Perth, Australia — The last couple of years have been stellar ones for
LionOre Mining was formed only six years ago when current Chief Executive Officer Colin Steyn and a group of international business executives teamed up to run their own mining show. Needing a financing vehicle, the group quickly found a Canadian shell company called Liberian Iron Ore with some $3 million in the kitty. Investing $30 million into the company, the group farmed in a 41.65% stake in the Tati nickel project in Botswana and changed the company’s name to LionOre Mining International. The junior’s flagship project hosts both underground and open-pit nickel mines that are run in partnership with mining giant
With a launching pad in place, the fledgling company’s next move came as Australian-listed Forrestania Gold started knocking on doors, looking for funds to acquire outright ownership of a Western Australian gold mine, Bounty, of which it already owned 38%. Not really interested in the high-cost Bounty operation but recognizing that the Aussie company held promising nickel ground, LionOre Mining pounced on the opportunity by taking an equity stake in the Australian company. Busy in Botswana, LionOre Mining retained well-seasoned mining man Mark Ashley to run the day-to-day operations of the Aussie subsidiary, while
“A few years ago we were just like most other juniors, struggling to find capital,” says Ashley. “Fortunately, we sold an office building that gave us A$1.5 million and then we started to build our team.”
The first task of the reinvigorated Aussie company was to follow-up its interest in 700 sq. km of prospective ground in the Lake Johnston greenstone belt some 540 km from Perth. Forrestania acquired an original 50% stake in 1991, and discovered the high-grade section of the Maggie Hays nickel deposit in 1993. With a resource of 11 million tonnes grading 1.5% nickel, advancement of the project has been delayed by a complex ownership structure. By the mid-1990s, a subsidiary of
“This was an important discovery because it showed that massive sulphides occurred in shear zones and structural cracks rather than normal magmatic conditions,” Buck told The Northern Miner during a visit to the project.
The shift in thinking led the company to an area 3 km north of Maggie Hays that was previously written off because it is devoid of ultramafic rocks. In 1997, just as LionOre was purchasing Forrestania for A$78 million and 30.8 million shares, the first hole into the target prompted a major breakthrough for the area when the high-grade Emily Ann nickel deposit was hit some 80 metres below surface.
The deposit comprises two main north-striking mineralized units.
The upper zone consists mostly of disseminated sulphides hosted by ultramafic rocks and dips moderately to the east. The lower horizon hosts the bulk of the reserve, dips more steeply and contains dominantly massive and stringer sulphides in felsic volcanics. Current reserves stand at 1.2 million tonnes grading 3.36% nickel, using a 2.17% nickel cutoff grade.
“I think there is a lot of prejudice in the literature that you need lots of ultramafics to produce a deposit,” adds Buck. “Not withstanding the absence of ultramafics in the region, we are confident we can find more structural locations containing massive sulphides.”
Despite its high grade, the new deposit still did not have the size to interest BHP, so LionOre Australia negotiated an equity swap to take Emily Ann out of the joint venture.
This was accomplished by giving BHP a 69% stake in the much larger but lower-grade Maggie Hays property. To take care of Capricorn, in April 1999, LionOre Australia Nickel was floated on the Australian Exchange giving the Aussie junior a 25% equity stake in the new company. Lionore Mining retained 75% of the new company and over the years, open market purchases have seen their interest grow to 80%. Just this month, in an attempt to clean up the 20% minority shareholders, LionOre Mining tabled a US$12.6 million cash takeover offer for the 27 million shares it does not already own.
With the complex tenement structure solved at Emily Ann, a decision to develop and construct the mine was made in December 2000.
“This is an excellent arrangement for both Inco and LionOre Australia,” said Inco’s chief executive officer at the time, Michael Sopko. “Not only does it pave the way for LionOre Australia to develop its Emily Ann deposit but it also provides Inco with a new source of an intermediate nickel product on commercial terms that will support our Canadian operations.”
