Xstrata Throws Wrench In The Works At Cobalt Project

VANCOUVER — Rarely do mining companies make headlines for objecting to a competitor’s mine development based on its potential environmental impact.

But in a strange twist to the environmental approval process at Formation Capital’s (FCO-T, FCACF-O) Idaho cobalt project (ICP) in east-central Idaho– where the company has been able to bring onside environmental and native groups — Xstrata (XSRAF-O, XTA-L) has become one of two objectors to the U. S. Forest Service’s (USFS) positive record of decision on ICP’s environmental impact statement.

The dispute is one between neighbours over the potential impact of ICP on local waterways and has escalated to the point where Formation Capital has alleged that Xstrata may be trying to block the development of ICP to protect its own near-monopoly of the global high-purity cobalt market. Formation says Xstrata and its biggest shareholder, private company Glencore International, control 85% of that market.

Located 45 km west of Salmon, Idaho, ICP would be an underground mine, and hosts proven and probable reserves of 2.6 million tonnes grading 0.559% cobalt, 0.596% copper and 0.4 gram gold per tonne. The mine would provide ore to Formation Capital’s hydrometallurgical facility 250 km away, near Kellogg, where the company would produce about 1,525 tonnes of high-purity cobalt per year — and make Formation a direct competitor of Xstrata.

Xstrata has appealed the USFS’s green light of the project’s environmental assessment. But the Swissbased major maintains it is only protecting its interests next door to ICP at the past-producing Blackbird mine — an EPA Superfund site. Along with a Rio Tinto (RTP-N, RIO-L) subsidiary, Xstrata has spent more than US$70 million on re-mediation at Blackbird through three of its wholly owned subsidiaries: Noranda Mining, Noranda Exploration and Blackbird Mining. The Blackbird site also happens to be downstream of ICP and Xstrata says it doesn’t believe that Formation Capital’s environmental impact statement addresses Xstrata’s concerns that it could end up being on the hook to clean up potential pollution from ICP.

Dominique Dionne, Xstrata vice-president of corporate affairs in the company’s Toronto-based nickel division, tasked with responding to Formation Capital’s allegations following The Northern Miner’s inquiries to one of its attorneys in Idaho, says the appeal is not intended to prevent ICP from proceeding.

“It is intended to protect the money that has been spent, more than US$70 million, by Noranda and others, to remediate the Blackbird mine and the streams in that area,” she says. “The streams and the water quality and the fish populations and the waterways have been re-established, so that’s a done deal. The appeal is really to protect that, in the view of the potential impact of any new development on these waterways.”

But E. R. Honsinger, Formation Capital vice-president corporate communications, argues Xstrata does not “have any environmental legs to stand on” as regards the issue of potential downstream impacts. Honsinger notes not only have local groups, including the Idaho Conservation League and a First Nation band, agreed not to oppose the mine’s development but that the USFS has signed off affirmatively on its environmental impact statement.

“The only thing we can read between the lines here is that it would appear that through (Xstrata’s) actions they are: a) either using us as a potential soapbox to try and get out of all of their cleanup responsibilities, or b) they’re trying to corner the market, the cobalt high-purity market.”

Although Dionne declined to respond to those specific allegations, she defends the company’s stance on ICP. She explains that Xstrata only wants to make sure Formation Capital’s environmental impact statement explicitly addresses potential impacts to the Blackbird property and says the company does not fundamentally oppose a cobalt mine next door.

Putting it bluntly, she says ICP’s environmental impact statement as it currently stands would not protect Xstrata and its subsidiaries at Blackbird from potential problems upstream. “The thing is, the way it’s been done now, we would be exposed,” she argues.

But Honsinger questions Xstrata’s banner of environmental altruism, noting that opposition to the project by Noranda before Xstrata acquired the company in 2006 (through a takeover of Falconbridge, which had merged with Noranda in 2005) only came after Formation Capital made it clear that it would refine its own cobalt.

Prior to that, Honsinger says it was “more or less inferred” Formation Capital would send concentrate to Noranda or Falconbridge cobalt refineries in Canada “because they had such a monopoly on that sort of processing.” At the time, Noranda had a 20% stake in Falconbridge.

As early as the year 2000, Falconbridge had made Formation Capital a formal proposal for exclusive rights to its concentrate. And in a letter to the USFS dated May 6, 1998, Noranda wrote that it supported the development of ICP, then in the exploration stage. Noranda mining general manager Joseph Scheuering wrote, “the Blackbird mine would offer support to the Formation Capital proposal for future exploration activity.”

In the same letter, Scheuering went so far as to say the “eventual development and extraction of this resource is inevitable. The United States and international markets need this resource to guarantee a reliable supply of this strategic metal.”

According to Honsinger, however, the relationship between Noranda and Formation Capital soured in late June, 2001, only after Formation Capital announced it had bought the Big Creek hydrometallurgical processing complex near Kellogg, and that it planned to retrofit the silver-gold-copper facility to handle cobalt from ICP.

“When we changed from potential customer to potential competitor, within thirty days or so the Blackbird mine site group (Noranda) had filed some alleged concerns they had regarding the project with the Forest Service,” Honsinger says. “So whether that’s coincidence or not — it’s the chain of events and that’s the facts. You can draw your own conclusions on that one.”

In a letter outlining those concerns to the USFS dated July 26, 2001, a month after Formation Capital’s purchase of the Big Creek hydrometallurgical complex, Noranda, through its Blackbird mine site group (BMSG), focused on many of the same issues that Xstrata is raising today in relation to the potential downstream impacts to re-mediated streams.

“At this point. . . we are doubtful that impacts (from ICP) on the ongoing Blackbird mine remediation can be avoided,” BMSG wrote.

Noting that the opposition in the letter addressed Formation Capital’s plan of operations which it submitted to the USFS a half year earlier and which contained no mention of Formation Capital’s plans to process its own cobalt, Honsinger wonders: “Why did they wait over six months to file their concerns. . .?”

At presstime, Dionne had not returned a call for a follow-up interview.

Both parties state a desire to resolve the matter through negotiation. But Honsinger and Dionne relate discordant accounts as to how much of an effort the companies have made to resolve the cross-fence dispute.

Dionne says there have been several meetings and constant conference calls with Formation Capital. “We’ve been working with them and our only interest is to protect the US$70 million that has been spent on this,” she says.

But Dionne’s description of regular contact between the companies incenses Honsinger, who stresses that he would like nothing more than to meet and resolve the issue with Xstrata but that Formation Capital’s calls to the major have gone unanswered.

“Their contact with us has been extremely limited,” Honsinger says, adding: “Their legal counsels’ filing of appeals and so on has been extensive.”

As for the appeals (a second appeal was filed by an individual), Kimberley Nelson,
the USFS Salmon- Challis district ranger currently overseeing their assessment, says the USFS will announce its decision regarding them on April 30 after the regional forester receives her department’s recommendations.

Dionne says Xstrata is seeking meetings with the USFS and the U. S. Environmental Protection Agency “to make sure that there will be a distinction between the historical effects of the mining and the new impacts that could take place on the waterways.”

Her understanding at this point is that the meetings have been requested “and we’re waiting on that,” she says. But, while the USFS considers the appeals, Xstrata’s influence, or Formation Capital’s for that matter, will be limited.

“We do not consult with them during the appeal process,” Nelson says.