Stars align for Equinox

Timing is never everything in mining, but it is essential for success.

One junior company that’s mastered the art of timing is Australia’s Equinox Minerals, which is propelling its large Lumwana copper project in northwestern Zambia towards production, possibly starting up in late 2007.

Founded in 1993 by geologists Craig Williams and Bruce Nisbet, Equinox’s first decisive move came in 1999, when it struck a two-part deal to acquire a 100 per cent interest in the Lumwana project from owner Phelps Dodge. The wily junior was able to take advantage of a copper giant reeling under a heavy debt load, and starved for cash in the face of copper prices that were bottoming at around US$70 per lb. — a fifteen-year low.

Equinox wasn’t the only junior able to pick up valuable assets on the cheap from Phelps Dodge as it retreated from southern Africa and restructured: First Quantum Minerals acquired the Kansanshi copper deposit in Zambia and Dynatec scooped up the Ambatovy nickel-cobalt deposit in Madagascar.

To get its initial 51 per cent interest in Lumwana, Equinox hired Aker Kvaerner to complete a US$13-million bankable feasibility in late 2003. Last December, Equinox boosted its stake to 100 per cent by paying Phelps Dodge US$5 million, though the major retains 1 per cent net smelter return royalty.

The Lumwana project covers a 1,355-sq.-km mining licence that hosts two large undeveloped copper-cobalt-uranium deposits, situated 7 km apart and named Malundwe and Chimiwungo. The 2003 bankable feasibility study, which incorporated more than 125,000 metres of drilling by Equinox and its predecessors, outlined resources in the two deposits of 269 million tonnes grading 0.8 per cent copper, including reserves of 205 million tonnes at 0.79 per cent copper, 207 grams per tonne cobalt and 0.024 gram per tonne uranium, using a copper price of US80 per pound.

Lumwana boasts an additional inferred resource of 632 million tonnes at 0.6 per cent copper, plus many exploration targets nearby, including the significant Chimiwungo North discovery. In short, Equinox has managed to secure 100 per cent ownership in two of the world’s largest undeveloped copper deposits not held by a major producer.

Aker’s study foresaw Lumwana cranking out 125,000 tonnes of copper in concentrate each year at a cash cost of US56 per lb., for at least seventeen years. The metallurgy is simple and recovery rates are high.

However, a major development hurdle is location: the deposits are in a sparsely populated part of the country, well away from the high-grade Zambian Copperbelt, 220 km to the east along the Northwest Highway. A lack of infrastructure has hampered Lumwana’s development in the past, but Equinox has again timed things right by letting First Quantum be the trailblazer in building its Kansanshi copper mine, some 65 km east of Lumwana at Solwezi, with consultants GRD Minproc.

In the last few years, the Zambian government has upgraded the road from the Copperbelt to Kansanshi and Zambia’s electrical utility Zesco has hooked Kansanshi up to the national grid. It should be straightforward work extending the upgraded road and electrical connection another 65 km west to Lumwana.

Zambia is blessed with abundant and cheap hydroelectric power, with Zesco currently operating three major hydro stations in the country and contemplating building a fourth on the Zambezi.

A looming, unresolved issue is that Aker Kvaerner’s 2003 study pegged Lumwana’s capital cost at about US$300 million, plus another US$37 million for a mining fleet. However, with costs for diesel, steel, concrete and other commodities having risen substantially since then, Equinox is warning investors that there will be a significant “bump up” in the capital-cost estimate, due to be revised soon by GRD Minproc, which has been hired to update and refine Aker’s work and build the mine. (With diesel prices now higher than in 2003, for example, Minproc will take a much closer look at using more hydroelectric power, such as in a hybrid diesel-electric mining fleet.)

Of course, mitigating the rising cost in raw materials is a substantially higher price for copper, with Aker Kvaerner having used copper prices of only US80-US90 in its calculations.

Again this is great timing for Equinox: cobalt and uranium prices have roughly tripled since Aker’s study, allowing the junior to reconsider a second development stage at Lumwana in the sixth year of production. It would be centred around a US$300- to US$400-million roast-leach-electrowinning plant that would produce copper cathode, cobalt powders and sulphuric acid on-site, as well as a US$100-million plant to recover uranium oxide.

As with any budding base metals concentrate producer, Equinox has been in a delicate mating dance with smelter-owning suitors in southern Africa. For years, Equinox has had its eyes on four smelters: Glencore International and First Quantum’s Mufulira in Zambia; Vedanta’s Nkana in Zambia; Rio Tinto and Anglo American’s Palabora in South Africa; and Ongopolo’s Tsumeb in Namibia.

While a couple of letters of intent have been signed with smelters this year, Equinox has again been fortunate in that, by waiting to seal a deal, enough time has passed for the entrance of a new major smelter owner in the region: China Nonferrous Metals Mining and Construction (CNMC).

Chinese state-owned CNMC is no stranger to Zambia, having bought an 85 per cent interest in the Chambishi copper in the Copperbelt in 1998. However, in May, CNMC announced plans to build a 100,000-tonne-per-year smelter in Zambia as part of a strategic move to locate power-hungry industries outside Chinese soil in locales with abundant and cheap power. Furthermore, China sees the Copperbelt region as potentially becoming its largest source of copper beyond its own borders.

More curious for Equinox was its subsequent discovery that Lumwana had been highlighted in a recent Chinese language news release on CNMC’s website. This release noted that CNMC’s general manager had met with Zambia’s ambassador to China and had discussed the “speeding up of the development of the Chambishi southeast orebody and Lumwana,” and that China’s Ministry of Commerce had decided to “send a delegation to Zambia’s Northwest Province in the near future to discuss co-operation projects, including Lumwana.”

This was all news to Equinox management!

So, all of a sudden, CNMC is emerging as a potential key partner for Equinox, and discussions are under way.

One last bit of perfect timing was Equinox’s announcement in August — just as copper prices were soaring well above US$1.50 per lb. — that it had signed terms sheets with European, African and Australian lenders to provide a total of US$305 million in financing for Lumwana’s development.

Within weeks, Equinox also closed a C$29-million private placement in Canada. Dual listed in Australia and Canada, the company’s shareholder base has now shifted from being predominantly Aussie to two-thirds North American and European.

Over the years, Equinox has sidelined its strategy of seeking a senior partner and is now preparing to develop Lumwana on its own. It has added to its roster such bright lights as finance specialist Mark Arnesen, a former treasurer with Billiton who was parachuted into Ashanti Goldfields after its hedge-book meltdown in the late 1990s, and chief operating officer Harry Michael, who has substantial experience in developing open-pit mines in Africa — in particular Ashanti’s Geita mine in Tanzania and its Iduapriem mine in Ghana.

Most recently, Equinox added AngloGold Ashanti’s Sam Jonah as non-executive chairman. He joins non-executive directors David Mosher and Brian Penny — two familiar names in the Canadian gold sector.

All told, Equinox secured a prime copper asset at a cyclical low for the metal and followed up with just the right development moves at just the right time. And that’s about as good as it gets in the junior mining game.