Chinese eager for Redstone concentrate

With encouragement from its Chinese partner, Liberty Mines (LBE-V) is fast-tracking production at its wholly-owned Redstone mine southeast of Timmins, Ont.

Production at the nickel mine is set to begin in mid-May at a rate of 200 tonnes per day, the equivalent of about 300,000 lbs. of nickel per month, until the company can build a new mill, financed by the Chinese, to process the ore.

In the meantime, ore will be trucked to SMC (Canada) in Cobalt, Ont., then shipped to China under an agreement with Jilen Jien Nickel Industry Co., Liberty’s strategic partner and one of the largest nickel producers in China.

This unprecedented arrangement with the Chinese, and Liberty’s decision to enter production without a feasibility study, underscores the tightness of the nickel market worldwide. According to London-based Standard Bank, LME nickel stocks continue to fall as demand from stainless steel mills makes a comeback amid threats of supply disruptions. Nickel is currently trading at record highs approaching US$9 per lb.

The deal provides a new lease on life for Redstone, which has had a few runs at production since the late 1980s, only to be closed as a result of low nickel prices. Previous operators mined a total of 276,700 tonnes grading 2.4% nickel from 1989 to 1992 from a decline to the 230-metre level of the mine.

According to The Northern Miner archives, the mine lost money in its first months of operation, but by the middle of 1990, it was making a small profit. Operating costs at that time were about US$2.85 per lb. while nickel averaged about US$4 per lb.

An inferred resource of 182,000 tonnes grading 3.28% nickel remains above the 335-metre level, though the resource does not comply with National Instrument (NI) 43-101 standards. Liberty is currently extending a drift at the 215-metre level of the mine to bring the historical resource up to standard and prove up additional reserves to the 460-metre level, where president and CEO Gary Nash expects to outline another 200,000 to 300,000 tonnes of ore.

“(The additional reserves) would give us the green light to go ahead with a shaft,” Nash says.

Liberty reborn

Liberty Mineral Exploration, as the company was once named, was just another inactive junior until last year, when a group of disgruntled shareholders, including Nash, grew tired of waiting for the company to revive the Redstone mine and launched a hostile takeover.

First on the agenda for the new guard was to restore full ownership of the mine by purchasing, for $250,000 and 2 million common shares, Inco’s (N-T, N-N) option to earn a 70% interest in Redstone. Liberty also granted Inco right of first refusal on any concentrates produced from January 2012 to December 2014.

But for now, Jilen Jien Nickel has first dibs.

“We found a need to go overseas because we couldn’t get Inco, Falconbridge or Sherritt to take our ore,” says Nash. “We had some connections that led us to the possibility of getting a deal with the Chinese and we were successful in getting an offtake agreement with them in June 2005. This is the first time they’ve ever ventured into the North American market.”

Without the Chinese, it is unlikely a mill would be built to serve a mine as small as Redstone. (There hasn’t been a mill built in the Timmins area since the 1980s, according to a spokesman from Ontario’s Ministry of Northern Development and Mines, though Falconbridge [FAL.LV-T, FAL-N] did add a nickel circuit to its Kidd Creek metallurgical facilities to process ore from the Montcalm mine). As it is, Liberty’s partners are so eager to secure a concentrate source that they have provided Liberty with a US$4-million loan to build a new 1,500-tonne-per-day nickel concentrator.

The mill will process up to 600 tonnes per day initially, but can be scaled up with the addition of processing equipment in the grinding and flotation circuits. Permitting is under way and construction is expected to take 6-8 months.

With a percentage of each concentrate payment going towards the loan, the mill will be paid off in about a year, Nash says.

McWatters deposit

Another source of ore for the mill is the McWatters deposit, about 10 km east of the Redstone mine. The deposit consists of two zones. The upper zone contains a historically reported resource of 477,768 tons grading 0.73% nickel in disseminated sulphides while the lower zone contains an NI 43-101-compliant resource of 167,400 tonnes grading 1.91% in massive sulphides.

The resource base at McWatters should support a 2-year mine life, Nash says. Permitting is under way. The company will also explore for other sources of ore on its surrounding claims.

“McWatters is just an example of the typical nickel pods that you can find around our properties,” Nash says. “We have twelve thousand hectares (120 sq. km) to explore and we’re starting a vigorous exploration program that will be going on for the next few years, so we hope to find lots of feed for the Redstone mill.”

The geology on Liberty’s properties is similar to the Kambalda nickel belt in Australia, which contains several pods of high-grade ore hosted by ultramafic flows positioned in trough-like embayments at the base of the ultramafic unit.

Mineralization accumulates in relatively small but high-grade linear bodies of massive-to-disseminated sulphides. Recent improvements in geophysical techniques, including MegaTEM and UTEM, have allowed geologists to see these deposits through the thick overburden typical of the Timmins area.

Nash is particularly excited by an anomaly discovered by Inco at 1,200 metres underneath Redstone using down-hole geophysics. To test the 250 by 450-metre anomaly, Liberty plans to drill wedged offset holes using the existing hole. The company is also looking for new ore at 600-750 metres below surface, where drill holes by previous operators outlined a zone of mineralization.

“Jilen Jien’s goal is to have fifteen thousand tonnes per year of nickel-in-concentrate shipped to them,” Nash says. “If we get McWatters and one or two other mines like that going, together with increased production at Redstone, we can get close to that, but we’ve got a lot of reserves to prove up.”

— The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Communications (www.geopen.com).