Metals, Mining and Money Markets

Largo bets on hunger for Yukon tungsten

PREFEASIBILITY AT NORTHERN DANCER PROJECT UNDER WAY

By Kip Keen

SITE VISIT

TESLIN, YUKON--"If China's hoarding their tungsten, where does Japan go?" Tim Mann, Largo Resources' (LGO-V, LGORF-O) vice-president of engineering, asks a small gathering of drillers, geotechs and media types over lunch in the cook-shack at Largo's Northern Dancer tungsten- molybdenum project, in the Yukon.

It's an interesting question about the whitish-grey metal crucial to the manufacture of a wide swath of products from cemented carbides to superalloys. It's an even more interesting question when you consider the past and future of tungsten production worldwide.

Of the world's top three producers, China makes the vast majority of the planet's tungsten. In 2006, the country churned out 62,000 tonnes of tungsten (in terms of metal content) compared with Russia's 4,500 tonnes and Canada's 2,600 tonnes --of which 1,900 tonnes came from a single mine: North American Tungsten's (NTC-V, NATUF-O) recently reopened Cantung mine in the Northwest Territories.

"In the past, China has been a problem," says Andy Campbell, Largo's vice-president of exploration. "With China's vast and cheap tungsten resources, its ability to flood the market has made it difficult for the rest of the world to develop its own tungsten mines. "That's changed," Campbell says.

Despite China's still gigantic tungsten engine, its appetite for the brittle metal has recently outstripped its tungsten horsepower. Once a net exporter of the stuff, it is now a net importer. From 2005 to 2006, its imports of tungsten doubled to 6,300 tonnes.

Which leads back to Mann's initial question: Where will Japan -- or the rest of the world for that matter -- go to satiate its tungsten hunger?

Mann believes a big part of the answer lies in the Yukon, which the Yukon Geological Survey estimates holds about 20% of the world's known tungsten resources.

As Michael Burke, head of Mineral Services with the Yukon government puts it: "A big chunk of it is here. That's why the Japanese are so interested."

And with its Northern Dancer exploration project, one of the largest low-grade tungsten-moly deposits in the world, Largo hopes to quench some of the world's tungsten thirst.

By road, Northern Dancer is 290 km southeast of Whitehorse in low-lying mountains on the Yukon and B. C. border. The nearest town is Teslin, 65 km west, and the nearest paved road is the Alaska Highway, 12 km away along a narrow gravel road that winds down a valley and through increasingly less stunted fir and spruce. The site itself hovers on either side of the treeline.

Largo's exploration camp -- a cook-shack, half a dozen prospector tents with diesel burning stoves and 20-odd drillers, geologists, geotechnicians, cooks and project overseers -- is not, however, the first to be established here.

Although the Canadian Geological Survey noticed tungsten mineralization in the area as early as the 1950s, Northern Dancer (then known as Logtung) went unnoticed until Cordilleran Engineering, working for the Bath Uranium Group, came across it in 1976. Bath quickly passed the claims on to Logjam Resources, which in turn, flipped them over to Amax Potash in 1977.

Amax did the first substantial work outlining the resource. Over the next four years, Amax built a road into it, drilled 51 holes and dug a 500-metre decline to extract a bulk sample for metallurgical tests. In 1981, Amax went as far as creating a digital model of the deposit and evaluating the costs of developing it.

It wasn't until 1983, however, after Amax passed the project on to Canamax Resources that Northern Dancer got its first resource estimate. The result: a historical resource pegged at 162 million tonnes grading 0.13% tungsten and 0.052% moly.

The numbers were good enough to convince Canamax to conduct a prefeasibility study. But, for all its efforts, Canamax found that the low-grade deposit was uneconomic at the time.

The idea of developing Northern Dancer collected dust for the next 10 years until NDU Resources optioned the property in 1993. During the mid-1990s, NDU put in two drill holes and conducted soil sampling, but the company dropped the option with disappointing drill results and the claims subsequently lapsed.

