El Estor, Guatemala — If you’re a mining industry professional or an investor looking to get in almost on the ground floor of something big, take a look at what
Incorporated in 1956 and named
Though gold prices were entering their nuclear winter, in January 1998 Chesbar decided to join
Guatemala had suddenly become an attractive destination for North American mineral explorers for three reasons: its adoption in 1997 of an excellent mining law; its long mining history and prospective geology; and, most importantly, the signing of a peace accord in December 1996 that brought an end to a terrible 36-year civil war that pitted government troops and peasant militias against guerillas and the rural indigenous population.
The joint venture was carried out through Intrepid’s Guatemalan subsidiary Minera Mayamerica, in which Chesbar had acquired a 25% stake for US$200,000 — an interest soon doubled to 50% by the spending of US$225,000 on exploration. The agreement called for Intrepid personnel to carry out all Mayamerica’s field work on the joint venture’s assets, which included the historic Mataquesquintla silver mine in southeastern Guatemala and various epithermal silver-gold prospects.
October 1998 was a particularly rough month for Chesbar, as Hurricane Mitch swept through Central America, severely disrupting life in Guatemala, and Barrick dropped its option on La Salle, forcing Chesbar to trudge along there on its own. (Ultimately unsuccessful in Venezuela, Chesbar completely wrote off its $7-million Venezuelan investment in fiscal 2001.)
Sechol
In December 1998, Mayamerica first turned its attention to nickel, seizing an opportunity to acquire a 31-sq.-km exploration license on a known nickel deposit on a property named Sechol, in eastern Guatemala’s Motagua suture zone. The property is situated in a rural area adjacent to
A stark monument to bad planning, the Exmibal plant was built at a cost of US$220 million in the early 1970s. It processed saprolitic nickel-laterite mined from the La Gloria pit up in the mountains above the plant site, using bunker oil to generate power to produce 11,000 tonnes of nickel in matte annually.
However, Exmibal operated for only three years before Inco closed it in 1980 in response to higher-than-expected oil prices and plummeting nickel prices.
Since then, Exmibal has sat in limbo, with a subsequent engineering study showing that it would cost almost as much to build a completely new smelter as it would to refurbish the old one.
Moreover, Lake Izabal, which allows pleasure craft to wend their way to the Caribbean Sea via the Rio Dulce, has become something of a pristine holiday spot for Guatemala’s elite, so it’s unlikely any smelter will again be allowed to fire up along the lakeshore anytime soon.
Left behind in the La Gloria area is a resource in the proven category that was last pegged at 68 million tonnes grading 1.83% nickel. Inco has maintained its claims.
There’s no doubt the Exmibal fiasco has left Inco with a bad reputation in Guatemala, and the nickel major has won no friends in the area by putting a high fence around a now-abandoned village and golf course it built for its former workforce, denying it to the present-day poor of El Estor, only a hundred metres away.
A sign of the state of Inco’s community relations: the skeleton staff at Exmibal routinely ventures out onto their own property accompanied by guards armed with machine guns.
Knowing full well that matte smelting was not a viable option in the El Estor area, Mayamerica was prompted in 1998 to take on the Sechol nickel-laterite licence by the anticipated success of the new generation of smokestack-free, high-pressure acid-leach (HPAL) nickel-laterite projects that were being built in Western Australia and were being contemplated for other nickel laterites worldwide.
Cominco
Exploration had previously been carried out at Sechol by a subsidiary of Basic Resources International, Transmetales, in the 1970s, and by Cominco in the early 1990s. Their efforts consisted mainly of geological mapping and the digging of over 100 test pits, which served to confirm a near-surface nickel-laterite deposit extending 1.9 km in length and 800 metres in width.
On Sechol, Transmetales had delineated 33.7 million tonnes of 1.81% nickel, and Cominco confirmed these values in a quest to secure high-grade ore (above 2% nickel) that it could ship directly to its nickel smelter in Oregon, which subsequently closed. Focusing on a high-grade portion of Sechol, Cominco defined a high-grade resource of 10 million tonnes grading 2.18% nickel.
