadianminingjournal.com

2018-11-26 4:22 PM

Factors in the selection of block cave mining: n A deposit geometry that is amenable to the method. Generally, this means a massive deposit that has sufficient height and footprint area to initiate and propagate the natural caving of the rock mass. n Suitable

deposit geomechanical characteristics such as in-situ rock fractures to encourage fragmentation during the caving process, sufficient rock mass strength to support long life drawpoints and excavation tunnels, and manageable ground stresses.

n Ore value that is not only able to cover

operating costs, but also the relatively high initial capital costs, and extended preproduction periods, as compared to most other methods. As a minimum, the ore value should be two to three times the site operating costs (mining, processing, and general and administration costs). acceptance of surface disturbance above the cave. This zone of disturbance must be accounted for when considering existing or planned infrastructure and environmental considerations.

Image oxygen64; Adobeimages.com

n The

and can either be a viable alternative to develop a new mine or to extend the life of an existing mine. Block cave mining operating costs are typically in the order of one tenth of what other underground mining methods cost, largely driven by economies of scale where production rates can reach 30,000 to 100,000 tonnes per day. In addition, drilling and blasting costs are far less, and there are no backfilling costs.

Another key advantage to an underground mining method like block caving, as compared to open pit methods, is the large reduction in surface waste disposal needs. As open pits get deeper, their ratios of waste rock to ore often get higher and the waste must be placed in ever-increasing surface storage areas. The amount of waste rock generated from underground methods like block caving is a fraction of this, reducing surficial land impacts, which is a key permitting advantage.

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Early stage assessment of using block caving for a deposit The following steps should be completed when evaluating a mineral deposit for block caving: 1.

Apply typical costs and economic cutoff values to the resource block model and assess the resulting geometry and block values in terms of block caving – size, shape and available footprint area, and potential economic margins.

2.

Assess the available geotechnical data which could include Rock Quality Designation (RQD) data from exploration drill holes, joint/fracture density and orientation, drill core photos, and rock strength data.

3.

Employ a suitable software tool to assess potential footprint sizes and elevations, and overall in-situ cave value.

4.

Run multiple sensitivities on key economic inputs and determine a range of potential cave footprints, sizes and average values per tonne.

5. Complete a scoping-level mine design,

including footprint access and layout, material handling infrastructure and mine ventilation.

6.

Apply scoping-level cost estimates for all mine development and infrastructure, and develop a project cash flow to determine net present value (NPV) and internal rate of return (IRR).

The above evaluation process will help to direct future exploration plans and understand what the key drivers are for extracting a particular deposit using block caving. If the project passes this initial assessment, then further more detailed studies can be done at the prefeasibility and feasibility level. These studies would include more detailed mine design, cave modelling and drawpoint scheduling, numerical stress modelling, and fragmentation assessments.

As large open pit mines come to the end of their lives, many companies are examining the feasibility of transitioning to low-cost, large-scale underground operations. Block cave mining is the only underground method that can offer comparable open pit production rates and operating costs. For new developments, block cave mining offers the further advantage of a smaller surface footprint with significantly less waste disposal requirements.

Block caving has garnered increased interest in recent years, especially as the number of new near surface deposits which can be mined by open pit methods continues to decrease. This has helped drive global interest in cost-effective underground mining methods like block caving, which can be a viable alternative for consideration in mineral project CMJ evaluation.

DAVID SPROTT is a principal and senior mining engineer with Golder, based in Vancouver, B.C. He has 35 years of experience in the mining industry that includes underground mine operations and engineering and technical roles within several major mining companies, and then with Golder since 2006. He can be reached at david_sprott@golder.com.

This article was first published at www.golder.com.

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For any questions about subscribing or having your company listed on our Buyers’ Guide, please contact us at 416-510-6891 or 1-888-502-3456, ext. 2 or 43734. You can email the Publisher, Robert Seagraves, directly at rseagraves@canadianminingjournal.com.

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www.canadianminingjournal.com

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