Canadian Mining Journal February/March 2016

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February/March 2016

MINING in ONTARIO GLENCORE TAKES MAINTENANCE TO A NEW LEVEL COMPANY BUILDS REPAIR SHOP ON 1,480-M LEVEL

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CANADIAN Mining Journal

FEBRUARY/MARCH 2016 VOL. 137, NO. 2

www.canadianminingjournal.com

FEATURES MINING IN ONTARIO 10 MAINTENANCE

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Glencore’s repair shop at its Nickel Rim South mine in Sudbury is located at the 1480m level underground.

20 NEW GOLD New Gold’s Rainy River gold property north of Lake Superior provides new hope during tough economic times.

24 TAKEOVER IS COMPLETED Kirkland Lake Gold (KL Gold) completes its acquisition of St. Andrews Goldfields.

29 ONTARIO MINING ASSOCIATION OMA’s President Chris Hodgson talks about the Association’s focus on ‘safety’ and why it’s so important.

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30 CLOSE ONE, OPEN ANOTHER Goldcorp plans to close the historic Dome Mine in Timmins, but announces new work at Borden Lake South property near Chapleau.

DEPARTMENTS 5 EDITORIAL This month Editor Russell Noble talks about the devastation on Alberta’s workforce but also reminds us of the 50 years of ‘good times’ the province has enjoyed thanks to the oil sands.

6 FIRST NATIONS A regular column by First Nations.

7 LAW Robert Mason, a Partner with the law firm of Norton Rose Fulbright, looks at ‘metal streaming’ as a financial option.

8 CSR & MINING A regular column by Michael Torrance, a lawyer in Norton Rose Fulbright’s Toronto office, on Corporate Social Responsibility.

34 UNEARTHING TRENDS Scott Murray, Manager, Performance Improvement Strategy, is with EY’s Mining & Metals Practice, in Vancouver.

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February/March 2016

MINING in ONTARIO GLENCORE TAKES MAINTENANCE TO A NEW LEVEL COMPANY BUILDS REPAIR SHOP ON 1,480-M LEVEL

ABOUT THE COVER

This month’s cover photo from the Nickel Rim South mine provided

by Glencore.

Coming in April Canadian Mining Journal features Coal and Transportation & Logistics.

For More Information

30 FEBRUARY/MARCH 2016

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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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CANADIAN Mining Journal

EDITORIAL

February/March 2016 Vol. 137 — No. 2 38 Lesmill Rd. Unit 2, Toronto, Ontario M3B 2T5 Tel. (416) 510-6789 Fax (416) 447-7658 www.canadianminingjournal.com

Editor Russell B. Noble 416-510-6742 rnoble@canadianminingjournal.com Field Editor Marilyn Scales 613-270-0213 mscales@canadianminingjournal.com Production Manager Jessica Jubb Circulation Manager Cindi Holder 416-510-6789, ext. 43544 cholder@glacierbizinfo.com Publisher & Sales Robert Seagraves 416-510-6891 rseagraves@canadianminingjournal.com Sales Western Canada, Western U.S.A. and Quebec Joelle Glasroth 416-510-5104 jglasroth@canadianminingjournal.com Toll Free Canada & U.S.A.: 1-888-502-3456 ext 2 or 43734 Group Publisher Anthony Vaccaro

Established 1882 Canadian Mining Journal provides articles and information of practical

use to those who work in the technical, administrative and supervisory aspects of exploration, mining and processing in the Canadian mineral exploration and mining industry. Canadian Mining Journal (ISSN 0008-4492) is published 10 times a year by BIG L.P. Mining.

BIG is located at 38 Lesmill Rd., Unit 2. Toronto, ON, M3B 2T5.

Phone (416) 510-6891.

Legal deposit: National Library, Ottawa. Printed in Canada. All rights reserved. The contents of this magazine are protected by copyright and may be used only for your personal non-commercial purposes. All other rights are reserved and commercial use is prohibited. To make use of any of this material you must first obtain the permission of the owner of the copyright. For further information please contact Russell Noble at 416-510-6742.

Subscriptions — Canada: $47.95 per year; $76.95 for two years.

USA: US$60.95 per year. Foreign: US$72.95 per year. Single copies: Canada $10; USA and foreign: US$10. Canadian subscribers must add HST and Provincial tax where necessary. HST registration # 809744071RT001.

From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-888-502-3456 ext 2; Fax: 416-447-7658; E-mail: cholder@glacierbizinfo.com Mail to: Cindi Holder, BIG Mining LP, 38 Lesmill Rd, Unit 2, Toronto. ON, M3B 2T5.

We acknowledge the financial support of the Government of Canada through the Canada Magazine Fund toward our editorial costs.

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By Russell Noble

The down-trodden loonie is good for some miners

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s the petals continue to fall from Canada’s “Wild Rose” province, more and more of Alberta’s miners and oilfield workers are packing up and heading back to the jobless places from where they came.

To date, more than 41,000 people have already been sent home from the oil sands thanks to what Moody Investors Services says is a ‘negative’ rating situation caused by the slash-and-crash in the energy sector.

There’s no question it’s a sad situation, but in fairness, when you look at the overall scheme of things, Alberta and its miners and developers have had a pretty good run of it.

In fact, the oil sands have been in commercial development since the late 1960s; almost half a century, and well beyond most other mining operations found anywhere else in Canada, or in the world, for that matter.

Sure I feel for those who have lost, or will lose, their jobs in the oil sands, but I also feel for those others who are now out of work across Canada thanks to the growing number of other mines that are also packing it up.

It’s hard to focus on any one group or sector within the mining industry that’s in more trouble than any others because, as we all know, it’s an industry-wide dilemma that continues to worsen with every passing month.

Like in all bad situations, however there’s usually something good to be found and as you read deeper into this issue, you’ll find a couple of mining stories that help keep the faith in the industry alive.

As a good and long-time friend of mine, Peter Howe, a Professional Engineer and founder of A.C.A. Howe International Limited, Toronto, told me recently, “The mining industry may struggle at times, like now, but it will never, ever die. The World can’t afford to let it.”

I’m sure Peter is right, and that many others agree with him, but when you hear about the massive writedowns that have already taken place this year by industry giants like BHP Billiton PLC ($7.2-billion), and Barrick Gold Corp. ($3-billion), to name just two, it makes it hard to believe that the lingering impact of last year’s plunge in commodity prices isn’t still with us.

In fact, when you consider that 38 out of the 97 global mining companies with market capitalization of more than $1-billion are trading at less than book value, then I guess it’s safe to say, “We’re not out of it by a long shot.”

Unless, of course, you’re a gold miner operating here in Canada where the lower loonie dictates the gap between the cost to produce and the value of the gold; always priced in U.S. dollars.

With that, it’s probably safe to say that those companies with producing gold mines here in Canada aren’t hurting as much as their peers in the oil and gas, iron ore, copper, coal, and nickel businesses, but it’s anybody’s guess what will happen when the loonie makes its return.

And it doesn’t seem likely that will be any time in the near future. But, for our miners producing domestic gold, the down-trodden buck is good for business. CMJ

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FIRST NATIONS

Canada needs full inclusion of First Nations to kick start the economy

By Isadore Day, Wiindawtegowinini, Assembly of First Nations, Regional Chief Ontario

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ince the last PDAC convention, the relationship between Ontario, Canada and First Nations has improved dramatically. At the same time, the Canadian economy has continued to worsen. The resource sector is struggling – diamond, gold and potash mines have either reduced production or closed; the price of oil has dropped dramatically; and the Canadian dollar continues to lose its value against major currencies.

As we wait for commodity prices to increase, now is the time to work towards fully implementing the First Nation elements of the Ontario Mining Act. Specifically, “Encourage prospecting, staking and exploration for the development of mineral resources, in a manner consistent with the recognition and affirmation of existing Aboriginal and treaty rights in Section 35 of the Constitution, 1982, including the duty to consult, and to minimize the impact of these activities on public health and safety of the environment.”

So how can First Nations become involved in kick-starting the Canadian economy? For one thing, there is now the opportunity to hit the proverbial reset button on our relationship with Canada.

After a decade of darkness under the previous federal government, and several decades of severe underfunding, Canada is now ready to work with First Nations as equal partners in this country.

First of all, let me back up to this past August. Just seven months ago, the Chiefs of Ontario and the Province of Ontario signed a Political Accord, which has begun a new relationship based upon respecting our Treaty Rights and advancing First Nation determined governments. The Accord is the most important collective milestone between Ontario and First Nations in modern times.

