Orca quarry on course to make a killing

When Polaris Minerals developed its plan for the Orca quarry on Vancouver Island, the company expected that the initial market for the sand and gravel would be California, where demand for concrete is apparently insatiable. But by the time the quarry began production in March of this year, Polaris had received a pleasant surprise: a five-year contract with a ready-mix concrete manufacturer in the Vancouver area, a customer that has asked Polaris to keep its identity confidential.

Polaris will ship 400,000 tons of sand and gravel per year by barge to the Vancouver customer, as well as loading up Panamax-class ships with the materials for delivery to California. Vancouver-based Polaris has a 20-year contract with Shamrock Materials that makes Shamrock the exclusive distributor of Polaris products in certain counties in northern California. A second customer in California is also remaining anonymous for now.

Orca's startup was doubly satisfying because it occurred only six weeks later than the original target date and was on budget, despite the 16 storms that battered British Columbia during construction last winter, four of which unleashed hurricane-force winds. Orca is designed to produce 6 million tons of sand and gravel per year and was built in partnership with local First Nations.

"Although 2006 was a very demanding year for all of us and we had to complete a gargantuan workload against strict deadlines and in the face of extreme weather conditions at the Orca quarry, it was a very successful transformation year for Polaris," Marco Romero, the company's president and CEO, said in a year-end results conference call April 11. "While we suffered some construction shutdowns, miraculously we sustained no damage and we were able to complete the job," he added.

Two barges left in March

Two barges destined for the Vancouver customer left Orca March 22, 2007. "The loading went extremely well, especially considering that the facility was not specifically designed for barges, but for the much larger oceangoing ships," Polaris COO Herb Wilson said in the conference call. The first Panamax ship was loaded with 79,000 tons of sand and gravel at the quarry in 27 hours, starting March 31, and it was unloaded in San Francisco on April 5. It will take about six months for the quarry to produce at its optimal rate and for the new workforce to become fully competent operators, according to Wilson.

Once production began, samples of the sand and gravel were sent to laboratories for the process of California state approval for their use in concrete. The results were described by a technical inspector as "extraordinary," Wilson said, and the materials exceed both U.S. and Canadian concrete manufacturing standards. Polaris expects to sign long-term contracts with more customers in the near future, especially since the price of aggregates has been increasing and it is getting harder to find and develop new resources. Despite the high demand for the materials, opposition to quarrying has been intensifying in California recently.

At the Port of Richmond in San Francisco, Polaris owns an aggregates receiving, storage and distribution terminal that is currently under construction and is scheduled for completion in the third quarter of this year. "The complex ground stabilization and piling works were successfully completed early in 2007 and structural foundations are advancing well, with a significant section of the storage building's floor already cast," Wilson said. Mechanical and electrical contractors are set to begin work at Richmond on May 14, he added.

Additional port terminal capacity needed

"In a manner reminiscent of the quarry procurement challenges, we have also had to turn to China for fabrication of the large conveyor structures in order to achieve the required delivery date. The storage building is, however, being fabricated in Spokane, Washington," Wilson explained, in reference to the Richmond terminal. "Securing additional port terminal capacity remains our highest priority and we are making significant efforts in this regard. This represents our biggest challenge and yet our greatest opportunity," Romero said.

The next steps for Polaris will be to develop the Eagle Rock granite quarry and to explore a new target, the Cougar sand and gravel deposit. Both projects are on Vancouver Island. As the company's principal assets were under construction in 2006, there were no operating revenues last year and Polaris incurred a loss of $3.8 million, compared with $3.4 million in 2005.

"Once we repay our bridge debt facility on April 16 we will be entirely debt-free and we'll have very significant financial strength and flexibility to finance our growth," Romero told investors. Polaris did repay the US$31 million debt held by Ingalls and Snyder LLC April 16.

Also on April 16, British Columbia's Minister of State for Mining, Kevin Krueger, presented the 2006 Stewart O'Brian Safety Award to Polaris in Victoria. The award is given annually to operations with the lowest injury frequency rate in the province. The Orca quarry had zero lost-time accidents during its construction while accumulating more than 100,000 worker hours.