Development costs came in at A$43 million, as LionOre managed to trim capital costs significantly by spending A$1.5 million on second hand equipment for the mill and then some A$13 million to refurbish, install and purchase new equipment. Production of nickel concentrate was achieved during the fourth quarter of 2001 and full-scale production, at the rate of 250,000 tonnes per year, was hit in June.
Mining targets both the upper and lower mineralized horizons and there is an on-site conventional nickel-sulphide concentrate plant. The plant is expected to produce approximately 5,700 tonnes of payable nickel during 2002, increasing to around 6,700 tonnes per year in 2003. By the end of July, 126,854 tonnes had been mined at average grade of 2.89% nickel, producing 21,184 tonnes of concentrate grading 13.52% nickel for 2,664 tonnes of payable nickel. Recovery rates, at around 82%, are still coming in lower than the anticipated 90%, but the mine’s cash operating cost rings in at a respectable US$1.72 per lb. (US$3,790 per tonne).
Maggie Hays
With production underway, the development prospects for Maggie Hays took on a new light — and in May, LionOre Australia secured a 9-month exclusive option agreement with the BHP Billiton group to acquire the latter’s 69% interest in Maggie Hays and its 67% interest in the surrounding exploration tenements throughout the Lake Johnston region. This development would give LionOre Australia 100% of the deposits and justify a feasibility study on doubling production capacity at its wholly-owned Emily Ann processing plant. The estimated cost to develop Maggie Hays is around A$16 million, including A$11 million to drive the decline and A$5 million to upgrade the plant.
The price tag to move to 100% ownership of Maggie Hays would be A$6 million, plus subsequent payments totaling A$10.5 million over a 5-year period. The development of the Maggie Hays deposit could commence as early as the first half of next year. This would result in the Emily Ann plant ramping output up to 500,000 tonnes per year with total production hitting 12,000 tonnes of nickel by the first half of 2004.
LionOre Australia is currently studying the initial development of the Main massive sulphide zone at Maggie Hays, which has an indicated resource of 633,000 tonnes grading 3.8% nickel, to
be followed by mining the North shoot.
“This deposit is very big by Emily Ann standards,” says the head of the project, Glenn Jardine. “It is such a huge deposit that to drill it from surface would cost a fortune, so through a series of studies we determined that it could fly by using just the lower lenses.”
Overall, the deposit is 1.4 km long and has a maximum down-dip extension of 500 metres. Mineralization comprises mainly pyrrhotite and pentlandite, with lesser amounts of pyrite and chalcopyrite. The Main zone hosts disseminated mineralization up to 40 metres thick, stratigraphically underlain by a massive sulphide zone up to 7 metres wide. The disseminated mineralization contains 15-20% sulphides, while the basal massive sulphide contains around 80% sulphides.
The Maggie Hays North zone is marked by a complex tabular zone of stringer and massive sulphides, hosted by felsic volcanics. The mineralization ranges from 3 to 8 metres wide and is controlled by a shear zone that dips 60 to the east.
“If the mineralization hangs together, we can justify putting in a decline and mine it out using mechanized cut and fill similar to Emily Ann,” adds Jardine.
The combined indicated resource of the two zones is about 3 million tonnes grading 2.4% nickel. The overall indicated resource for the whole Maggie Hays property is 10.8 million tonnes averaging 1.5% nickel.
Resource drilling is underway with a mining study and production cost forecast slated to follow later this year.
“The biggest challenge is the high cost of getting started, achieving the important critical mass,” says Ashley “and now that we have that, the prospects for moving Maggie Hays forward are very high.”
The exploration crew is also eager to start working on the regional picture. Dominated by felsic volcanics, the property contains three parallel zones of ultramafics with the central one hosting the Maggie Hays deposit.
“This is not the easiest of country to work in,” says Buck, “you have to be in it for the long haul and extensive cover makes geophysical surveys crucial.”
