Falconbridge spending $10 m this summer at Ungava project

Falconbridge Ltd. expects to complete 75,000 ft. of drilling on its remote Ungava, Que., nickel deposit before freeze-up occurs at the remote location later this month. While a Falconbridge official said work crews are merely evaluating the deposit for the benefit of the company’s joint owners Noranda (TSE) and Sweden-based Trelleborg, a longtime admirer of the property said he isn’t surprised.

Toronto accountant Albert Title says he invested in the property’s former owner New Quebec Raglan Mines 10 years ago because he liked the orebody and believed it would eventually be mined.

Quebec Raglan was a 73.8% owned subsidiary of Falconbridge, before the big nickel miner acquired the Raglan shares it didn’t already own in a share swap (or shares-for- cash) deal last June.

Believing that his shares were worth much more than the one Falconbridge share for each 5.5 Raglan shares, or $5.36, or a combination of cash or shares, he and other Raglan shareholders were offered, he initiated legal proceedings against the company.

While reserves in the Ungava deposit stand at 12 million tons of grade 3.11% nickel and 0.79% copper, Raglan Chairman Brian Ferguson said the project wouldn’t be developed unless his company was confident that nickel would trade at US$4 per lb. throughout the life of the mine.

Even though the Ungava deposit represents some of the world’s finest high-grade undeveloped nickel reserves, the cost of harvesting them from such a remote area have so far been considered too high. Previous estimates include $235 million, and include construction of a 2,000- ton-per-day mill.

When a number of Raglan shareholders complained that they weren’t receiving enough for their shares, John Gillies, Falconbridge’s vice-president of marketing replied: “People who predict that nickel will remain beyond US$4 per lb. are sticking their necks out a long way.”

Now that nickel is trading at US$5.16 per lb. on the London Metal Exchange, Title and others believe Falconbridge could make a lot of money if the project is brought into production.

However, Lars Vannman, Falconbridge’s senior vice-president of business development and planning said that the work being completed at Ungava is to establish a basis for future decision making. As the drilling season lasts only three months (June, July and August), Vannman said it may take two years to assemble the information needed to determine at what price the deposit would be economic. “After that, it might be considered a dead duck,” said Vannman. He refused to confirm a rumor that Falconbridge will spend $10 million at Ungava this year.

Nevertheless, other observers remain skeptical. “Quebec Raglan wouldn’t have become a wholly owned subsidiary of Falconbridge without some kind of reasoning,” said Julian Baldry, a base metals analyst at Nesbitt Thompson Deacon Inc. in Toronto.

“A nickel price of US$5.16 per lb. reduces the number of years that you have to have high prices (in order to operate an economically viable mine),” he said.