Athabasca Minerals: Supplying the sandsbox

Vancouver – Aggregates. Sand and gravel. “I could write a book on them,” says Athabasca Minerals (ABM-V) vice-president Shaun O’Connor-Parsons. It might not make the New York Times best-seller list, he agrees, but it would be thorough; O’Connor-Parsons has been exploring and running gravel and sand businesses in Alberta for over 40 years.

Currently he heads up Athabasca Minerals’ aggregate exploration and development section, helping to oversee the company’s strategy to grow both as a gravel and sand producer – it is already one of the largest providers of aggregates to Alberta’s oilsands industry – but also into a more diversified producer of industrial minerals, specifically: silica sands, salts, limestone and gypsum.

The bread and butter of Athabasca Minerals are its Susan Lake and Poplar creek sand and gravel pits which it acquired last fall by taking over Aggregates Management, a private company, for $8.4 million in cash, $600,000 in promissory notes and 7.5 million Athabasca shares. It was not exactly a change in management; the president and CEO of Athabasca Minerals, Dom Kriangkum, also founded and ran Aggregates Management. It was essentially a consolidation of the rights to manage the Susan Lake and Poplar Creek pits into one publically-traded company.

Of the two operations the Susan Lake pit is the largest and most important for Athabasca Minerals. A 3,750-ha. property 85 km north of Fort McMurray, in 2008 it set a Canadian record of 11.83 million tonnes in sales of sand and gravel. Susan Lake, smack-dab in the middle of Alberta’s oilsands, sold much of its aggregates to the bitumen behemoths.

It will come as no surprise, then, that the core play in Athabasca Minerals’ growth strategy is to develop material supply projects within a stone’s throw of major oil-sands producers. “Basically (the target) is north of Fort McMurray around all the new, proposed sands plants,” O’Connor-Parsons says.

Silica sands and salts are two raw materials Athabasca Minerals is targeting heavily. In 2007 Athabasca Minerals conducted a shallow auger drilling program at its Pelican formation target near Fort McMurray from which it took 38 samples of silica sand for quality testing. Analysis returned an average purity of 98.58% silica, which O’Connor-Parsons calls a “fairly high quality”.

Though some may associate the use of silica sands to the production of glass – destined for the kitchen or fibre-optic cable – O’Connor explains that silica sands are also used as “frac sands” in the process of removing oil from underground. Frac sands help maintain fractures in rock formations and facilitate the flow of fluids to the surface.

“If you have the right granular, there’s huge demand for frac sand,” O’Connor-Parsons says. “So we’re gonna be working on (the Pelican Formation) to establish volumes and quality and then possibly take it to market.”

Athabasca Minerals also has high hopes for salts. After identifying a salt formation near Fort McMurray, at the end of 2007 Athabasca Minerals drilled a 320 metre drill-hole and intersected 120 metres of salt. Although not likely to show up in anyone’s Peugeot salt grinders any time soon, O’Connor-Parsons says Athabasca Minerals has begun to investigate the potential of supplying caustic soda, a salt derivative, to the oilsands industry.

“Caustic soda is the agent that facilitates the oilsands separation process,” O’Connor-Parsons says. “And currently we believe it is imported from China. It used to be produced at Fort Saskatchewan.”

He believes that because of the proximity of its properties to the oilsands Athabasca Minerals may be able to get a leg up on imported caustic soda. To that end Athabasca Minerals has begun studying the feasibility of supplying the market via an underground or solution salt mine.

“And not only for the oilsands separation process,” he says of salt. “But the pulp mills also use caustic soda. So we’re analyzing that market as well to see if there’s enough there to justify building a chloralkali plant.”

Though Athabasca Minerals is exploring for industrial minerals such as salts and silica sands, aggregates still remain at the heart of its current and future operations. “We have a very aggressive exploration program in place and we have an exploration crew, including a geologist, that all they’re doing right now is identifying potential gravel deposits in the Fort McMurray area,” O’Connor-Parsons says.

The gulf between exploration for metal and gravel is not great. O’Connor-Parsons explains that Athabasca Minerals starts with a geographic analysis of areas where there are likely alluvial or glacial deposits of gravel and sand. “We’re even using Google now, with the upgraded version of Google Earth,” he notes.

Target pin-pointed, as in mineral exploration Athabasca Minerals applies for an exploration permit and then drills. But how one drills is a significant difference between the two types of exploration. In place of percussion or diamond drill rigs, for gravel explorers the standard equipment is a six-inch auger drill, O’Connor-Parsons says. In heavy rock drillers switch to either a sonic or hammer drill to penetrate through large boulders.

But what makes good gravel? “Your key ingredient is your rock,” O’Connor-Parsons explains. “So you want a hard durable rock. You don’t want anything deleterious – being coal or iron stone.” Both these “pop out” in concrete and reduce its strength. As for sand he says that “you want clean coarse grained sand with very little silt in it.”

From prospect to operating pit the path to development is similar but not quite the same as it is for a metal mine. “In the mineral world you have mineral leases,” O’Connor-Parsons says. “In the gravel world you have surface leases.”

Once a developable gravel or sand formation is identified, instead of a mineral license a gravel company applies for a surface materials lease (SML) from the provincial government. “And once you obtain that then you prepare your pit plans, post your bonds and open it up,” he says.

At both the Susan Lake and Poplar Creek pits Athabasca Minerals has SMLs – but the operations are in fact provincially owned and leased, a situation which O’Connor-Parsons describes as unique in Canada. Aggregates Management got a hold of the Susan Lake lease in 1998 as the successful bidder in a provincial tender.”And we just renewed that contract for another ten years,” O’Connor-Parsons says.

The deal with the Albertan government allows Athabasca Minerals (which now owns Aggregates Management) to run the Susan Lake and the subsequently acquired Poplar Creek pits on a fixed-fee basis. At Susan Lake, for example, the fee for a cubic metre of gravel is $1.56 and of that the Albertan government gets a royalty of 78¢.

Though sales were strong in 2008 – the banner year in terms of production for the company – Athabasca Minerals has been somewhat pessimistic about 2009 as the price of oil has dropped and oilsands projects are put on hold. O’Connor-Parsons, who characterizes the clip of the industry in 2008 as “unsustainable”, notes, however, that so far the number of gravel and sand orders in 2009 have been surprisingly resilient.

“This year we thought (we were going to have to) suck it in,” he says. “But we got some healthy orders.” Already 6.3 million tonnes are on pre-order for 2009 at the Susan Lake pit, about the same amount that was pre-ordered in 2008 at the same time of year.

Strong sales will enable Athabasca Minerals to continue exploration and advance projects down its pipeline. This year O’Connor-Parsons expects the company will spend about $500,000 on exploration, and mostly for gravel. Though last year the company spent around $1.5 million on exploration, given the tightening of belts across much of the industry, the $500,000, “it’s pretty aggressive,” he says.