On Mayamerica’s nearby Marichaj property, Transmetales identified a further resource of 34.8 million tonnes of 1.47% nickel.
By mid-1999, Chesbar had taken over Mayamerica’s nickel business, leaving Intrepid to carry out the JV’s precious metals exploration. With Intrepid short on cash, the partners also rejigged their agreement to allow Chesbar to boost its stake in Mayamerica to 70% by spending US$300,000 on exploration.
Mayamerica then started a scoping study at Sechol and began digging test pits with help from the locals. The aim was to confirm past work and to provide samples for a HPAL metallurgical study by consultant
The company also experimented with using ground-penetrating radar to better define the depth of the saprolite to bedrock, but found that pitting was cheaper and didn’t require disruptive line cutting.
By the end of 2000, Mayamerica had expanded its holdings to six nickel-laterite properties in the area totalling 250 sq. km, including Sechol, Marichaj, Nueva Caledonia and Seococ.
In May 2001, Chesbar had another setback as Terry Flanagan became ill with cancer and resigned as president. He retained his roles as chairman and director, but left the day-to-day affairs to newly appointed president John Yates, who had been a director since 1985. (Flanagan finally succumbed to cancer in March 2003.)
New president
A former auto executive with Honda and Hyundai in Canada, Yates had more than a decade of business experience in Central America; one of his earlier ventures had been to sell used Hyundai cars from North America to taxi drivers in Costa Rica, with financing assistance if needed.
“Two years ago, Terry had fallen ill and he asked me to come in and wind up the company,” Yates told The Northern Miner, describing a pivotal moment when he brought a stark choice before Chesbar’s shareholders: do we wrap the company up now, or do we invest money to get the company out of debt and make an even bigger commitment to Guatemalan nickel? Of course, they chose the nickel.
Entering management ranks along with Yates was mining engineer John McAdam, who became executive vice-president of the company after serving as a director since 1990. Also, geologist John McGee replaced a retiring Frank Johnson as director and became vice-president of development, Marie Thorne was appointed corporate secretary, and John Francis became vice-president of finance.
One of the big tasks Yates faced right away was to build up the rest of the management team. He said he considers himself lucky that “the right people always came onto the scene at exactly the right time, just like in a Shaw play.”
Indeed, looking today at the high-powered men who have hooked up with Jaguar, you get the impression that any senior personnel who left
n Somerset Parker, Jaguar’s senior marketing executive, served as president of export sales for Falconbridge and consulted for Anaconda Nickel during the earlier stages of its Murrin Murrin project in Australia.
n Bryn Harris, chief technical officer, is an adjunct professor at McGill University and has over 25 years experience as a metallurgist, having worked on a number of nickel-cobalt plants in Africa, Australia and South America. He was also involved in Noranda’s doomed Magnola magnesium project in Quebec, which did, to its credit, have a chloride-leach circuit that performed well.
n Ricardo Valls, chief geologist, has been a consulting geologist for over 20 years.
n Roger Billington, consulting geologist to Jaguar, recently left a decades-long stint with Falconbridge as a nickel-laterite and diamond expert.
n David Goldman, a metallurgical engineer and a Jaguar director, retired in 2001 as executive vice-president and chief operating officer of Noranda, and was a former director of Falconbridge.
n Warren Holmes, a mining engineer and Jaguar director, recently retired as Falconbridge’s senior vice-president of Canadian Mining Operations. He is currently president and COO of Nuinsco Resources.
(One wonders: how much longer until Oyvind Hushovd shows up as a Jaguar director?)
Just as important as building a management team, Mayamerica had begun to seriously consider processing its ore using atmospheric acid leaching (AAL) — a new processing technique that, at least on paper, holds great promise to revolutionize and improve nickel production from laterites and maybe even from sulphide ores.
