Arianne’s Lac–Paul among the ‘next generation’ of phosphate rock mines

A prefeasibility study for Arianne Resources‘ (DAN-V) Lac-à-Paul phosphate-titanium project in south-eastern Quebec has placed the project “among the most attractive of the next generation of phosphate rock mines,” according to Bernard Lapointe, chief executive officer of the company.

Located in the Saguenay-Lac-Saint-Jean region of Quebec, with easy access to rail and the deepwater Port of Saguenay, the Lac-à-Paul project aims to ship and sell an apatite concentrate used in the production of phosphoric acid and fertilizer products.

The study demonstrated robust project economics under a 33,000-tonne-per-day mining operation, with annual production of two million tonnes per year of 38% PO apatite concentrate (all figures U.S. dollars). It estimated average operating costs of $98 per tonne of concentrate, or $118 per tonne all-in including initial capital costs, and used a long-term average selling price of $175 per tonne of concentrate. Arianne notes the concentrate is comparable with 85 BPL FOB Russia concentrate currently sold at $223 per tonne.

An alternative 50,000-tonne-per-day operation could enhance project economics as much as 50% and will be looked at more fully in a feasibility study planned to commence in the second quarter of 2012, Lapointe says. The larger mining operation would require an increase in ore resources, which the company hopes will come from turning inferred resources into better-defined resource categories, as well as better delineating a newly discovered mineralized zone nearby the proposed mill site. “We are now evaluating an optimized production scenario which will include not only a 50% increase in annual PO production, but also recovery and sale of TiO (titanium) concentrate.”

The 33,000-tonne-per-day operation would require capex expenditures of $649 million, and would yield a pretax internal rate of return of 19.2% and pretax net present value of $684 million, assuming an 8% discount rate. Payback would be in 4.7 years.

Under the 50,000-tonne-per-day operation, the mine could produce 3 million tonnes per day of concentrate yielding a pretax NPV of nearly $1 billion, though initial capital costs would increase about 20%.

Still, the results of the prefeasibility study left Arianne investors wanting more. Shares of the company fell 12¢ on the day the study was released and a further 16¢ the following day to close at $1.58 on Nov. 9, for an approximate 15% decline. Arianne’s shares continue to be well up from this time last year, however, when they traded for just 15¢ a share.

Mining at Lac-à-Paul would be a conventional open-pit, truck-and-shovel operation, with the Paul zone being mined first for 14 years and the Manouane zone to follow. The resulting concentrate would be trucked to a rail transload facility at Dolbeau-Mistassini, approximately 210 km from the project, and then transported further along the North American Rail Network to the year-round accessible deepwater Port of Saguenay.

The Paul and Manouane deposits combined have in-pit proven and probable mineral reserves totalling 307.1 million tonnes grading 6.59% PO and 8.51% TiO. Measured and indicated resources comprise 348 million tonnes at similar grades, while inferred resources not included in the study currently stand at 114 million tonnes at slightly lower grades. Drilling continues on the 150-sq.-km property at established zones and other promising new areas.

The author of the study, Met-Chem Canada, made sure to highlight the sensitivity of project economics to the concentrate price and operating costs. The firm’s analysis showed a break-even concentrate price of $135 per tonne, a price just 23% below the long-term average price for 85 BPL concentrate used in the study.

The Saguenay-Lac-Saint-Jean area where Lac-à-Paul is located is well known for its world-class aluminum, niobium, timber, genomics and low-cost hydroelectric power generation. Two large hydro-electric power plants are just 35 km and 60 km away, while the company believes project economics may be further enhanced by provincial government assistance to develop shared infrastructure under Quebec’s Le Plan Nord economic development initiative.

Based in Chicoutimi, Que., Arianne has 65 million shares outstanding and a $115-million market cap.