Having been through the major Canadian nickel camps, Buck is eagerly awaiting the next generation of geophysics in order to help better define targets in the Lake Johnston belt.
“In Australia, we don’t have the access to instruments such as UTEM, and nickel sulphides are such good conductors,” continues Buck. “by using just time domain EM (electromagnetic geophysical survey), we could easily miss a deposit and UTEM can be used in-hole a lot better.”
Thunderbox
Little did they know it at the time, but 1996 just kept getting better for the company. That was the year Forrestania inked an agreement to earn a 60% stake in the Wildera gold-nickel project from Australian-listed Dalrymple Resources, 640 km northeast of Perth, in the North Eastern Goldfields of Western Australia.
In 1997 the last two holes of a rotary air blast (RAB) drilling program at Wildera cut what is to become the company’s flagship gold deposit, dubbed Thunderbox.
“We farmed into the ground on the basis of its gold and nickel potential,” says LionOre Australia’s Chief Geologist, Mark Bennett. “and Dalrymple had done some rock chip and soil sampling that identified a few targets.”
After extending the soil survey, Forrestania identified yet another target and moved the drill rig onto the property.
“We got sucked into doing a bit of drilling on these prospects and hit 2-to-5 metres grading 1-to-3 grams gold,” continues Bennett. “Enough to keep you interested but nothing hung together.”
Based on the widespread overburden and no geophysical response, the junior then decided to RAB drill on the basis of geology near road access.
“We got a sniff in the last hole of the 1997 program, some 4 metres grading 1.5 grams gold,” says Bennett, “but we had better numbers elsewhere and then with the LionOre takeover we shifted back to nickel exploration before following it up.”
It was not until 1999, when the company moved back into gold exploration that additional drilling proved that the earlier hole had actually hit the Thunderbox A zone.
“Some people described Thunderbox as a 2-gram graveyard,” laughs Bennett “but they said that about Granny Smith (over 4 million oz. produced and going strong) when Placer got involved — and now it makes them a lot of money because it gave them the land position to find the Wallaby deposit,” adding with a smile, “and I think that’s where we are today.”
Slated for production in December, Thunderbox is located at the junction of two major metallogenic corridors — the Leinster-Wiluna nickel sulphide corridor and the Yandal gold corridor. Reserves tally 10.9 million tonnes grading 2.43 grams gold. The estimate is based on a gold price of US$254 per oz. and a cutoff grade of 0.7 gram for oxidized material and 1.1 grams for primary material. The overall waste-to-ore strip ratio comes in at 3.5-to-1.
With construction nearly complete, the company envisions a 2.5-million-tonne-per-year open-pit operation producing 220,000 oz. in its first year at a cash cost of US$110 per oz. As mining begins to encounter the sulphide ore, throughput drops to 2 million tonnes per year producing 150,000 oz. at a cash cost of US$157 per oz. Capital costs come in at $62 million.
The operation will use an on-site treatment facility incorporating single-stage crushing, a semi-autogenous grinding mill and a ball mill. The comminution is followed by conventional carbon-in-leach tanks and elution circuits.
About half the mine’s production has been hedged through Macquarie Bank at a flat forward price of US$293 per oz., or about US$35 per oz. more than was used in the bankable feasibility study. Some 800,000 oz of gold are expected to be produced over a 5-year mine life.
On the exploration front, the company has its sights on finding more of the lucrative oxide gold-bearing mineralization to use as incremental feed for the mill.
“Most companies around the area look at 0.3 gram gold as anomalous,” says an excited Ashley. “But we have 1-gram targets.”
With the sulphide portion of Thunderbox still open at depth, numerous regional targets already in hand and with its claims being surrounded by the likes of
The Aussie team is no stranger to gold mining. Despite targeting mainly nickel, the company ran the Bounty gold operation for a spell before selling it in 1999 to the soon-to-be financially strapped
Waterloo
Just 6 km from Thunderbox, LionOre Australia found further reasons to celebrate. In January, a four-hole drill program tested an electromagnetic anomaly detected last year at the base of a high-magnesium ultramafic intrusion.