Nickel laterites
Some quick background: laterites make up about 70% of the world’s nickel reserves, and often contain two horizons with dramatically different chemistries: the upper limonite layer usually has a nickel content under 1.8%, a high iron content, and a low magnesium content; the lower saprolite layer usually has nickel contents greater than 2% but it is high in magnesium and low in iron.
So far, there have been four methods for recovering nickel and cobalt from laterite ores:
n ferronickel smelting of saprolites — this is the most popular method for handling nickel laterites, with examples including PT Inco in Indonesia and Falcondo in the Dominican Republic. The process can deal with high magnesium content by slagging it off, but three disadvantages are the large power requirements, pollution and the limitation of feed to saprolites, which usually means stripping off the overlying limonite).
n matte smelting of saprolites — examples include Exmibal and
n reduction roast and ammonia leach of limonites — better known as the Caron process, this is used at Tocantins in Brazil and at Queensland Nickel in Australia. This process can’t handle saprolites, and cobalt recovery is only around 40%.
n HPAL of limonites — this is the method used at the granddaddy of all nickel-laterite mines, Moa Bay in Cuba, and at the three newest nickel-laterite projects in Australia. Disadvantages include high capital and operating costs and an inability to handle much magnesium.
The crux of the Jaguar story is that, with Harris’s leadership, the company has come up with a proprietary version of AAL — a fifth way to process nickel laterites that involves four basic steps. First, nickel and cobalt are brought into solution with an acid-chloride leach; then residual impurities such as iron are removed; then recycled magnesia is used to precipitate a mixed nickel-cobalt hydroxide; and last, pyrohydrolysis recovers hydrochloric acid and magnesia.
There are several immediate advantages to AAL:
n the whole laterite profile, i.e. limonite and saprolite (both of which are present in Guatemala), can be processed, virtually doubling reserves and greatly simplifying the mining plan;
n the process flowsheet begins with simple ore beneficiation that boosts head grade by 30% to 40%;
n the reagents can be recycled, saving money;
n in the purification process, there is no addition of lime or ammonia, and there is an overall low energy consumption;
n the intermediate hydroxide product can be sold to refineries worldwide, likely at a 25-40% discount to pure metal;
n the process is environmentally friendly, with little harmful atmospheric or liquid discharges;
n capital expenditures are lower, since expensive autoclaves are not needed; and
n magnesium, rather than being a problem, becomes a by-product credit in the form of very pure, caustic magnesia.
(More technical details are available at the web site www.jaguarnickel.com)
Jaguar sees its AAL process, which is under worldwide patent application, as “evolutionary and not revolutionary” because it takes existing technology and adapts it to the recovery of nickel in a chloride-based process.
Still, the company can’t hide its excitement at the thought that, if its AAL is successful, its implementation “may have a far-reaching outcome in the nickel-cobalt industry” since its low capital cost might remove a traditional barrier to entry in the nickel business.
“We see AAL as the third generation of nickel-laterite processing following first-generation smelting technology and second-generation high-pressure acid-leach processing,” said Yates.
100% ownership
Meanwhile in April 2002, Chesbar arranged to buy out Intrepid’s remaining 30% interest Mayamerica for 1.23 million shares, and the company commissioned Valls Geoconsultant to calculate a resource estimate consistent with the new Canadian standards. The work was independently reviewed and endorsed by consultants Watts, Griffis and McOuat.
According to Valls’ compilation, the Sechol property contains a measured resource of 14 million tonnes grading 1.46% nickel, 0.08% cobalt and 13.85% magnesium oxide, and a further 23 million indicated tonnes at 1.34% nickel, 0.08% cobalt and 11.79% magnesium oxide.
These numbers were calculated using a 1% nickel cut-off, a minimum thickness of 2 metres, and a dry density of 1 tonne per cubic metre.
