Fortune advances two projects in tandem

Fortune Minerals Ltd. is advancing two mineral projects involving three different jurisdictions of Canada and doing much of it with the same timeframe.

On the heels of development of its Nico gold-cobalt-bismuth-copper project in Northwest Territories, Fortune is also targeting commercial production at the Arctos Anthracite Project, formerly Mount Klappan Anthracite Coal Project, in Northwest British Columbia within the next four years.

Management is shooting for the last half of 2015 and the first quarter of 2016 for commissioning a vertically integrated 4,650 metric-tons-per-day open-pit and underground mine and mill at the Nico deposit in Northwest Territories, along with a refinery in Saskatchewan to process the mine's concentrates into high-value metal products. The junior is also eyeing the last half of 2016 for commissioning an initial 3 million metric-tons-per-year open-pit mine at the Arctos project.

"This is indeed a major challenge for a smaller company because we are actually advancing environmental assessments in each of the Northwest Territories and Saskatchewan for our Nico gold-cobalt-bismuth-copper project as well as British Columbia for the Arctos anthracite metallurgical coal project," Fortune President and CEO Robin Goad told Mining News Feb. 19.

"Both projects are on a similar development schedule and need access to significant capital. That is why we plan to develop both projects with strategic partners who wish to gain access to our unique commodities providing both financing as well as a ready market for our products. The most successful mining companies historically, the ones delivering the best returns to shareholders, have actually been diversified," Goad explained.

"Although many investment bankers would like to see us split the company into two different entities, our shareholders benefit from our diversification because of the volatility in the prices of different commodities that are not typically synchronous, plus they gain exposure to the project they did not target their investment in - essentially for free.

That has some attraction in a weak capital market such as we are experiencing today.

We are confident that with the team we have in place, two development projects in Canada - a highly attractive attribute, and our financing strategy, which minimizes dilution from excessive equity offerings, our company is a very attractive investment opportunity," he added.

Fortune recently reported progress at both projects, including a significant permitting milestone for the Nico project.

Progress at Nico

Nico is an iron oxide-copper-gold deposit, commonly referred to as Olympic Dam-type after the dominant "super giant" deposit discovered in South Australia that defines this class. Ore at Nico is hosted in three, 40-50 degree dipping stratabound lenses of brecciated ironstone up to 1.3 kilometers (.81 mile) in length, 550 meters in width and with individual lenses up to 70 meters in true thickness. The recoverable metals are associated with the approximate 5 percent sulphide fraction consisting primarily of cobaltian arsenopyrite, cobaltite, bismuthinite, chalcopyrite, pyrite and pyrrhotite, as well as native gold and native bismuth.

Nico is planned to be a reliable Canadian producer of gold doré, 99.8 percent cobalt cathode and/or 20.9 percent cobalt sulphate, 99.9 percent bismuth ingot and a copper metal precipitate. With 33 million metric tons of proven and probable mineral reserves containing some 1.1 million ounces of gold, 82 million pounds of cobalt, 102 million pounds of bismuth and 27 million pounds of copper, the proposed Nico mine could sustain operations for 20 years at the planned production rate of 4,650 tpd.

Notably, cobalt has growing consumption in super-alloys and chemicals needed to manufacture high-performance lithium-ion and nickel-metal hydride rechargeable batteries used in portable electronic devices and hybrid-electric cars.

Nico contains about 15 percent of global bismuth reserves, demand for which is growing as an environmentally safe and non-toxic replacement for lead in a number of important metal alloys, industrial materials and specialized products that require its unique physical and chemical properties.

The roughly 1.1 million ounces of gold contained in the Nico deposit represent a counter-cyclical hedge to the deposit's other metals that could sustain operations during periods of metal price volatility.

The high concentration ratio of Nico ores would allow its daily throughput to be reduced to 180 metric tons of concentrate containing the valuable metals. The concentrate would be trucked to the rail head at Hay River, NT for delivery by rail to Fortune's planned Saskatchewan Metals Processing Plant for further processing to high-value metal products.

Fortune intends to mine Nico primarily by open pit methods with underground ores contributing 22 percent of the mill feed during the second year of operations. The open pit part of the mine will be a conventional truck and shovel/loader operation, accomplished in four phases at an average waste-to-ore strip ratio of 3.0:1. The underground portion of the mine will be mined by retreat blast-hole open stoping using a contractor and provides access to gold-rich, higher grade ores.

The company also has acquired buildings and equipment from the Golden Giant Mine at Hemlo, Ont., which have been dismantled, moved, and stored for relocation to Nico.

More than C$100 million of work has been invested in the Nico project to delineate and engineer the deposit and reduce risks associated with its development. This includes C$20 million in underground test mining verifying the geometry and grade of the deposit conducted in 2006 and 2007, plus more than C$12 million in metallurgical test work and pilot plants to confirm the process flow sheet, verify production of products, and improve metal recoveries.