Hole 452 immediately came up with the goods. It returned 4.83% nickel and 0.49% copper over 10.68 metres, starting at 153 metres down-hole. Within that was a higher-grade section of matrix-supported sulphides measuring 5.82 metres in core length and averaging 7.68% nickel and 0.81% copper.
A second hole was collared 50 metres to the west to test for downdip extensions but had to be abandoned after passing through structurally complex rocks.
“The guys totally blew our budget,” says Ashley. “We had planned only the four holes but they kept on hitting and are still drilling.” Recent drilling has increased the total strike length of the deposit from 500 metres to at least 750 m
etres.
Dubbed Waterloo, mineralization is hosted in ultramafic rocks and is dominated by high-grade sulphides in matrix to disseminated textures, with associated zones of structurally controlled massive sulphides. Disseminated sulphides typically have grades of up to 3% nickel; the matrix sulphides grade between 3% and 9%; and the massive sulphides run between 9% and 15%.
Diamond drilling west of a strike fault, which truncates the western margin of the deposit, located favourable host rocks and appears to have confirmed a fault with a downward displacement of 150 metres on the west side. Hole 524 intersected 1 metre grading 1.2% nickel from a downhole depth of 490 metres.
Results from the southern end of the deposit are highlighted by hole 516, which cut 15.6 metres (from 286 metres) grading 1.8% nickel, including 1.4 metres (from 300.2 metres) of 7% nickel; and hole 519, which returned 14 metres (from 212 metres) of 1.2% nickel, 4.8 metres (from 241.2 metres) grading 6.2% nickel, and 1.1 metres (from 251 metres) running 10.7% nickel.
The holes also returned 0.4-1.7 grams combined platinum group metals and generally less than 0.5% copper.
Preliminary metallurgical tests on the three styles of mineralization have indicated recovery rates of 92-98%, with concentrate grades running 9-15% nickel. Massive sulphide samples have yielded recoveries of 97-98% with concentrate grades of 18-21% nickel. Platinum group element recoveries are between 78% and 92%.
About 300 metres beyond the most southerly intersection at Waterloo, two holes collared on an geophysical anomaly returned up to 6 metres (from 172 metres) averaging 3% nickel and 1.48 metres (from 209.6 metres) of 1.12% nickel.
LionOre Australia, which has been tracing the extensions with holes on 80-metre spacings, expects to have some resource numbers ready before the end of the year.
Showing the prospectivity of the property, Waterloo is only one of 10 original targets along the 10-km long Marsh ultramafic body.
Tati
Back at the company’s starting point in Botswana, LionOre Mining has struck a US$75.9-million, all-cash deal to buy Anglo American’s nickel interests. The assets include a 43.35% stake in Tati Nickel Mining Co., a 7.5% direct interest in BCL, and a 12.65% stake in Botswana RST (which in turn owns 85% of BCL).
As a result, LionOre Mining will own 85% of Tati, with the government of Botswana continuing to hold the remaining 15%.
Tati Nickel operates two mines near Francistown: Selkirk, an underground operation, and Phoenix, an open pit. In 2001, Tati produced 6,305 tonnes nickel and 2,157 tonnes copper, and an expansion is under way.
The deal, along with production from Emily Ann, should boost LionOre Mining’s annual nickel output to 35 million lbs. (15,900 tonnes) of nickel metal, propelling the company into the world’s top 10 nickel producers.
In the latest quarter ended June 30, LionOre tabled a loss of $600,000, compared to a profit of $700,000 the same period last year. The Emily Ann operation continued to boost the company’s bottom line but foreign exchange losses and temporary operating problems affected Tati Nickel’s earnings. With working capital of $17.8 million, LionOre Mining expects to become cash-flow-positive by the fourth quarter.
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