Major chases Hackett River VMS project

Among the dozen or so companies that are advancing mineral-rich deposits in Nunavut this year, none has more going on inside and outside of the territory this summer than Glencore Xstrata plc.

Xstrata plc, owner of the Hackett River silver-zinc project located in western Nunavut, merged with Glencore International plc in late May to become one of the world's largest mining and trading companies. The US$30 billion deal created a mega-entity that employs nearly 200,000 people in 50 countries around the globe to generate full year revenues of about US$245 billion. The combination is expected to produce near-term savings from operational synergies of US$500 million to US$800 million and untallied additional savings down the road from reductions in capital spending.

Glencore is a global operator in diversified commodities and, in addition to metals (copper and zinc), also trades in energy products such as oil and natural gas. Its agricultural products business manages stockpiles of agricultural products such as grains, sugar and cotton.

Xstrata is more focused on mining and processing metals such as cobalt, zinc, iron and gold. It also has a coking coal operation which mines and processes coal from mines throughout the world. The company is the world's fourth largest mining company and its largest zinc producer,

A 2012 pro forma calculation for a combined Glencore and Xstrata shows that copper accounts for 33 percent of the company's earnings, followed by coal with 25 percent and zinc with 15 percent. Trading in metals contributed 17 percent, while trading in energy and agricultural commodities contributed 5 percent each.

Xstrata reported earnings of about US$1.2 billion in 2012 on US$31 billion in revenues, showing a profit margin less than 4 percent, while Glencore's US$3.1 billion in after-tax earnings showed a profit margin of less than 1.5 percent.

Silver-rich VMS in Nunavut

In Canada, Xstrata employed about 6,000 workers in 2012 at two mines and three plants that produced zinc; one mine and two plants that produced copper and two mines and one plant that produced nickel.

In Nunavut, the company is advancing the Hackett River Project, which hosts silver-rich volcanogenic massive sulphide mineralization on claims covering 10,637 hectares (26,284 acres). The property and the contiguous Wishbone and Musk claims to the south are located in the western region of Nunavut about 625 kilometers (387.5 miles) southwest of the arctic Hamlet of Gjoa Haven.

Xstrata Zinc Canada purchased most of the Hackett River property and certain of the Wishbone claims from Sabina Gold & Silver Corp. in October 2011 for C$50 million, plus a 22.5 percent royalty on the first 190 million ounces silver produced from the properties and a 12.5 percent royalty on all payable silver produced thereafter.

The buyer also agreed to incur not less than C$50 million on exploration and other expenditures on the properties over a four-year period in order to advance them toward production.

As of December 2011, Hackett River contained a potentially mineable resource, including an indicated resource of 43 million tons with 200 million ounces of silver (averaging 144 grams per metric ton) and 2 million metric tons of zinc (4.65 percent) along with an additional inferred resource of 15 million tons with 64 million ounces of silver (136 g/t) and 652,000 tons of zinc (4.46 percent). The project also contains appreciable quantities of copper, lead and gold.

Glencore Xstrata is currently studying development of a proposed 15,000-metric-tons-per-day open pit and underground mining and milling operation at Hackett River. Four open-pit and two underground mines would produce 250,000 metric tons per year of zinc over 15 years, and provide 800 jobs during construction and 500 when operating. The zinc would be shipped out through the Northwest Passage, past Resolute Bay and down the west coast of Baffin Island to Europe.

Substantial progress in 2012

Glencore Xstrata completed major exploration in 2012, engaging five drills to complete 51,548 meters of diamond drilling on mining leases in the northern part the Hackett River property, which is barely explored. The company drilled 203 holes totaling 51,548 meters during a field program that lasted 219 days between February and September.

Of the 43,500 meters of exploration drilling, 24,500 meters were focused on extensions of the Main Zone, East Cleaver, Boot and Jo Deposits in hopes of increasing resources, while 19,000 meters were drilled to test new geophysical and geochemical targets for potential discoveries.

The major also drilled 8,000 meters of geotechnical and metallurgical holes, primarily condemnation drilling in several areas where potential infrastructure or mine workings may be located to support an ongoing prefeasibility study.

In addition, Glencore Xstrata's 2012 campaign included two drill holes, field sampling/mapping work across the nearby Wishbone, Mahna Mahna, Hackett and Claim X properties, some downhole geophysics drilling and airborne surveys flown over some portions of the property.

Glencore Xstrata has said it anticipates completion of the prefeasibility study in June. Meanwhile, the company has mostly completed environmental and socio-economic baseline studies for the project and hopes to complete and submit to regulators a draft environmental impact statement in the third quarter of 2013.

Ambitious exploration in 2013

For 2013 Glencore Xstrata embarked on another advanced exploration program with a similar February-September schedule. The company is spending C$40 million, adding a sixth drill rig and targeting 57,000 meters of diamond drilling. Of the 50,000 meters that has allocated for 2013 exploration, 21,000 meters are being drilled near known deposits, while 29,000 meters will seek deposits in unexplored areas of the property.

The remaining 7,000 meters will be geotechnical drilling to support the pre-feasibility study, pit slope and underground mining and foundations.

Glencore Xstrata also planned to augment the drilling this year at Hackett River with more downhole geophysics using BoreHole ElectroMagnetic technology, and to commission more airborne surveys and surface geophysics as well as mapping and sampling on the property.

In its annual report of mineral resources, the company May 3 reported an updated resource estimate for the Hackett River project that reflects a 34 percent increase in all categories. Measured-and-indicated resources at the project climbed to 25 million metric tons grading 4.2 percent zinc and 130 g/t silver, while inferred resources rose to 57 million metric tons grading 3 percent zinc and 100 g/t silver. This brings the project's measured-and-indicated silver resources to 105 million ounces silver, with another 183 million ounces in the inferred category.