To quote Ontario Premier Kathleen Wynne: “For too long, government ignored our broken partnership with First Nations people and turned a blind eye to our many misdeeds, from first colonial contact to residential schools, and cultural genocide. For too long, we used excuses to explain away the horrific realities of missing and murdered Indigenous women. And for too long, we did not accept that our oppression and abuse of First Nations people has persisted for generations and led to the inequities that we see today.”

Two months later, this past October 19th, a new federal Liberal government was elected, which included a record number of 10 Indigenous Members of Parliament. Prime Minister Justin Trudeau has made a number of serious commitments to our Peoples. This includes major investments in health, housing, and child care; 6|

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ending boil water advisories within five years; and, most importantly, ending two decades of a two per cent funding cap which has resulted in an estimated $25 billion in underfunding.

To quote Prime Minister Trudeau: “It’s time for a new fiscal relationship with First Nations that gives your communities sufficient, predictable and sustained funding. This is a promise we made, and a promise we will keep… There are many other actions we will undertake, from partnering with First Nations as we review and monitor major resource development projects, to providing significant new funding to help promote, preserve, and protect Indigenous languages and culture.”

Again, what does all this mean in terms of kick-starting the Canadian economy? It boils down to three words: inclusion, investment, and infrastructure.

As both Ontario and Canada work to include us as equal partners and secure our rightful place in this country, we need the proper investments in child care, education, health, housing, and skills training. As Canada embarks upon a very ambitious national infrastructure program – which will formally begin with announcements in the March 2016 federal budget -- First Nations must be fully included in those multi-billion dollar projects.

As we speak, the winter road season for our communities in northern Ontario grows shorter each year due to climate change.

Not only do over 30 communities depend upon winter roads as a lifeline for transportation and shipment of goods – from food to building materials – but mining and energy projects also depend upon winter roads. Shorter seasons have also resulted in downturns in local economies.

For example, the Victor Diamond Mine near Attawapiskat First Nation depends upon the 312km James Bay Winter Road, which is owned and maintained by First Nations. Any future mining development in the Ring of Fire is dependent upon the construction of a multi-billion dollar transportation corridor.

Imagine the spin-off economic benefits of a major all-season road, from responsible resource development, to tourism, fishing and hunting? An all-season road would also greatly contribute to finally securing healthy, happy sustainable communities.

It’s time to stop imagining what can be done. It’s time to include First Nations as equal partners. By investing in our Peoples, from socio-economic programs to major infrastructure projects, not only will finally secure our rightful place, we will become major contributors to a revived Canadian economy. CMJ WWW.CANADIANMININGJOURNAL.COM

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LAW

Metals streaming is a financial option

By Robert Mason

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n the face of one of the worst commodity and equity markets in recent memory, metals streaming has become one of the few financing options available for mining companies in Ontario.

While streaming has been with us for more than a decade, it rose to new prominence in 2015 as several major global mining players closed significant transactions involving some of the world’s most respected producing mines. While for many years considered to be a type of alternative mine financing, metals streaming has become “main stream.”

Metals streaming is essentially the sale by a mining company of part of its future production in exchange for an upfront deposit and an agreed fixed price per unit of production, often for the remaining life of the mine or at least for an extended period.

The stream is typically a by-product of the mining company’s core production (such as gold or silver from a copper mine), but it could also be part of the mining company’s core production (such as gold from a gold mine). The result is the mining company is able to raise significant capital on the basis of its future production.

This article will focus on three recent trends in the metal streaming sector, specifically: (i) the significant increase in the number and type of stream purchasers, (ii) the proliferation of buy back-rights, and (iii) a loosening of stream security as a response to issuers’ existing debt arrangements.

Stream Purchasers Over the last couple of years there has been a major increase in the number of parties focusing on acquiring metal streams. The industry had been dominated by a few players for almost a decade. But this has changed as a response to the combination of significant potential returns on capital from streaming transactions (especially in comparison to the lack of opportunities in the more traditional mining equity markets) and the availability to some of relatively cheap capital. As a result, private equity firms and pension funds now represent a large and growing percentage of the stream purchasers. One notable side-effect of this trend is that mining companies with world-class mines have negotiated improved streaming terms due to the competition on the buy side. We anticipate the continued crowding of this space as stra8|

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tegic mining investors look for profitable ways to deploy significant amounts of capital.

Buy-Back Rights A buy-back right allows a mining company to re-acquire a portion of the disposed metal stream for a certain price during a specific period of time. While not a novel term in these types of transactions, issuers have been increasingly pushing for such rights. When negotiating the upfront payment, purchasers typically aren’t willing to pay mining companies for anything other than reserves. But because metal streams are often for a lengthy period of time, purchasers do particularly well when additional reserves are added to the life of mine from resources over time.

Buy-back rights give issuers optionality to reduce the percentage of this upside that is being sold. The buy-back price can be either a specific amount negotiated at the time of the streaming agreement or a price based on a designated internal rate of return to the purchaser.

Loosening of Security One of the key features of streaming transactions is the high level of security protection afforded to the purchaser, often similar to the security provided to bank lenders. While an extensive security package remains a cornerstone of most metals streams, there has been a recent trend whereby stream purchasers have been willing to take less security so that the stream is not classified as debt by Standard & Poor’s (“S&P”). In 2013 S&P diverged from the other rating agencies by classifying streams as “debt” if they contain certain debt-like characteristics, such as a high level of security or overcollateralization or cash repayment or payment acceleration in an event of default. A debt classification of a stream has the potential for triggering significant adverse consequences under an issuer’s existing debt package. In response to this issue, in 2015 there were a couple of major streaming deals that were unsecured or carried less bank-like security. While these exceptions were notable, they were also restricted to streams being sold by global mining companies in respect of world-class mines where the risk of default is much lower. CMJ ROBERT MASON is a Partner, Norton Rose Fulbright.

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MINING in ONTARIO

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t’s conventional wisdom that underground mining is a dirty business. In fact, it’s undeniably true because as almost everybody knows, the nature of working underground involves spaces that are often cramped, damp and dark.

To say that the environment is ‘challenging’ is an understatement at best, and because of these conditions, underground maintenance and repair shops often are not held to the same standards as surface mines.

But contrary to this perception is Glencore’s Nickel Rim South mine in Sudbury where things have changed thanks to the company’s decision to build a world-class maintenance shop underground by following best practices for safety, and contamination.

And, as a result of its efforts to create a first-class repair shop 1480m below the surface, Glencore earned the first Caterpillar Certified Five-Star Contamination Control designation for an underground maintenance facility.

Taking on a Challenge

A close look at the maintenance area at the Nickel Rim South mine showing drive-on ramps and built-in service pits.

UNDERGROUND MAINTENANCE AT GLENCORE’S NICKEL RIM SOUTH MINE GETS FIVE-STAR RATING

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During an earlier Caterpillar-sponsored mining forum event, participants were challenged to take away one thing from the sessions that they could implement at their site.

Tim Hinds, Nickel Rim South’s maintenance general foreman, was in attendance and he says he chose contamination control because the topic was still on the top of his mind when Nickel Rim South mine was in the early stages of developing a new $(U.S.) 10.3-million underground maintenance shop.

To assist in the implementation process, Caterpillar contamination control market professional Ron Meischner visited the mine to evaluate the workflow and contamination control compliance of the new facility.

During the visit, he was asked by Stu Greaves, the mine’s representative from Cat dealer Toromont, to give a presentation on contamination control to some of the site’s key management personnel.

“When I completed my presentation, I was approached by Tim, who asked if I would support him if he decided to implement a contamination control program,” recalls Meischner. “My response was, ‘Toromont and Caterpillar are your first line of support, and my job is to support them — so yes, I will!’ ” Hinds requested Meischner return a month later to perform a baseline assessment and to provide guidance on the prioritization of continuous improvement projects. “The mine team was excellent to work with and very proficient at project management,” says Meischner, who continued to support the site along with Susan Gaugush, a Caterpillar service technical representative.

“We showed Tim how a proactive contamination control program could lower their operating costs, and we brought metrics to prove it,” says Meischner. “He brought in other people on the CANADIAN MINING JOURNAL

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Massive service area with heavy-duty overhead cranes.

team and began to build collaboration and a commitment to making contamination control part of the culture.”

“We pointed out the fact that Glencore already had the first five-star surface mine with its Alumbrera mine in Argentina,” continued Meischner. “And we said, ‘Wouldn’t it be great if they also had the first underground one?’

