Xstrata opposes Formation Capital cobalt project on environmental grounds

Vancouver – Rarely do mining companies make headlines for objecting to a competitor’s mine development based on its potential environmental impact.

But in a strange twist to the saga of Formation Capital‘s (FCO-T, FCACF-O) environmental approval process of its Idaho cobalt project (ICP) – where the company has been able to bring onside environmental groups and First Nations with commitments not to oppose the project – Xstrata (XSRAF-O, XTA-L) has become one of only two objectors to the U.S. Forest Service’s positive record of decision on the project’s environmental impact statement through an ongoing appeal process.

The other appeal came from an individual named Charles Pace.

The dispute is one between neighbours over the potential impact of the ICP on local waterways that has reached the point of Formation Capital alleging Xstrata may be trying to block the development of the ICP to protect the Swiss-based major’s near-monopoly on the global high-purity cobalt market of which Formation Capital says Xstrata controls 85%.

But Xstrata maintains it is only protecting its interests next door to the ICP at the past-producing Blackbird mine – an EPA Superfund site – where, along with a Rio Tinto (RTP-N, RIO-L) subsidiary, it has spent over US$70 million on remediation through three of its wholly owned subsidiaries: Noranda Mining, Noranda Exploration and Blackbird Mining. The Blackbird site also happens to be downstream of the ICP and Xstrata says it doesn’t believe that Formation Capital’s environmental impact statement addresses Xstrata’s concerns that it could end up being on the hook to clean-up potential pollution from the ICP.

The ICP, located 45-km west of Salmon, Idaho, would be an underground mine, with proven and probable reserves of 2.6 million tonnes grading 0.559% cobalt, 0.596% copper and 0.4 gram gold per tonne, and provide ore to Formation Capital’s hydrometallurgical facility 250-km away near Kellog, Idaho, where the company would produce about 1,525 tonnes of high-purity cobalt per year, making them direct competitors to Xstrata.

Dominique Dionne, Xstrata vice-president of corporate affairs in the company’s Toronto-based nickel division, tasked with responding to Formation Capital’s allegations following The Northern Miner‘s inquiries to one of its attorneys in Idaho, says the appeal is not intended to prevent the ICP from proceeding.

“It is intended to protect the money that has been spent, more than US$70 million, by Noranda and others, to remediate the Blackbird mine and the streams in that area,” she says. “The streams and the water quality and the fish populations and the waterways have been re-established, so that’s a done deal. The appeal is really to protect that, in the view of the potential impact of any new development on these waterways.”

But E.R. Honsinger, Formation Capital vice-president corporate communications, suspects Xstrata may have ulterior motives. He notes that the other major stakeholder at Blackbird has not appealed the record of decision and, further, that it and Formation Capital are working out any potential issues through talks.

“I think the environmental record (of decision) speaks for itself,” he says. “We spent a lot of time working on this and there is virtually no environmental opposition to this project because we’ve done everything we can to mitigate any of those concerns.”

He argues Xstrata does not “have any environmental legs to stand on” as regards the issue of potential downstream impacts. Not only have local groups, including the Idaho Conservation League and a First Nation band, agreed not to oppose the mine’s development, Honsinger notes, but the U.S. Forest Service has signed-off affirmatively on its environmental impact statement.

“The only thing we can read between the lines here is that it would appear that through (Xstrata’s) actions that they are (a) either using us as a potential soapbox to try and get out of all of their cleanup responsibilities or (b) they’re trying to corner the market, the cobalt high-purity market.”

Dionne declined to respond to those allegations.

Honsinger, noting current troubles in the Democratic Republic of Congo where Xstrata operates, theorizes that part of the problem in getting a resolution to the dispute may also be that Xstrata “has bigger fish to fry”. But he says: “They should be aware of what’s going on down in this smaller ‘minion here of Salmon, Idaho. And it just doesn’t appear to be the case.”

Back at Xstrata, however, Dionne defends the company’s stance on the ICP. She explains that Xstrata only wants to make sure Formation Capital’s environmental impact statement explicitly addresses potential impacts to the Blackbird property and she says the company is not fundamentally opposed to there being a new cobalt mine next door.

Putting it bluntly she says the ICP’s environmental impact statement as it currently stands would not protect Xstrata and its subsidiaries at Blackbird from potential problems upstream. “The thing is, the way it’s been done now, we would be exposed,” she argues.

Both parties state a desire to resolve the matter through negotiation but Honsinger and Dionne relate discordant accounts as to how much of an effort the companies have made to resolve the cross-fence dispute.

Dionne says there have been several meetings and constant conference calls with Formation Capital. “We’ve been working with them and our only interest is to protect the $70 million that has been spent on this,” she says.

But Dionne’s description of regular contact between the companies incenses Honsinger who stresses that he would like nothing more than to meet and resolve the issue with Xstrata but that Formation Capital’s calls to the Major have gone unanswered. It’s why Formation Capital is making the matter as public as it is, he says.

“Their contact with us has been extremely limited,” Honsinger says, adding, “Their legal counsels’ filing of appeals and so on has been extensive.”

As for the appeals, Kimberley Nelson, the U.S. Forest Service ranger currently overseeing their assessment, says the U.S. Forest service will announce its decision regarding them on April 30 after the regional forester receives her department’s recommendations.

Dionne says Xstrata is seeking meetings with the U.S. Forest Service and the U.S. Environmental Protection Agency (EPA) “to make sure that there will be a distinction between the historical effects of the mining and the new impacts that could take place on the waterways.”

Her understanding at this point is that the meetings have been requested “and we’re waiting on that,” she says.

But, while the U.S. Forest Service considers the appeals, Xstrata’s influence, or Formation Capital’s for that matter, will be limited. “We do not consult with them during the appeal process,” Nelson says.

Thus at this point the resolution ultimately appears to be out of either company’s hands.