Of note, within Sechol lies the El Inicio deposit, considered an ideal high-grade starter pit, which hosts a measured resource of 5 million tonnes grading 2.1% nickel, 0.08% cobalt and 18.4% magnesium oxide, using a 2% nickel cut-off.
Additional inferred resources beyond the Sechol property are pegged at 133 million tonnes at 1.51% nickel and 0.08% cobalt.
Overall, the Sechol group of deposits is hosted by ultramafic rocks, mainly dunites and pyroxenites that are usually strongly serpentinized. The laterite profile is considered “immature” by global standards.
“I like to say that we are the Ivanhoe Mines of Guatemala nickel,” said Valls. “We got in early and now, if anyone wants to get in here, they’ll have to talk to us.”
He added that, on the geological side, it’s been a “one-man operation for two years,” and there are plans to bulk up the geological staff.
In March 2003, Chesbar announced the discovery of a new nickel laterite body at Sechol named “El Segundo,” situated 2 km southwest of El Inicio.
A couple of weeks ago, Jaguar awarded Major Drilling a contract to drill 250 HQ-size holes totalling 5,000 metres at Sechol. El Inicio will be drilled on 100-metre centres, both infill and step-out holes in and around the known resource. This drilling will better define the saprolite horizon, which is often inaccessible by hand augering as the auger has trouble breaking through a rocky layer that separates Sechol’s limonite from its saprolite.
With the new drilling results in hand, plans are to update the resource before year-end.
Overall, Chesbar has spent more than $2 million on exploration and property costs in Guatemala since 1999, and now has over 1,000 sq. km of licenses in the Lake Izabal region.
Pilot plant
On the metallurgical front, in early 2003, Chesbar hired Mississauga, Ont.-based mineral-processing consultants Process Research Ortech to carry out a hydrometallurgical study of Sechol ore, including optimization of the AAL process. Initial bench-scale tests showed excellent recoveries of 93% for nickel and almost 100% for cobalt over 3-4 hours.
In late July, a hydrometallurgical pilot plant project got underway and is expected to be completed by the end of the year.
Chesbar also hired the Montreal branch of Hatch to determine the capital and operating costs of a nickel-cobalt hydroxide facility designed to produce 20,000 tonnes nickel and 800 tonnes cobalt annually, in hydroxide form.
Completed in June, the scoping study foresees capital costs of US$250 million, including US$60 million in contingencies. The cash operating cost is estimated at a very encouraging US$1.04 per lb. nickel, not including by-product credits and based on an annual operating cost of US$45 million.
Hatch also reckons the mine and plant would create 250 long-term jobs in the area once regular production rates are reached.
While it’s too early for Jaguar to have lined up refinery customers, the company has drawn up a list of potential ones: Falconbridge (Kristiansand) in Norway; OMG Group’s Kokkola refinery in Finland; Jinchuan Nickel and Jilin Nickel in China; Eramet (SLN) in France; Niquel Tocantins in Brazil; Sumitomo (Niihama) and Mitsui Metals in Japan; and WMC Resources (Kwinana), Queensland Nickel (Yabulu) and Minara Resources (formerly Anaconda Nickel) in Australia.
Looking ahead, Jaguar wants to launch a year-long bankable feasibility study early in 2004, with an eye towards production in 2006.
In terms of financing, Chesbar has raised through private placements $900,000 in 1999, $350,000 in 2001, and $1.7 million in 2002. So far in 2003, the company has raised another $2.3 million through the exercise of warrants and private placements.
As of June 30, Jaguar had 60 million shares, or 77.6 fully diluted. The company had 6.9 million outstanding options exercisable between May 2004 and September 2007 at prices between 15 and 30 cents, and 9.9 million outstanding warrants exercisable at slightly higher prices.
As of May 2003, Yates had by far the largest shareholding among company directors, with 836,000 shares beneficially owned, or less than 2% of the company.
Jaguar shares have had a spectacular past two months, swiftly rising from the 20 range up to above $1.40 before settling in around $1.25 in recent days.
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