Tim jumped on board, and said, “Here we are.”

Supporting an Underground Operation Nickel Rim South is the largest mine in Glencore’s Sudbury Integrated Nickel Operations, which has been mining in the area since 1929. The mine is located in a 60km-wide geological formation in the Sudbury basin. In addition to Nickel Rim South, the operations also include; Fraser Mine, Strathcona Mill, and Sudbury Smelter. The site primarily produces nickel and copper, with some gold, silver, platinum, palladium and cobalt also produced.

The Sudbury operations employ about 1,300 permanent workers.

Ore was discovered at the site between 1100m and 1700m in 2001, with construction of Nickel Rim South starting in 2006, and operational at full capacity since October 2010. The mine produces about 1.25 million tonnes (1.38 million tons) per year.

Nickel Rim South is a blasthole mine, allowing the site to take advantage of gravity and a minimum amount of hauling.

The mine drills 30-m panels and handles the ore with scoops.

Production equipment includes 10 Cat R1700G underground loaders, one Cat AD30 underground articulated truck, three 420F backhoe loaders, a 120M motor grader, and three TH40 telehandlers.

On the surface, operations are supported by an IT38G inte-

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grated tool carrier and a V300B forklift.

Originally the mine operated with three captive levels, which made it necessary to have maintenance shops on each level. Each shop was about 5m high and 5 m wide; a tight fit for a Cat R1700.

“We had one foreman for all three levels, which was a little difficult,” recalls Hinds. “We couldn’t share equipment and it was an effort to move people.”

New shops were built in 2008, but they were still located on different levels and were far from ideal. But Hinds looked at the challenges as a learning opportunity for the next step. “We learned quite a bit during those days about how we could make improvements and what we ultimately wanted our shop to be,” he says. “We listened to the trades people and listened to our people to see how we could get a better shop. We came up with a vision of what we wanted that shop to be, and how it could improve our operation.”

Taking Maintenance to a New Level In 2010, the Nickel Rim South team shared its vision for a new maintenance shop with its corporate owners, asking for $(U.S.)10.3 million to make it happen. That vision was broken down into five key focus areas: 1. Safety. A more ergonomic shop design, combined with a larger workspace and storage areas to improve housekeeping, would make working conditions safer for everyone on site.

2. Quality and reliability. A new shop would improve maintenance across the board — extending the lifespan of equipment, minimizing the cost per hour of the equipment fleet, and enabling a more comprehensive component replacement program.

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MINING in ONTARIO 3. Revenue opportunity. Improved maintenance leads to equipment that runs better and lasts longer. A decrease in Mean Time to Repair and fewer breakdowns make equipment more available and could make it possible to reduce the size of the fleet required to run the operation.

4. Materials savings. When maintenance is proactive and components are replaced in a timely manner, fewer parts and components must be kept on hand in case of an emergency repair. In addition, managing inventory of parts and tools in a centralized facility leads to improved efficiencies.

5. Labour productivity improvements. Providing a centralized space for maintenance employees, with active supervision, would create synergies and build a unified, focused team.

In addition, the new space would allow the mine to do more work on its own equipment rather than contract it out.

“In order to get the funding for the new shop, we had to work hard to ensure that we achieve the high standards in all of our focus areas,” says Hinds. “And I have to say, we’ve achieved our target and are able to showcase every one of them.”

Taking Control of Contaminants Nickel Rim supports its underground mining equipment in partnership with local Cat dealer Toromont. BothToromont and Caterpillar were key advisors to the maintenance team during the planning and construction of the new shop.

“We went through many phases during the development,” says Hinds. “We met with our mechanics and got their input.

We talked to trades people. We went to Toromont’s rebuild shop to see how they are organized. We got a lot of best practices from watching how they work.”

Hinds had long taken advantage of the expertise of Caterpillar and Toromont. In 2010, he attended a Caterpillar mining forum event during which he first began to think about contamination control and how he could implement some of these best practices into Nickel Rim South.

“We decided that we didn’t want to run our facility like we had been, and like many other underground sites traditionally do,” he says. When Caterpillar’s Meischner visited the site, his initial analysis led to a two-and-a-half year project to advance the cause of contamination control.

After the initial assessment, Glencore took on the challenge to achieve Caterpillar five-star status — a challenge that would take the mine from a base score of 23 per cent compliance to the required 95 per cent.

“Nickel Rim South took ownership of the project,” Meischner says.

“The mine assembled a team, developed the action items and made the commitment.”

“They advanced their shop in a sustainable way,” Meischner continues. “You can’t sustain something this monumental if you try to do it all in just a few months.

We looked at every aspect of the process as a continuous improvement project.”

Incorporating Contamination Control Into Design Because Nickel Rim South was in the process of building an entirely new maintenance shop, the mine was in the perfect position to design a facility ideally suited to control contamination.

Ventilation was a key considerTim Hinds, Nickel Rim South’s ation, making the air safer for under- General Foreman, Maintenance. ground workers, but also reducing dust that is a leading contributor to contamination. Air is forced in and out of the shop and the space is designed for ventilation flow. This eliminates the need to purchase expensive electricity to power fans.

The entire area is designed with a one-way system of travel.

A staging area helps with traffic flow into the maintenance area, which also keeps the environment safer for those working in the shop.

A wash bay is located just outside the shop, and all equipment must be washed before it comes in for maintenance.

The shop itself is ergonomically designed to make maintenance tasks easier on the technicians. The area includes three individual ramps and a crane that hangs from the back of the shop to keep the floor area clean. Work benches were eliminated from the new shop.

“Work benches tend to get cluttery and things pile up underneath them and they just become a mess,” says Hinds.

Panoramic view of service and maintenance shop at the 1480-m level.

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Heavy haulers make their way through a concrete-lined access drive to the service facility.

Hand tools are stored in a specially designed area, eliminating the need for each individual mechanic to have his own tool box.

“Tool boxes usually sit up against the wall, and that means there’s dirt underneath,” says Hinds. “In addition, we have 44 mechanics down there, which would mean 44 tool boxes. That takes up a lot of space. So we buy the tools, and even though we’re spending money on them, we save that tenfold by not developing that extra landscape underground.”

A reference library contains maintenance manuals and computers so the mechanics can make up work orders and order parts. The parts department and warehouse are nearby, but are kept locked to keep them clean and organized.

Starting with Some Quick Wins The mine’s road to the five-star achievement started with some simple changes well before construction of the new maintenance shop was under way.

“They had to go back to basics,” says Meischner. “Sometimes it’s just as simple as making sure the right oil goes in the right hole at the right time. You have to pay attention to the basics before the bells and whistles will do you any good.”

Hinds agrees. “At the same time we were incorporating contamination control into the design of our new shop, we went after the low-hanging fruit and made some changes.” These sometimes-easy fixes are based on best practices and can be implemented quickly and for minimal cost.

Eliminating oil-absorbing granular material When visiting Toromont’s rebuild facility, Hinds noticed that the shop didn’t rely on “floor dry” to absorb spills on the shop floor.

“At Nickel Rim South, the crew would bust a bag open, spill it on the floor, scatter dust everywhere. They’re breathing it in,” he says. “Then we don’t always clean it up right away so we end up shuffling it around. The next day you clean up half of it, and the other half gets kicked around under the tool boxes and the 14 |

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benches, the scoops run over it, creepers are catching in it and it’s embedded in the floor.”

The mine purchased some environmentally friendly absorbent pads, got some mops and pails for cleaning, and gave it a trial. The use quickly spread to other levels.

Taking Care of Fluids Nickel Rim South buys the best oil possible for use in its equipment, but that doesn’t guarantee cleanliness. By putting dessicant filters on barrels and bulk tanks, sealing them, adding a kidney loop system and doing particulate counts before refilling the tanks, the site has made great strides in protecting components from the dangers of contaminated oil.

“We continuously clean,” says Hinds. “It’s working out great.”

In addition, the maintenance department installed a kidney-loop system on the hydraulic system of electric-powered machines to eliminate the dust and contamination that are continually being pulled in.

The mine has two portable kidney looping units for use across the fleet.

“This has been extremely successful for us,” says Hinds.

Protecting Hoses In addition to building an ergonomic hose rack, the maintenance team found they could keep hoses cleaner by using re-sealable plastic bags to cover hose ends, eliminating the need to shuffle through a pile of contaminated plugs of different sizes in search of one that fit.

“These are just pennies a piece,” says Hinds. “And they make a huge difference.”

