Junior chases 'fortune' in minerals?

More junior mining companies than ever appear to be seeking their fortunes in precious metals and gems in the wilds of northwestern Canada these days and more seem to be joining the throng every day.

Still, few of these modern-day explorers are drawn to the Far North by the allure of high-rank coal and metallurgical minerals such as cobalt and bismuth.

But Fortune Minerals of London, Ontario, is one such firm.

Founded in 1988, Fortune Minerals went public a year later. In the 18 years since, the company has gotten lucky more than once. In 1995, it discovered a promising area of mineralization near Yellowknife in the Northwest Territories that with further exploration became the NICO project.

NICO, situated on 12,701 acres (5,140 hectares) about 96 miles northwest of Yellowknife, contains one of the world's largest deposits of bismuth (reserves estimated at 77 million pounds) and reserves of gold estimated at 760,000 ounces and cobalt estimated at 61 million pounds, in an even larger resource.

NICO is 90 percent owned by Fortune Minerals, but the company hopes to acquire the project's remaining 10 percent ownership interest from Fortune's chairman, George Doumet, according to President Robin Goad.

Mount Klappan purchased in 2002

The junior's lucky streak continued in 2002 when it purchased the Mount Klappan anthracite coal deposits in northern British Columbia from a Canadian subsidiary of ConocoPhillips, following the oil major's takeover of Gulf Canada Resources Ltd., which held the coal claims. Fortune now owns 100 percent of the Mount Klappan project, but ConocoPhillips retained a production royalty of C$1 per tonne of product sold.

Today, the junior mining company is rapidly advancing both projects in response to strong world markets for all of the minerals. The projects are currently in permitting on similar tracks to development, with production targeted for 2010, said Goad in an interview April 19.

Fortune also owns a handful of other mineral deposits and a few other exploration projects, in Canada, including the Sue-Dianne copper-silver deposit near the NICO project. Fortune is also managing partner and 30 percent owner of Formosa Environmental Aggregates Ltd., an industrial mineral company that is developing the Greenock high-calcium limestone quarry in Ontario.

About 20 percent of the company's stock is held by management and the remainder primarily by institutional investors in Toronto, Goad said.

Analysts predict big things in Fortune's future, and tout the company's stock as being significantly undervalued.

"Our stock is trading at $100 million (valuation), and results of our bankable feasibility studies suggest valuations of $300 million using base case metal price assumptions to $1 billion at current prices," acknowledged Goad.

NICO's rising star

At the NICO project, Fortune is pursuing development of a combination underground and open pit mine and construction of a process plant to produce gold doré, cobalt cathode and bismuth concentrate.

While gold is arguably the most sought-after commodity in the world, cobalt and bismuth are also highly desirable metals.

Cobalt is a high-strength, magnetic metal increasingly sought for a variety of chemical and metallurgical applications. Currently, the market consumes about 60,000 tonnes a year of cobalt, up roughly 20 percent in the past two years while nearly pure concentrations of the metal sell for about $32 a pound.

Bismuth has very high density and a low melting temperature. It expands upon solidification and is quite inert. Scientifically recognized as one of the safest metals, bismuth is used in pharmaceuticals and medicines and as a lead substitute in solders for plumbing and electronics, brasses, alloys used in hot-dip galvanizing, paint pigments, ammunition, ceramic glazes, radiation shielding and free-cutting steel.

Current yearly global consumption of bismuth is about 12,500 tonnes, and the market, which is constrained by supply, has been growing at about 10-15 percent annually. Bismuth sells for about $15 a pound.

With three such marketable products, NICO is a good bet for achieving production.

Fortune Minerals recently completed a feasibility study for the project and has begun the process of obtaining regulatory permits for the mine's construction and operation. The study was based on the assessment of a combined open pit and underground mine processing 4,000 tonnes of ore per day (1,460,000 tonnes per annum).

Fortune Minerals is busy with a second round of underground bulk sampling and is acquiring the existing Golden Giant Mine (Hemlo) processing facility mill from Ontario.

The company plans to spend $14 million on bulk sampling and pilot test processing this year and another $2 million on permitting and environmental work, Goad said.

Fortune Minerals is also working with a joint effort of the Northwest Territories, Canadian and Tlicho First Nations governments to build a year-round road to three isolated communities and the mining project. The road also will provide easier access for NICO to the Snare hydroelectric complex about 13 miles to the west.

Until now, the three local communities used a winter road to get supplies and to travel to the territories' permanent road system. But milder weather in recent years made the winter road unreliable, Goad said.

Partner needed for B.C. coal project

At Mount Klappan, Fortune has estimated reserves of just over 100 million tonnes with a 2.8 billion tonne resource, making it the largest anthracite coal deposit in North America. The deposit covers nearly 36,000 acres (15,000 hectares) of contiguous coal licenses straddling the B.C. Rail right-of-way and roadbed, 90 miles northeast of the port of Stewart and 200 miles northeast of the port of Prince Rupert. The railway right-of-way currently provides road access to the site from Highway 37.

Goad said that it is noteworthy that Mount Klappan straddles the Dease Lake rail line, which is currently subject to a feasibility study commissioned by the Alaska, Yukon Territory and U.S. federal governments for an extension from northern British Columbia, and extending into the Yukon and Alaska to connect with the Alaska Railroad at Fairbanks.

"This feasibility study is being driven in part by the anticipated announcement of the Alaska gas pipeline and the Yukon's desire to improve infrastructure for resource development," he said. "The study is complete, and is expected to be announced shortly."

Anthracite ranks in the top 1 percent of world coal reserves, making it suitable for premium metallurgical, thermal, water purification and composite materials applications.

The most important new market for Mount Klappan anthracite is pulverized coal injection, a product used to lower costs in the steel industry. Anthracite also can help reduce consumption of coke in steel industry blast furnaces and as charge carbon in electric arc furnaces at mini-steel mills. Other uses include carbon filters for water purification, fuels for space heating, chemicals and composite materials and clean coal electricity generation. Prices currently range between $50 and $250 per tonne.

ConocoPhillips and Gulf spent a total of $65 million on exploration of the Mount Klappan deposit and Fortune another $15 million on extensive test mining and other work. Fortune Minerals would like to attract a major company to assist in bringing the huge coal resource to market.

The company recently augmented an earlier feasibility study for exporting Mount Klappan coal with a second study of using the coal for electricity generation on site. Potential users in northern British Columbia include power-hungry mine projects such as Red Chris, Galore Creek and Kemess North, which are under development.

But recent changes in B.C. regulations for power plants will make such a use for Mount Klappan coal unlikely in the short term, Goad said.

Extracting the coal for export, however, remains a very attractive option, he added.