Metal recoveries verified in the pilot plants indicate an average range of 73.7 percent for gold, 84 percent for cobalt, 72 percent for bismuth and 41 percent for copper.

Permitting milestone

Nico's development crossed a significant milestone in January when the Mackenzie Valley Review Board concluded that a full environmental review of the Nico project will not be necessary and recommended that the venture proceed to the regulatory phase for approvals subject to certain measures outlined in a 174-page report.

The review board is the primary authority responsible for all environmental assessment and review in Northwest Territories. In its "Report of Environmental Assessment and Reasons for Decision" issued Jan. 25, the board said that, "while the Nico project has the potential to cause significant adverse impacts on the environment (including local caribou herds), the measures the Review Board recommended will ensure that no significant adverse impacts will result from the development."

The board further said its recommendation assumes Fortune will implement all of the commitments that the company made during the environmental assessment process as well as the measures it outlined in the report. The board also offered suggestions for Fortune to take into consideration in developing the project.

"This is a landmark decision for Fortune as we have successfully demonstrated to the review board that the Nico project can be constructed, operated and decommissioned without significant impact to the surrounding environment," said Richard Schryer, Ph.D., Fortune's Director of Regulatory and Environmental Affairs. The measures requested by the review board were developed primarily from pre-existing commitments already agreed to by the company during the EA. Fortune is confident these measures can be successfully implemented since they were already part of the project development plan."

Schryer said examples of the measures include developing a "Wildlife Effects Monitoring Program" and a "Wildlife and Wildlife Habitat Protection Plan," and the signing of a socio-economic agreement with the Government of the Northwest Territories, which are standard practices for mines in the northern territory. One measure was directed to the territorial and Tlicho governments, requiring them to establish and co-chair, at their own expense, an expert working group to develop a response framework for managing cumulative impacts.

The report and recommendations have been submitted to the minister of Aboriginal Affairs and Northern Development Canada for approval and signature, and to the Tlicho Government. Upon acceptance of the report by the AANDC minister and the Tlicho Government, the Nico project can progress to licensing and permitting of the project. The proposed mine is located 50 kilometers (31 miles) north of the Tlicho community of Whati and 160 kilometers (99 miles) northwest of the City of Yellowknife.

Upon acceptance of the report by the AANDC and the Tlicho Government, the project will proceed to the regulatory approvals phase with the Wek'èezhìi Land and Water Board and other parties to develop water license and land use permits.

Fortune said in a statement Jan. 28 that it has already begun preparations for this final stage of the permitting process and fully expects to progress in an efficient manner given the positive foundation already built during the EA process. The company is also advancing discussions with the Tlicho Government toward completing agreements on the Nico development.

Refinery site secured

Fortune, meanwhile, has completed the purchase of lands near Saskatoon, Sask., on which it proposes to build the metals processing plant for the Nico gold-cobalt-bismuth-copper project. Rezoning of the 482-acre property is underway as the company nears completion of the permitting process in both the Northwest Territories and Saskatchewan.

The processing plant location in the Rural Municipality of Corman Park, 27 kilometers (about 17 miles) northwest of Saskatoon, straddles the CN main rail line and is near the Trans-Canada Highway.

The site has access to nearby natural gas and re-agent sources for processing as well as a skilled labor pool of engineers and refinery workers.

The plant is expected to employ at least 85 employees over a 20-year period based on the anticipated life of the Nico deposit.

The plant also provides Fortune with an opportunity to source materials from other projects for custom processing and the potential to participate in the metals recycling business that could extend the useful life of the facility well beyond Nico's mine life.

The Nico project has been assessed in a positive front-end engineering and design study led by Jacobs Minerals Canada Inc. and other engineering companies, meaning that about 30 percent of detailed engineering is complete and sufficient for procurement.

The 2012 FEED study determined the capital cost for the Nico project will total C$441 million for the first 2 years of the project, including all direct and indirect costs and contingencies. Of this sum, the refinery will require C$230 million in capital to construct.

The study also estimated the project's pre-tax net present value (7 percent discount) at C$309 million and its cobalt cash cost net of by-product credits of negative US81 cents (base case) to negative US$1.07 per pound (current price case).

Concurrent with the permitting process, Fortune has been working with Deloitte & Touche Corporate Finance Canada to attract one or more strategic partners to provide the project financing for the Nico project. As a potential Canadian-based producer of cobalt and bismuth, Nico presents an attractive opportunity for prospective partners to secure a reliable supply of these metals with a highly liquid gold co-product. Discussions are ongoing with several parties interested in participating in joint venture development of the project.

Fortune hopes to complete engineering and procurement work for the Nico project in 2013 in preparation for the start of about 20 months of construction in early 2014.

Positive outlook at Arctos

At the Arctos project, Fortune and its 20 percent partner Posco Canada Ltd. are currently working on regulatory requirements for the undertaking.