Protecting New Parts In addition to working with OEMs to help ensure parts and components arrive properly packaged, Nickel Rim South now bags and seals every product that doesn’t come in an appropriate container.

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MINING in ONTARIO “Parts are expensive. We try to protect our investment,” says Hinds. “We don’t keep anything in open bins. We have drawer systems, plus the second layer of protection in a re-sealable bag or the original packaging.”

In addition, the mine invested in an inexpensive backpack vacuum that is used to pick up the dust in the parts area that is not captured by the ventilation and pressurization system.

“We’ve got millions of dollars invested in parts, and when I go to use them, I want them to last. This small investment makes a world of difference in keeping the area clean.”

Keeping Fuel Clean Hinds admits that Nickel Rim South had a lot to learn when it comes to clean fuel. “Our breathing systems were open to the atmosphere,” he says. “Every time we sent the fuel down into the mine, there was a risk that we were contaminating what we were buying.”

The mine invested in dessicant breathers and added weighted explosion discs to keep the fuel covered. “This stuff is cheap, but it was stuff that we missed,” he says.

Leveraging Technology Working with Toromont, Nickel Rim South uses a scheduled oil sample program (S.O.S.S.M) on all equipment, down to the smallest machines. The system allows for real-time auditing, measuring 30 different parameters and sending emails to keep the maintenance team informed of oil pressures, temperatures, idle time and more.

“We don’t have to rely on the operator to tell us if a machine is having a problem because now we know it too,” says Hinds.

Changing a Culture Hinds and the Caterpillar experts are quick to point out that while making contamination control a priority may seem obvious, changing the way things are done at a mine site is not an easy task.

The achievement of five-star status required training, good communication, continued reinforcement, regular assessment, and the buy-in of everyone involved. Even now, it takes constant reminders to make the effort sustainable.

“This was tough to do, and it’s a never-ending battle,” says Hinds.

Communication is key to Nickel Rim South mine’s success, and in addition to telling the team what is expected of them, it’s important to listen to what they have to offer.

“There are a lot of good ideas out there,” says Hinds.

“Knocking down the low-hanging ideas created an environment of trust and engagement, inspired creativity among the workforce, and allowed change to be embraced instead of resisted.”

Operator buy-in is especially important. “It takes a while to prove that there is a better way,” Hinds says. “We explained what contamination control was and how it could help. We shared the results, like reductions in downtime and the availability of equipment. Then they started looking at the things we were doing and watching those results.”

Hinds and his team shared ideas with the operators on what they can do to help with the contamination control effort. “We gave them examples, like wipe off the nozzle before you top off your engine oil, wipe a cap before you take it off, don’t dump contaminated oil in the machine or carry around a bunch of open-ended hoses,” he says.

In return, the operators shared their ideas. “We acted on the ideas they put forward,” says Hinds. “If you want to sell your ideas, you need to use theirs. And they do have a lot of good ones.”

Hinds is pleased with the support the Nickel Rim South operators have given the contamination control effort. “We quickly saw their buy-in. There are a lot of crews now washing equipment between shifts. We see less damage to machines when they’re coming in for service. In return, we make sure their machines look good when we return them. If we keep them

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Technicians doing a routine service inspect of a jumbo drill.

Oil and lubricant delivery station located in drive-up service bay.

running and looking good, the operators have more pride in their machines and they take better care of them.”

The team sets expectations at the beginning of every shift, following a comprehensive list covering all elements of the shop: entry and exit inspections; cranes, ramps, floors, barricades and stands; lighting, housekeeping and garbage; storage and stacking; bulk lube storage; and more.

“Every morning we get the whole team involved,” he says.

“The mechanics, the trades people, the operators, the mine superintendent. Maybe there’s an operator talking about a problem with a bucket. Maybe there is a blade that’s not cutting

properly, or there is a problem with the seat. It may be a little problem to you, but go down there, find out where they are working and see what you can do. You can usually solve the problem and also develop a relationship with your people. It makes a world of difference because you get to know them and they get to know you and they want to do a good job. It makes my life a lot easier.”

The key component of the morning meetings is ‘safety.’

The site incorporates a Positive Attitude Safety System (PASS) that brings safety to the forefront before the start of every shift.

“We tell our people to call out their co-workers when they see them doing something safe,” says Hinds. “We give people the opportunity to talk to each other about safety and to thank each other for their efforts. They can share information on what they’ve seen, what they’re worried about, things they have noticed. They coach each other.”

Reaping the Rewards

FROM EXPLORATION TO CLOSURE. JUST ASK GOLDER.

It’s easy to see the results of Nickel Rim South’s contamination control efforts by looking at its compliance scores — taking its adherence to the program’s principles from 23 per cent to 96 per cent in just three years.

Success was realized in a number of areas:

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In 2008, it was estimated that the mine’s equipment component life was reduced about 2,000 hours from its expected lifetime.

Engines that were supposed to last 14,000 hours were instead being replaced early at 12,000 hours.

By 2011, components were lasting their expected lifetime and today the site has added an average of 2,000 additional hours to the expected lifetime of components.

Planned vs. Unplanned Maintenance In 2008, Glencore maintenance engineers told

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MINING in ONTARIO the Nickel Rim South mine that 60 per cent of its maintenance work should be planned.

In 2009, the site was averaging just 35 per cent, which meant the rest of the maintenance team’s time was spent addressing breakdowns. In 2014, planned work hit the 87 per cent mark. The benefits of this achievement are significant.

“A planned job can be up to eight times cheaper than a reactive job,” claims Hinds. “It also gets done a lot quicker and we can plan around the operations so we’re not pulling a machine out of production.”

At the same time, unplanned maintenance was being reduced — from a high of around 65 per cent to about 25 per cent in 2013, lower than the mine’s goal of 30 per cent.

Today, that number is actually well below that goal at around 13 per cent.

“Now, in addition to helping us improve the lives of our equipment and components, we have time to do the other activities — to adjust our processes and procedures and continually improve,” says Hinds. “And it gives our maintenance team credibility with the operations team. Equipment is never the bottleneck at our site.”

In addition, the availability of critical equipment has surpassed the mine’s target of 80 per cent and today reaches about 93 per cent. Prior to the new shop, radiator operating hours were about 1,000 hours before replacement. The introduction of soda washing has increased that life to 9,000 hours.

“Yes, replacing a radiator is expensive.

But it’s the lost time and lost productivity that really adds up. We’re looking at thousands of dollars of deferred revenue every time a scoop is down.”

Tire Life Improving underground roads is a challenge, but it’s one worth tackling. By getting water off the ramps, directing water, improving sumps and understanding the source of water, the site has made significant progress. The results are especially evident when it comes to tire life.

“Water is the enemy of tires,” says Hinds. “By paying attention to our roadFEBRUARY/MARCH 2016

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beds and talking to the miners about how harmful water can be, we’ve cut our tire costs in half.”

Safety The measurable results of Nickel Rim South’s contamination control program are well-defined, but the intangible results may be just as valuable.

The site has seen improvements that have affected all of Glencore’s corporate values: entrepreneurialism, simplicity, safety, responsibility and openness.

“Our five-star designation touches all of these values,” says Hinds. Safety, especially, has been impacted by the new shop and its adherence to contamination control principles.

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MINING in ONTARIO Aerial view of Glencore’s Nickel Rim South mine in Sudbury.

“Safety is very important to our mine and the Sudbury community,” says Christian Bruneau, Nickel Rim South Director.

“In our integrated business of exploration, mining and smelting activities, maintaining a safe work environment is our top priority. A strong commitment to a “safety first” attitude amongst all employees and contractors is integral to our business.”

Proof of Glencore’s commitment to safety comes in the fact that the site was awarded the prestigious John T. Ryan award for its record as the “Safest Metal Mine in Ontario” in 2013 and 2014.

Sharing the Credit Hinds is quick to point out that Nickel Rim South mine’s successes are the work of everyone on site — the operations and maintenance teams, the trades people, and the Caterpillar and Toromont employees who advised them.

“You have to make sure that you take that award down to the miners and technicians. They are the ones who made it happen.

I’m just an enabler.”

Continuing the Journey Now that Nickel Rim South has achieved the five-star designation, the goal is to never let it lapse.

“We will keep auditing what we’re doing. We’ll learn from our mistakes, listen to our OEMs, get wisdom from everyone we can,” says Hinds.

While the construction of the new shop had a significant impact on the mine’s success, Hinds predicts the mine would have gone on after the five-star designation even without it.

