INVESTMENT COMMENTARY — Tiomin viewed as having upside

Allan Ferry, research analyst for Toronto-based Thomson Kernaghan & Co., believes Tiomin Resources (ME) is well positioned to develop its Natashquan heavy mineral sands project in Quebec.

Tiomin is also negotiating to acquire rights to the huge Cerro Colorado deposit in western Panama, described as the fifth-largest undeveloped copper deposit in the world.

Ferry believes Tiomin is making good progress on two “world-class mineral projects” that should attract interest from senior partners. In a recent research report, he notes that Natashquan has already attracted international interest.

Indeed, at press time, Tiomin reported that it had signed a memorandum of understanding with Shairco, a Saudi Arabian industrial development company which holds the sole licence for the manufacture of synthetic rutile in the Kingdom of Saudi Arabia. The proposed joint venture, which is still subject to regulatory approval, would include the mining of ilmenite and magnetite in Quebec, followed by production of synthetic rutile and metallized iron in the Middle East.

The Tiomin-Shairco joint venture would be 50/50 initially, but this could change if another strategic partner, such as a steel producer, were invited into the ownership of the project.

Ferry says Tiomin has made progress at Natashquan since completing a prefeasibility study last June. This study indicated that a major operation could be started within three years to produce iron ore and ilmenite, the latter being a mineral containing titanium oxide (the primary component of the rapidly growing pigment industry).

As an added bonus, the price of titanium oxide has increased by more than 50% to US$2,000 per tonne during the past year.

The preliminary study envisages a $260-million operation with a mine life exceeding 20 years. Drill-indicated reserves are reported as being 1.7 billion tonnes grading 6% heavy minerals on only 30% of the 18,000-hectare property. (This reserve estimate was recently revised upwards by Tiomin to 2.1 billion tons.) Payback is estimated at under four years. The study examines annual production of four products: direct reduced iron at 500,000 tonnes; 100,000 tonnes of synthetic rutile; 33,000 tonnes of garnet; and 8,000 tonnes of zircon.

Both the direct reduced iron (a high-quality feedstock for electric furnace steelmaking) and the synthetic rutile would be produced at upgrading facilities at other locations. Synthetic rutile typically contains 93% titanium dioxide, and Ferry notes that synthetic rutile produced from Natashquan material has yielded a very high-grade product containing more than 96% titanium dioxide.

Meanwhile, Tiomin has retained Peter Steen, former president of Homestake Mining, to oversee the Cerro Colorado project in Panama. Negotiations with senior government officials in Panama are in the final stages. “We believe an announcement of this deal is imminent,” Ferry says.

Tiomin will pay US$500,000 and will review the project over the next six months. If it decides to proceed, the company can earn a majority interest averaging 74% over the next 20 years by paying a further US$9.5 million over two years to a state-owned corporation, and by completing a feasibility study. Previous operators have already spent more than US$79 million on technical studies. Total reserves are reported at 1.4 billion tonnes grading 0.78% copper. “While this is a mammoth project, Tiomin is initially interested in the enriched supergene-oxide zone near surface, which has reserves estimated at 128 million tonnes grading 0.54% copper,” Ferry writes. “Tiomin will study the potential for a solvent extraction-electrowinning operation on this zone.” Ferry rates Tiomin a “buy” and says its shares “have significant upside potential.” The company currently trades at about $1.40.