One of the world's premier metallurgical coal projects and the only known significant Canadian deposit of anthracite - a key ingredient in steel and metal processing - Arctos has an enviable strategic position thanks to supply shortages of metallurgical coals and growing world consumption.

The Arctos project consists of 16,411 hectares (40,552 acres) of coal exploration licenses located some 330 kilometers (205 miles) northeast of Prince Rupert, B.C. and 150 kilometers (93 miles) from Stewart, B.C. The licenses straddle the BC Railway right-of-way and largely completed rail bed, 150 kilometers (93 miles) north of the current terminus of track at Minaret where the Canadian National Railway Ltd. is currently operating.

Arctos has four resource areas - Lost Fox, Hobbit-Broatch, Summit and Lost Fox Extension - that contain measured and indicated resources of 231 million metric tons and inferred resources of 359 million metric tons. In addition, the property hosts a historical "Speculative Resource" estimate of 2.2 billion metric tons that is non-NI 43-101 compliant but indicates the world-class mineral potential of the project.

Earlier work conducted at Arctos by Fortune, PosCan and previous owner Gulf Canada Resources Ltd. prior to its takeover by ConocoPhillips in 2002 included test mining 200,000 metric tons of run-of-mine coal from two of the deposits and pilot plant processing to produce 100,000 metric tons of clean-coal products for trial cargos to customers in North America, Asia and Europe. Nearly C$100 million has been invested in the project so far.

Posco Canada is a subsidiary of Korea's POSCO, one of the world's largest steel producers. PosCan acquired its interest in the Arctos project in 2011 by paying C$30 million to Fortune, C$20 million of which was contributed to the joint venture to fund future work on the property. PosCan is responsible for funding 20 percent of the capital and operating costs for the project and will receive 20 percent of the coal produced at Arctos in-kind. Fortune anticipates PosCan to make initial contributions of C$188 million.

Future low-cost producer

In October, Arctos Anthracite Joint Venture updated a positive definitive feasibility study that envisions initial production of 3 million million metric tons per year from an open pit mine with a wash plant and site infrastructure at the Lost Fox deposit with a 25 year-plus mine life. The Lost Fox deposit contains run-of-mine reserves of 125 million metric tons that can be washed to a 10 percent ash pulverized coal injection product used for steel making. The deposit also remains open for possible expansion and additional coal seams identified below 350 meters and on adjacent lands.

The study calls for initially producing 69.2 million metric tons of premium products at Arctos from a fraction of the project's global resource. Life of mine free-on-board vessel cash cost is expected to average C$127.61 per metric ton (US$121.22/metric ton), while C1 operating cash cost will average C$119.85/t (US$113.86/t) FOB. Fortune says this would place Arctos among the lowest cost metallurgical coal producers in Canada.

In addition a more rapid planned start-up resulted in the project's initial capital costs to achieve commercial production increasing only 2.6 percent from initial capital projections calculated in the previous 2010 definitive feasibility study.

"We are pleased to confirm the Arctos project as a future long-life, low-cost producer of high quality anthracite metallurgical coal and are especially pleased to have confirmed the capital requirements for this project with minimal escalation from the previous study," Fortune President and CEO Robin Goad said when the study was released.

Other highlights of the updated feasibility study include initial capital costs for the first three years of the project totaling C$788.6 million for the mine, surface facilities and railway; sensitivity analysis for expansion of the mine's annual production to 4 million metric tons in year eight which would increase the project's internal rate of return to 17.5 percent and pre-tax 8 percent discounted NPV to C$657.1 million. The study also reflects significant improvements to economics when using higher coal prices and/or incorporating railway contributions from third-party users or government.

Fortune and CN are working together to upgrade the existing railway and extend it to the mine site to enable the transportation of coal to the Ridley Coal Terminal at Prince Rupert for export to the overseas steel industry. The railway road bed was largely constructed to the mine site by the B.C. Government. Some C$330.4 million in capital cost is projected for the upgrade and extension of rail to the mine site along the existing railway right-of-way and road bed in the 2012 definitive feasibility study.

The B.C. government, meanwhile, is extending the province's electrical grid to the area and advancing policies for government-sharing of revenues with Aboriginal groups.

The Arctos project in located within the traditional territories of three such groups, the Tahltan, Gitxsan and Skii km Lax Ha First Nations.

In 2013, the joint venture is proceeding with environmental assessment and community engagement for permitting the proposed open pit mine, wash plant and railway infrastructure. Fortune said the railway expansion is a high priority for both the Arctos joint venture and CN.

The company anticipates completing an environmental impact statement for the project in this fall after finishing required baseline reports and devoting most of 2014 and first half of 2015 to federal and B.C. environmental assessment reviews and the mine permitting process.

With regulatory approval, the Arctos joint venture hopes to begin 18 months of construction in the second quarter of 2015 and a year later, initiate commissioning of a mine for commercial production.