“We may not have achieved it, but we would have taken a shot. The paybacks are amazing. It’s a tough environment in which to make money right now,” he continues. “We all have to do our part to cut costs and help us produce. I think the five-star designation has helped us a lot.” CMJ Information for this Special Report* on Nickel Rim South mine provided by Glencore, and Viewpoint, a publication of Caterpillar Global Mining. As a note of further interest, Glencore’s Nickel Rim South mine is currently three years running in maintaining Caterpillar’s Five-Star status, and to Glencore’s knowledge, it is the only underground mine that has that status.

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Aerial view of plant construction at New Gold’s Rainy River Gold Project.

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MINING in ONTARIO

Moving forward during poor economic times shows deep faith in gold project

By Russell Noble

A

IVER

DEEP FEBRUARY/MARCH 2016

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nywhere along the north shore of Lake Superior can be one of the better, or worst, places in Canada to live and work.

Its remarkable scenery puts the region on almost every tourist map in the country, while conversely, Environment Canada also lists it as one of the more temperamental winter-weather zones anywhere in the nation.

And, aside from a handful of small towns like Fort Frances, Kenora, Dryden, and Atikoka, plus the villages of Red and Pickle Lakes, and Siouix Lookout, there aren’t too many other names on the map. Literally.

But what the maps don’t show are the names of the mining companies that have moved in, and now call the lands North of Superior “home.”

Names like Barrick, Goldcorp, Hudson’s Bay Exploration and Development, plus Noranda and International Nickel Corporation of Canada (INCO), in earlier years, as well as Mingold Resources, have been known throughout the region for decades.

But now there’s a newcomer to the neighbourhood, appropriately called “New Gold,” that has taken up residency in the area with its Rainy River Gold Project.

As its name implies, the Rainy River Gold Project is an advanced gold exploration project located in Richardson Township, approximately 50km northwest of Fort Frances, and 420km west of Thunder Bay. It’s not necessarily a new discovery per se, because exploration at the site started as early as 1967, but it wasn’t until June 2005 when Rainy River Resources moved in that things started to develop in earnest.

New Gold subsequently acquired Rainy River in the fall of 2013.

Again, it’s not a new discovery but what makes the project most significant is that it’s one of the few mining projects in Canada that is moving forward and not announcing plans for any closure or layoffs.

And that alone is newsworthy during these depressing times in the mining industry.

Fortunately, the company was armed with a good supply of historical core dating back to the late 60s, but since then, the company has continued with an aggressive drill program that has seen it drill 225 core boreholes totalling 77,969m.

In total, 1,435 holes totalling 662,849m have been punched into the property since its initial discovery almost 49 years ago.

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MINING in ONTARIO Regardless of when the drilling took place, the information gathered confirmed that mineralized zones generally follow a northwesterly strike, the largest extending 1,600m along the strike, 975m down dip (open at depth), with a true width of 200m.

With proven and probable reserves of 3.7 million ounces of gold, and measured and indicated resources of 3.0 million ounces, it’s no wonder that New Gold is excited about the promise a new mine will bring to the company, and Richardson Township community and its 10,000 people.

As the project advances toward its mid-2017 target for the start of commercial production, New Gold is continuing with its drill program to discover additional gold resources to help extend the projected 14-year life of the mine.

Erection of grinding building.

Aerial shows how advanced the accommodations are at Rainy River.

An early look at formwork for the grinding building.

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Regarding the new mine itself, it’s designed to be a combined open pit (19,500 tpd) and underground mining operation (1,500 tpd), feeding a conventional (21,000 tpd) process plant to recover gold and silver mineralization.

Surface mining at the site will follow the standard practice of an open pit operation, with conventional drill and blast, load and haul cycles using a drill/truck/shovel mining fleet.

Access to the pit will use a 10% gradient ramp, 33m wide, to safely accommodate the large trucks for double-traffic lane haulage. The primary fleet consists of: three hydraulic shovels, one wheel loader, 22 haul trucks, three drills, and a fleet of smaller support equipment.

Operating bench heights of 10m have been planned, and over the life of the mine, New Gold says a total of 318.2 Mt of waste rock and 73.6 Mt of overburden will be removed with the first seven years of the mine’s operation.

Mine waste and overburden will be stored in nearby stockpiles or used in dam construction activities or blended in cement and used as backfill material for the underground mine.

It’s estimated that the company will employ more than 315 people during the peak of the open pit mining operation.

As for the underground mine design, New Gold plans to build a 1,500 tpd facility to extract ore by longitudinal, long hole open stoping.

Key mine infrastructure includes: a 4km main access decline from the surface portal location to the east of the open pit, internal production ramps servicing each mining zone, ventilation intake shafts equipped with a surface heating plant, ventilation exhaust raises, a backfill delivery raise that terminates at the underground truck-loading station, a cement-storage and grout-mixing facility, two main dewatering stations, an equipment maintenance facility, electrical substations, and other smaller, ancillary installations complete the description of what’s planned underground.

A closer look shows that stopes are typically 20m in length along strike and 20m high. Ore handling from the underground workings to surface will be accomplished by a fleet of loaders working in tandem with 45t haul trucks to move the ore directly to the surface to a coarse-ore stockpile adjacent to the portal.

Primary crushing will be performed on the surface in a dedicated jaw crusher before the underground ore stream is rehandled into a gyratory crusher that also services the open pit.

As mentioned earlier, underground mine development is scheduled for after production from the open pit has started, leading to the projected recovery of 4.2 Mt of ore grading 4.96 g/t Au and 10.32 g/t Ag over the life of the mine.

With a proposed mine production rate of a combined open pit (19,500 tpd), and underground (1,500 tpd) with approximately 104 Mt of material being processed over the life-of-mine at a nominal daily mill throughput of 21,000 tpd (7.67 Mtpa), New Gold’s Rainy River project holds great hope for both the company, and the people ‘North of Superior.’

And, considering the current state of the nation’s economic affairs, the work by New Gold, and the support of its investors, should be congratulated for their continuing faith in the mining industry in Canada. CMJ WWW.CANADIANMININGJOURNAL.COM

2016-02-04 11:03 AM

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10/2/15 2:28 PM 2016-02-04 9:46 AM

An underground look at heavy equipment in action.

ADDING OUNCES KL GOLD’S MERGER WITH ST. ANDREWS GOLDFIELDS GIVES NEW HOPE TO MINERS

By Eastern Correspondent D’Arcy Jenish

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S

MINING in ONTARIO

Aerial view of the Macassa mine site.

F

or most of the last century, residents of Kirkland Lake, Ont. liked to boast that their community was “the town that stands on a mile of gold,” and that was pretty close to the truth.

The skyline near the town was dominated by the headframes of some of the more prolific gold mines in the world--the Lakeshore, the WrightHargreaves, the Teck-Hughes, and the Macassa--that produced more than 50 million ounces of the most precious of metals.

By the end of the 1960s, all of those mines, except the Macassa, had closed. The Macassa produced its last gold in 1998 and as a result, Kirkland Lake’s days as a mining powerhouse appeared to be over.

Municipal politicians even turned to some seemingly outlandish schemes to revive the local economy--like hauling Toronto’s garbage north by rail and burying it abandoned mine shafts, Such ideas came to nothing, and local residents were thankful for that.

In 2001, a junior exploration company called Foxpoint Resources--later re-named Kirkland Lake Gold--acquired five former producers and has since managed to put one of them--the Macassa Mine--back into production.

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Kirkland Lake Gold (KL Gold) is currently producing in excess of 150,000 ounces per year from that underground operation, and has also made a significant new discovery--the South Mine Complex--about a kilometre south of the Macassa.

In mid-January, KL Gold completed a transaction that will significantly enhance its output, its market value, and its mid to long-term prospects.

The company’s shareholders approved a merger with St. Andrew Goldfields, which has resuscitated three historic gold mines in the Timmins area.

And, with that one bold stroke, KL Gold has become a diversified, mid-sized exploration and production company with four operating mines, two mills, and 2016 output that should exceed 260,000 ounces of gold that could go as high as 310,000.

“It makes for a very strong company,” says President and Chief Executive Officer George Ogilvie. “When you combine the two entities, you’re looking at a market capital of $610 to $620 million that will unlock value for both Kirkland Lake and St. Andrew shareholders.”

Along with the Macassa, the company’s other assets in the Kirkland Lake camp include the Wright-Hargreaves, Lakeshore, Teck-Hughes and Kirkland Minerals mines.