"The Hackett royalty is a significant asset to Sabina," said Sabina President and CEO Rob Pease. "We are very encouraged by Xstrata's progress on the project and their current activities. The more work done to de-risk and advance the project, the more the value of the royalty should materialize for our shareholders."

Port and road access

Glencore Xstrata's tentative timeline for the project calls for development and construction of a mine between 2015 and 2018. A major hurdle to forward momentum, however, is the project's remote location. The Hackett River project site has no road access, but it is located about 80 kilometers (50 miles) west of a potential deep-water port on the shore of Bathurst Inlet.

The company is currently evaluating the potential for year-round shipping from Bathurst Inlet. Glencore Xstrata and neighbor Sabina, which is advancing the Back River gold project located about 70 kilometers (43 miles) to the south, recently submitted a new "Baffin Inlet Port and Road" project proposal to the Nunavut Impact Review Board with additional details on environmental issues, wildlife protection, marine and road traffic than an earlier version that they asked the regulator to consider in December.

BIPR, formerly known as BIPAR, is not a new project. Mining companies and others in Northwest Territories and Nunavut have much of spent the past decade studying and promoting the development of a port about 40 kilometers (25 miles) south of the Hamlet of Bathurst Inlet. The proposal was previously advanced through the environmental approvals process a few years ago by a 50/50 joint venture between regional contractor Nuna Logistics Ltd. and Kitikmeot Corp., a birthright corporation, owned by the Inuit of the western Kitikmeot Region of Nunavut.

The latest proposal, submitted by the BIPR Company, the 50-50 joint venture formed by Glencore Xstrata and Sabina - calls for construction of a deep-water port in Bathurst Inlet with connecting roads to the Hackett River project site and to the Back River project site, as well as a future connection to the existing ice road which services the Ekati and Diavik mines from Yellowknife, Northwest Territories.

BIPR's first stage - which could start as early as 2015 - would see the construction of a wharf to serve specially-designed 50,000-metric-ton polar class 2 (about 200 meters in length) vessels), which would deliver fuel and bulk cargo and general supplies to the port, and eventually serve to transport zinc concentrate to Europe.

BIPR also would include a dock to handle barges serving communities in the Kitikmeot Region, a 200-person camp and services, a 220-million-liter diesel fuel tank farm, a 40-megawatt power plant (capable of producing four times more electricity than the power plant or Iqaluit, Nunavut's capital), and a 1,200-meter airstrip and heliport.

The first phase of the project also would include the construction of 10-meter-wide, 83-kilometer (51.5 miles) road, with as many as 27 bridges.

Building on previous proposal

The new proposal will determine the guidelines for the project's future draft environmental impact statement.

But the companies won't have to come up with a new environmental impact statement; instead they supplement an existing draft EIS with more information, Hackett River project manager Denis Hamel told reporters in April.

In May, the Review Board approved the new proposal and the draft environmental impact statement on the project is being prepared for filing with the regulator later this year.

"We are also pleased to have NIRB approval to advance through the permitting process for BIPR. We view the port and road as infrastructure that will serve both industry and the regional communities of Nunavut. We have a good working rapport with what is now the Canadian Zinc division of Glencore Xstrata, and look forward to continuing our mutually beneficial relationship," Pease said.

Representatives of Glencore Xstrata, meanwhile, have been conducting community consultations, and gave a public presentation in Yellowknife May 28.

The biggest issue discussed at the Yellowknife meeting was caribou, according to a report in the NWT & Nunavut Chamber of Mines May 2013 newsletter. The BIPR region is an area that both the Bathurst and Ahiak caribou herds use, and these herds migrate annually from the Northwest Territories to Nunavut and back. Caribou calving grounds are also located "not far away" from the proposed port site.

Port essential to economics

The Chamber also observed that the main Hackett River deposit was actually discovered in 1969, but a lack of transportation infrastructure has been a major factor in it not becoming a mine in all the intervening years.

"We are pleased to see the BIPR Company advancing the port and road project. The region hosts great mineral potential, and the Inuit have selected a significant amount of sub‐surface lands in the region with hopes that they will also benefit from future mining on their lands. We are looking forward to the BIPR Company's good work to advance the project in an environmentally responsible manner, and in a way that provides significant benefits to the North," the Chamber added.

Glencore Xstrata hopes to prepare for pre-construction of the port and road project in 2014.

Glencore Xstrata's Hamel said the partners are also seeking additional partners to offset the project's cost, which earlier proponents estimated at C$270 million.

Though Glencore Xstrata is still years away from a production decision at Hackett River, Hamel said the company wants the port built because it will ensure the economic viability of the proposed mine.

"Shipping year-round is still the best economic choice," he told an audience at the 2013 Nunavut Mining Symposium in Iqaluit in April. Spending money to advance BIPR now seems like a good short-term investment, he added.

That's because, among other things, year-round shipping - at a frequency of one ship a month - will reduce the number of ships at the port site at any given time, which will reduce the footprint of the proposed mine, Hamel said.

He said the ships would take the same path along the shipping route, when possible, to minimize the extent of ice breaking, and the broken ice would be slightly larger than the width of the ship (about 35 meters).

Hamel said the companies also plan to develop accident and spill prevention plans that must be approved by federal and territorial regulators before shipping begins.

He also cited recently developed mines in Nunavik, Quebec and Labrador that have shipped through the winter months without incident.