To date, KL Gold has only rejuvenated the Macassa. “It had CANADIAN MINING JOURNAL

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Crew vehicle entering portal at the Taylor mine.

just been closed in the late 1990s,” Ogilvie says. “It made the most sense to de-water, and then go in and explore to increase the reserves and resources.”

The company de-watered to the 4,700-foot level and, in late

2003, launched an exploration program that led to the discovery of the South Mine Complex, which begins at about 4,700 feet underground.

Delineation drilling from surface revealed a deposit of 1.5 million ounces at an average grade of 19 grams per tonne, and within that are one million ounces at 22 grams per tonne.

KL Gold is currently mining on four different horizons and to a depth of 5,400 feet in the South Mine Complex. The deposit accounts for 75 per cent of the company’s annual tonnage, with the balance coming from the Macassa, but 80 per cent of the gold produced due to the higher grades, says Ogilvie. And the grades at South Mine have been getting better as the company has drilled deeper.

Over the next two years, the company plans to undertake development work at the 5,600- and 5,700-foot levels and will begin extracting ore from those deeper horizons.

The Macassa and the South Mine Complex are not the end of the story though.

Accurate structural geology interpretation can They are, in fact, just the beginning. The mean the difference between a money pit and a Before you undertake your next mining project, gold mine. company’s portfolio includes the four other let us give you a clear picture of the risks and historic properties and a large land package rewards.

When our team of the world’s best structural geology specialists analyse complex data in the Kirkland Lake camp, and it has only For a snapshot of 17 distinct services to the you get insights that let you make confident, begun to explore more broadly. global mining industry, download our new mining informed decisions. brochure, available at: srk.com “We’ve done some regional drilling off the Macassa property and moving northeast toward Kirkland Minerals and Teck-Hughes,” says Ogilvie. “We completed a nine-hole • • • >1,500 professionals > 50 offices 20 countries 6 continents program in the second half of 2015 and every hole intercepted mineralization at the 5,500

We see an additional 100,000 ounces of gold

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MINING in ONTARIO

to 6,000-foot level.”

The company’s goal is to have a second mine up and operating within the next five to 10 years.

“The only way to do that is to have continued success with the drill bit and to increase the reserves and resources so we can make a business case for a second producing asset,” adds Ogilvie.

At the same time, Ogilvie and his team will be taking over the St. Andrew assets, which includes three producing mines--the Holt, the Holloway, and the Taylor--and a 3000-tonne-per-day mill, that was re-commissioned in 2009.

The St. Andrew portfolio also includes a large land package straddling the Porcupine Destor Fault Zone, and a fourth mine-the Hislop--that has not been put into operation.

The Holt is the largest producer. Its reserves exceed 500,000 ounces. St. Andrew was extracting 70,000 to 80,000 ounces per year, giving the mine a lifespan of five to six years with its current reserves. The Holloway has reserves of only 40,000 ounces, and a mine life of two years, while the Taylor holds 156,000 ounces and was brought into production last October.

The new owners will have to increase the reserves at all three sites and Ogilvie is confident there’s far more gold waiting to be discovered.

“St. Andrew has not had the money to push the capital development and to extend the ore body at Holloway,” he says.

“They’ve been constrained. We see an opportunity over the next 12 to 24 months to move the development ahead, which can be funded through cash flow from operations.”

As for the Taylor mine, Ogilvie says: “The ore body is open across the strike and at depth. It’s got ramp access. Once we push the ramp down farther, we think there’s a definite opportunity to find a continuation of that ore body.”

KL Gold also has to take stock of the St. Andrew land package which extends for 120 kilometres across the Porcupine Dester Fault.

Once that’s done, the company plans to begin drilling the most promising targets. However, the first priority is to increase reserves and resources in the Kirkland Lake camp.

“This year our exploration dollars outside the shadows of the headframes will be invested in Kirkland Lake,” Ogilvie says. “We know that land package extremely well. We’ve had some initial success, and the grades are exceptionally high.

We’re confident we can add ounces to our reserves very, very quickly.” CMJ Below-ground work at Taylor mine.

FEBRUARY/MARCH 2016

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MINING IN ONTARIO

‘Zero harm’ safety remains our core focus

By Chris Hodgson, Ontario Mining Association President

O

ntario’s mining industry is highly diverse, comprising companies big and small that extract and process a wide range of mineral commodities, including gold, nickel, copper, salt, diamonds and a number of industrial minerals. Notwithstanding the differences among the 85 companies represented by the Ontario Mining Association, they have one fundamental thing in common: the safety of workers is their number one priority. By extension, safety is always at the top of the association’s agenda.

In seeking continual improvement of our health and safety performance, Ontario miners have made considerable strides, achieving a 96% improvement in lost-time injury frequency over the past 30 years. This makes Ontario one of the safest mining jurisdictions in the world and mining one of the safest industries in the province.

While the improving LTI trend is a source of pride and encouragement, the fact that injuries and fatalities continue to occur serves as a painful reminder of the work that remains to be done. No fatality is acceptable, and the ultimate goal for any Ontario mining company is to achieve a zero-incident work environment. We firmly believe that any workplace injury is preventable and that every worker has the right to return home safely to their family each night.

To that end, mining companies devote considerable time and resources to promoting an ingrained workplace safety culture. This includes measures such as adopting appropriate systems and policies, training employees, engaging in risk assessment, measuring performance, rewarding achievement and adopting best practices from around the world.

OMA members recognize that mining involves significant health and safety challenges as it is carried out in demanding environments with many unique hazards that must be mitigated. For OMA members, a strong safety record is a critical driver in becoming employers of choice, and enhancing partnerships with

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host governments and communities.

The Ministry of Labour-led Mining Health, Safety and Prevention Review enabled exemplary collaboration among labour, safety agencies and employers, resulting in 18 recommendations that will undoubtedly bring us closer to our shared goal of zero harm in the workplace. Led by George Gritziotis, Ontario’s Chief Prevention Officer, the mining review brought together outstanding expertise in mining health and safety: Fergus Kerr as Employer Vice Chair and John Perquin as Labour Vice Chair; Mike Bond and Roger Emdin as representatives of the Mining Legislative Review Committee; Candys BallangerMichaud of Workplace Safety North and Dr. Cameron Mustard of the Institute for Work & Health; and Wendy Fram from Mines Inquiry Needs Everyone’s Support as an Observer to the Advisory Group. Through our representatives, the OMA was pleased to contribute to the work of the Advisory Group, as well as the six working groups, each of which had worker and employer representation.

The Chief Prevention Officer’s final report focuses on areas such as risk assessment, water management, enhancing ground control protection, managing hazards, emergency response, and developing an Internal Responsibility System best practice guideline – outlining measures that can be implemented in the short term, as well as innovative practices that will guide us in the future.

We wholeheartedly support the report’s recommendations and believe that they will benefit not just Ontario miners, but also other sectors in our economy, while building upon the safety expertise that we can offer to other jurisdictions.

As the recommendations are implemented, we will continue to make safety an urgent priority every day, keeping workplaces focused on staying safe and healthy through teamwork and leadership. The ‘zero harm’ safety vision remains our core focus in 2016 and beyond. CMJ CANADIAN MINING JOURNAL

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MOVING ON but NOT OUT Goldcorp plans to close one mine, but work on another Goldcorp’s Borden Gold site in Chapleau, about 160km west of its Dome Mine in Timmins.

“W

hen one door closes, another opens” is exactly what Goldcorp believes after announcing that it will close its century-old Dome Mine near Timmins later this year, but will continue to move forward with its Borden Lake South property near Chapleau, Ontario.

The new gold property, located about 160km west of the Dome Mine, is considered by many as one of Canada’s more promising new discoveries with an indicated resource of 9.3 million tonnes at 5.39 g/t Au and an inferred resources of 3.0 million tonnes grading 4.27 g/t Au .

Respectively, the resources contain 1.6 million oz and 400,000 oz of gold.

The property is comprised of 70km of contiguous claims with deposits remaining open along strike and at depth.

The Borden Gold Project is a high-quality deposit that is mineable through conventional underground mining methods.

And, because of its close proximity to Goldcorp’s Timmins operations, that includes a large milling facility at the Dome site, transporting ore from Borden Lake South should help reduce capital costs and permitting requirements compared to a standalone development in Chapleau. CMJ

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The

STARS will

rt* o p e R l a Speci

SHINE AGAIN

“A market that’s down by 90 per cent is exactly 90 per cent more attractive than it was before.”

— Rick Rule, Sprott Global Resource Investments, Ltd. Toronto.

D

uring the first 10 years of the new millennium, the commodity sector rode the rapids of one of the greatest bull markets ever. Gold, silver, oil, copper, and more all set enormous record highs.

Along with those highs, came a frenzy of activity as huge resource companies went on an acquisition spree to bulk up their portfolios of high priced assets. Mid-tier and small resource companies scrambled to gather up and advance projects that demonstrated new economic potential based on rising commodity price levels.

During 2011, however, it became evident that the good times could not last forever. As metal prices began to level off and drift down, mining companies saw their profit expectations reverse and their market value begin to evaporate. What were once high valued assets were being written off and large scale projects were halted. Share performance and market capitalization for the world’s largest miners began to slide and it has been calculated that these major mining companies, which include such names as Glencore, BHP Billiton, Anglo American, Exxon Mobil and Barrick Gold, have collectively lost approximately $1 trillion CDN in equity value over the last 5 years.

In relative terms, the backlash on the Junior Resource sector was even worse. The collective market value of the 1,200 metals, mining and exploration companies on the TSX Venture Exchange fell from a peak of over $45 billion in early 2011 to its current level of $8 billion - a staggering 82%. If you remove the top 100 companies, that number approaches 90%.

“The current metals and mining market is crushed,” said Michael White, President and Chief Executive Officer of IBK Capital Corp., an independent and privately owned investment banking firm based in Toronto. “As in 2000, however, we are once again looking at a very attractive entry point for investment.”

“For example,” says White, “you can buy stock in a non-producing gold resource company with quality assets for $2 to $3 per ounce of gold resource in the ground. The average paid by companies in the last eight years to buy these types of ounces is

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just over $40 per ounce and can be higher than $100 per ounce.

Undoubtedly, values will eventually return to those levels as we come out of this cycle, but investors must do their homework before stepping in.”

The challenge stems from the care required to identify those companies that will be able to advance during these difficult times and position themselves properly to skyrocket when values return. White identifies three key variables.

Assets First and foremost, does the asset make sense in the existing economic climate? If it is a producing mine or if it is in development, can it be profitable at current commodity prices? With uncertainty as to when the resource sector may turn around, it is important to ensure that the company can operate or even thrive within today’s economic reality.

In the case of an exploration asset, that assessment is even more difficult. In a market where well defined assets have lost most of their value, an exploration opportunity can be a very high risk proposition. “The right exploration assets, however, can also provide some of the greatest opportunity”, says White, “but they must have the potential to be world class deposits and must have the ability to continue funding exploration, even a modest level”.

“If the economics work today, they will be spectacular in better markets”.

People The quality of an asset alone, does not create an opportunity. It requires the right set of skills and expertise to deliver on a quality value proposition. Have they built mines before, have they worked in the target jurisdiction before, have they made real discoveries in their past, do they have the flexibility and ingenuity to adapt to a changing environment?

“We won’t make an investment without the confidence that there is a first class team we can rely on. It is the single most important factor we look to”, says White.

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ECONOMIC FORECAST

TSX-V Mining/Resource Companies Total Market Value

(000,000s) $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0

2011

2012

2013

Strategy “You need to avoid companies with no business plan. Doing nothing until the bull market returns is not acceptable”.

Companies should be able to demonstrate sustainable cash flows or a logical path to cash flows. In the case of exploration they need to have a clear plan and funding strategy possibly through strong joint venture partners or solid long term investors.

More aggressive companies are looking for opportunities to pick up additional assets during this time of low prices. Such companies will come out of this cycle looking very different than they do today.

Two examples that tick all of the boxes are Toronto-based Minera Alamos Inc. developing their copper project in Mexico and Vancouver’s TriMetals Mining Inc. with their gold-silver exploration project in Nevada/Utah, USA. The team at Minera Alamos has been building and operating mines together in Mexico for over 10 years. When the markets began tightening up, the team made three key changes to their project plans. They started by re-designing the size of their operations reducing their construction costs to between $8-10 million, or about 10% of their original plan. Second, they defined a high grade starter pit within their already high grade resource, taking the grade of the rock from approximately 1% copper equivalent grade to closer to 2% copper equivalent grade Finally, they evaluated the use of sensor based ore sorting in their process. By using an x-ray transmission (XRT) sorter to pre-concentrate the ore, they hope to double the grade to about 4% copper prior to mill processing.

“In the end, we hope to make a small mine deliver cash flows like a medium sized mine, all for a fraction of the original price.

The economics are quite spectacular,” says CEO Chris Frostad.

“And investors appreciate the new approach. On the back of this new plan the company was able to raise $3.5 million. We are FEBRUARY/MARCH 2016

Hudes Financial.indd 33

2014

2015

now quickly looking for additional projects to fill out our Mexican portfolio” TriMetals is another junior resource company positioned well for these times. Through careful advancement, and the backing and support of a strong shareholder base, they have been able to demonstrate the potential of defining a 3-5 million ounce gold resource.

Discoveries exceeding 3 million ounces of gold are rare, and on average, over the last 10 years, there have only been one per year.

This compares to five per year over the 10 years prior to that.

The TriMetals team has defined close to 1 million ounces of gold now and can show that they have only touched the surface of the area’s potential size.

Mike White believes that “Tremendous money will be made by those who purchase good quality metals assets here at the bottom of the cycle and we believe, because prices are so cheap, shares in these companies will concentrate in relatively few hands. That is to say, as we emerge from this cycle, share floats will be tight, producing conditions that could see these junior stocks gap up in steps. Those early gains will be breathtaking – a 5 cent stock will move to 50 cents seemingly overnight. The next step could be to $1.00. We want to be an owner before the five times lift to ultimately see 10 times rather than buying later for a two times lift.”

“Moreover, not all junior mining stocks will move together.

Some companies will benefit earlier than others. You want to be an owner in companies that take advantage of a disconnected market to grow by acquisition. It is happening now and some of these companies will become the rising stars of tomorrow.” CMJ *Information for this article provided by Michael White, President and Chief Executive Officer, IBK Capital Corp., Toronto.

CANADIAN MINING JOURNAL

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IN MY MINE(D) BOOK REVIEW

ONTARIO

GOLD AND MORE

THE METALLOGENY OF LODE GOLD DEPOSITS; A SYNGENETIC PERSPECTIVE, is a comprehensive study of gold deposits: including field studies; geochemistry, and structural overprinting with many examples of Canadian lode gold deposits.

T

he book mentioned here is designed to provide geologists with the tools to develop comprehensive exploration and prospect evaluation approaches and help ensure that all important facets of geology are

included.

This book is the product of a century’s worth of experience by two Canadian exploration geologists. The late Ulrich Kretschmar saw the first clues in the conformable nature of the quartz veins in the shore line rocks of Eastern Nova Scotia in the 1970s.

Derek McBride’s 1975 mapping of the nearby Ecum Secum map area defined a distinct section of the Meguma Group which contained all the gold prospects. This host stratigraphic section could be differentiated by the presence of disseminated ankerite and 1-4cm pyrite crystals.

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InMyMind.indd 34

Later work by both authors in the Beardmore-Geraldton Greenstone Belt of Ontario demonstrated similar relationships between gold mineralization.

Kretschmar worked on conformable “vein” systems establishing the relationships with the host rocks and identifying a “gold cycle.” He has demonstrated that lamprophyres were later and cross-cutting, and bore no relationship to the formation of the gold mineralization.

He stressed the field relationships and used his doctoral experience in geochemistry from the University of Toronto under Dr. S. D. Scott to show that ocean-floor vent systems could produce the conformable gold mineralization.

McBride added the detailed structural deformation of the deposits with their host rocks. He had the advantage of many years’ experience in structural analysis of mineral deposits followWWW.CANADIANMININGJOURNAL.COM

2016-02-04 11:05 AM

ing his 1976 doctoral study on the structural and stratigraphy of the Heath Steele Mines volcanogenic massive sulphide deposits.

In this study, he demonstrated that the mineralization was syngenetic and was deformed the same as the surrounding host rocks without any suggestion of selective remobilization.

Kretschmar continued to investigate the settings of gold deposits and had developed what he called “a gold cycle;” this idea permitted one to determine the facing direction of a rock sequence from vein information.

Meanwhile, McBride gained experience in evaluating mines by field and underground analysis. His study of the Northern Empire Mine produced a model for syngenetic gold deposition in a greenstone belt and developed guidelines for selecting target areas in under explored greenstone belts.

His application of this model, lead to the 1988 discovery of the Nugget Pond Gold Mine in the Betts Cove Ophiolite Complex on the Baie Verte Peninsula of Newfoundland.

Kretschmar presented his views many times over the years and decided to present them as a book.

Unfortunately, Kretschmar passed away suddenly in December 2014. McBride was asked by Elsevier to complete Kretschmar’s work.

The final product is a book that encompasses all aspects of gold deposit formation and subsequent deformation.

Deposition is discussed on terms of gold and silica geochemistry, plus the observations of ocean-floor geothermal systems including the presence of carbon (graphite) found in many lode gold deposits.

Overprinted on these systems is the history of structural deformation. Evidence is presented that shows the lode gold deposits were deformed by the initial regional deformation that produced the present steep dips.

The evidence also shows that the “shear zones,” if present, are later structures that deform the deposits and regional deformation. Examples are presented that show that remobilization of gold or other metals does not occur in significant amounts during the burial or deforming events.

Finally, numerous examples from the authors’ work and the literature show that these lode gold deposits are parallel to the bedding in the rocks, show the effects of regional deformation, and have a strong commonality with volcanogenic massive sulphide deposits.

Thus, the syngenetic model can equally be applied to gold exploration. The discovery of the Nugget Pond deposit resulted from target area selection and exploration techniques of this model.

The authors’ hope is that their colleagues will find this study beneficial. Contact Derek McBride at: dmcbgms5@yahoo.com CMJ

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CSR MINING IN MY& MINE(D)

Human Rights violations can hurt a company’s reputation

By Michael Torrance

H

uman rights violations related to labour standards (including minimum wage, safety, and health standards), contracted security, environmental conditions at work, and forced resettlement can be very damaging to the reputation of any business.

Supply chain human rights issues are becoming a focal point of increased legislation and legal risks likely to affect the Canadian mining industry, requiring effective management and due diligence to manage such issues as part of broader enterprise risk.

An important driver of these developments was the unanimous endorsement of the UN Guiding Principles on Business and Human Rights (the “Guiding Principles”) by UN Human Rights Council. Of importance to the Canadian mining sector, the Guiding Principles have been endorsed by the Canadian Government in the CSR Strategy for the Extractive Sector.

Supply chain human rights risk are manifesting in a variety of forms previously unseen. In 2015 a number of shareholder resolutions were filed in Canada demanding companies conduct human rights assessments in relation to their supply chains.

These resolutions challenged the practices of companies in managing human rights issues in their supply chain, and/or sought to have the companies undertake enhanced due diligence to manage such issues. These resolutions were advanced by activist investors, and sometimes backed by large sovereign wealth funds that pursue a mandate of “ethical investing”.

Governments are enacting legislation aimed at improving corporate behavior in the context of human rights by requiring reporting, disclosure, and other measures. In the United States, the Dodd Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”) introduced reporting requirements that relate to human rights impacts, including in relation to conflict minerals in the Democratic Republic of Congo. The California Supply Chains Act 2010, more broadly, requires large retailers and manufacturers doing business in the state with more than US$100 million in annual worldwide gross receipts to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods offered for sale.

The recently passed UK Modern Slavery Act 2015 requires certain businesses with an annual global turnover of £36 million or more, to publish an annual slavery and human trafficking statement setting out the steps they have taken to ensure that slavery and human trafficking are not present in their own business or their supply chain.

North American Courts have also seen recent cases where alleged human rights violations in supply chains have formed the 36 |

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CANADIAN MINING JOURNAL

basis of a law suit. In January of 2016 the US Supreme Court, overturning a lower court, allowed a claim to proceed alleging child and forced labour on cocoa plantations in West Africa, affecting the Defendants’ supply chain. A company was recently sued under the California Supply Chains Act 2010 regarding allegations of slave labour used in its seafood supply chain, allegedly contradicting public statements of the company. In Canada, a recent class action against a major retailer has been launched by Bangladeshi garment workers who had been employed by the defendants’ subcontractor, regarding the collapse of the Rana Plaza building in 2013 which killed 1,130 workers. These cases, and others like them, highlight the legal risks associated with management of human rights in corporate supply chains. Analogous cases brought against Canadian mining companies form the legal basis for this new class action.

The question becomes, what can Canadian mining companies do to address these issues? Canadian mining companies may have a dual role, as a manager of a supply chain, and as a supplier to other businesses. Human rights management will be relevant in either case. The first step in implementing a human rights due diligence procedure is to develop a human rights policy statement for the prevention and mitigation of human rights violations. A policy should be communicated to suppliers and other affected stakeholders and should specifically address supply chain operations. Companies should also develop supplier codes of conduct that address key components of human rights due diligence in the supply chain. Integration of the human rights commitment through internal functions and oversight is critical to ensuring effective due diligence. Mapping the supply chain and assessing potential and existing human rights impacts can be an important process. This can allow the company to prioritize impacts and suppliers based on the human rights risk to affected stakeholders.

Where possible, companies may establish mechanisms to provide adequate leverage for managing and addressing negative human rights impacts in their own supply chains, including contractual protections and certification requirements. Companies may also develop a grievance mechanism for stakeholders to lodge a complaint, to allow the company to identify otherwise unknown negative impacts in the supply chain and track performance.

Where commitments are made to apply these standards, it is also critical that they be actually implemented. Gaps between what has been committed to an actually done, can create additional risks resulting from inadequate management. CMJ MICHAEL TORRANCE is a lawyer in Northern Rose Fulbright’s Toronto office.

WWW.CANADIANMININGJOURNAL.COM

2016-02-04 11:06 AM

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UNEARTHING TRENDS

It’s time to innovate

By Scott Murray

F

undamentally, the traditional mining model of maximizing volumes at the expense of productivity during the good times countered with short-term, deep cost cutting during the bad times remains the norm. But the gradual process and technology improvements that happen during those cycles aren’t enough to remain competitive.

The industry is facing real challenges attracting capital as value creation is eroded by declining productivity, increasing regulations, social license, and safety challenges. Companies must work together to spark true large-scale disruptive innovation to realize sustainable growth.

Investment in innovation lacking

In a recent EY survey of innovation in Canada, 87 per cent of mining respondents noted that innovation was important to the growth agenda in the next 2-4 years. Despite this, 34 per cent of mining organizations have no innovation strategy; 56 per cent don’t have a senior leader accountable for innovation; and 66 per cent have no defined, or partially defined, but not implemented innovation process.

Investment in mining innovation remains low compared to other industries. The 2015 EU Industrial R&D Investment Scoreboard showed the top 10 Miners invested 1/8th in R&D compared to the top 10 Oil and Gas companies. While mining’s R&D as a percentage of net sales was marginally more than oil and gas companies, at the end of the day, real investment brings innovation results, and mining has to catch up. This is reflected in EY’s survey, where 89 per cent of mining respondents report spending less than 5 per cent of their operating budget on innovation, while 69 per cent said they don’t have a separate innovation budget.

innovation, and the industry needs to collaborate to address global mining challenges.

Innovation does not simply happen. Like any asset or infrastructure, it requires the necessary funding to allow it to happen – and a thoughtful and systematic effort to execute and measure.

Where to start

There are three key steps to activating innovation: Develop a 90-day plan: Getting started may appear to be the hardest step. But it’s not. A manageable innovation strategy starts with a basic 90-day plan. Assign an innovation leader.

Outline some goals linked to overall company strategy.

Establish a framework for open innovation: In this era of open innovation, companies recognize that the best ideas do not always originate inside the organization. The industry must consider pooling talent and spreading both the investment requirements and associated risk across many players.

Develop collaboration channels: Collaboration can be as simple as reaching out to competitors, academia and government and starting a dialogue about how to sustain and grow this industry – for the long term.

The time to act is now--- real, sustainable and meaningful change will be driven by large-scale disruptive innovation. The companies that bring about this change will be best positioned to be the leading mining companies of tomorrow. CMJ Scott Murray, is Manager, Performance Improvement Strategy with EY’s Mining & Metals practice in Vancouver.

Taking the lead from other industries

Another area where there seems to be a discrepancy is social license to operate. It’s listed in the top three mining risks, and in the past two years significant environmental events have occurred, yet companies admit the environmental piece is not a major reason for innovation. Mining needs to take the lead of the oil and gas industry and look at environmental innovation as an opportunity and a long term way to reduce costs.

Without a strategy and capability of innovation at the individual company level, it is unlikely industry collaboration will succeed. Companies need to develop a strategic focus around 38 |

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