Strategic Metals (SMD-V, SMDZF-O), then known as Nordac Resources, was the first to notice that the claims had lapsed. Strategic quickly restaked the property in 1998 and for the next six years, slowly poked away at Northern Dancer, putting in some additional trenching and rehabilitating the roads -- setting the stage for Largo.

Largo goes north

At the time Largo was half a world away, working in warmer climes, and developing its first project, the Macuchi polymetallic copper-gold project in Ecuador. Campbell says the company didn't have its sights on the Yukon at all.

Instead, while Ore Resources optioned Largo's Macuchi project, the company shifted its focus from Ecuador to Brazil, where Largo picked up the Maracas project with the highest known grade of vanadium in the world at 17.3 million measured and indicated tonnes grading 1.44% V2O5. Largo has since targeted Maracas for 2009 production.

As for Macuchi, it was passed back to Largo when Ore Resources was acquired by Teck Cominco (TCK. B-T, TCK-N). Given the political situation in Ecuador, which Campbell calls "a challenge," Macuchi has been shunted to the back burner -- a situation both Mann and Campbell are happy with. They would rather focus their efforts in politically stable countries like Canada and Brazil.

Although Largo didn't have roots in the Yukon, its chairman, Stan Bharti, had heard of the 15-sq.-km Northern Dancer project through a colleague.

The Largo team liked what they saw and optioned the property from Strategic Metals in 2006.

The deal has two stages. For the initial 70% interest, Largo has issued Strategic Metals 4 million shares and must spend $5 million on exploration and development. Largo can pick up the remaining interest for an additional $5 million dollars or the equivalent value in stock, and has also agreed to a 1% net smelter return royalty.

As for the first $5 million, Mann says, "We're already there."

Largo is now into its third season of drilling with two of Kluane International Drilling's rigs on the go. With 17 holes and 4,000 metres in 2006, and 26 holes and 8,500 metres in 2007, Largo has defined an indicated resource of 141 million tonnes grading 0.1% tungsten and 0.026% moly with an additional 253 million inferred tonnes grading 0.1% tungsten and 0.022% moly. With this year's infill drilling, Largo is further refining its geological model and hopes to upgrade the resource to measured.

Not that our group can see much evidence of that drilling on our tour of the property.

The night before our visit, eight inches of sticky mid-June snow masked the site in a blanket of white, turning the dirt road from the cook-shack up to the drill rigs into a treacherous mud Slurpee. At the bottom of the steep slope up to one of Largo's thundering drills, even the torque and treads of a GMC Yukon's V-8 can't cut it. The trucks give out and the group walks -- or slides -- to see Kluane's drills churning out core.

The first thing you notice about Kluane's drills is their size -- smaller than your average rig and designed by Kluane to be fully disassembled and packed in and out of remote projects by a crew of 20. Though they're perfect for isolated projects in Canada's North, they were in fact designed for the thick, Ecuadorian jungle.

Indeed, a large portion of the drilling crew is Ecuadorian. Lucky for them, given the turmoil over mineral exploration and development in their native country, the explosion of exploration in Canada's North has led to a shortage of skilled workers. To meet the high demand for drillers, last year Kluane began bringing in Ecuadorians trained on their South American projects.

Although Largo is paying a premium for Kluane's drill crews, Mann says it's worth it. With dozens of exploration projects competing for the same equipment and personnel, Mann says it's critical to have a reliable drill company. Otherwise, if you try and organize your own drill team, "Two weeks later, they send you an email saying they can't come."

Working on 12-hour shifts around the clock, Largo is getting about 50 metres a shift from two drill rigs, with a third on the way.

The geology

Back at the core shack, geotechs brush snow off core for everyone to see veins bearing the three minerals of interest: scheelite, molybdoscheelite and molybdenite.

"We're surrounded by porphyry intrusions," Burke explains. "This is the last gasp. Intrusions have come up into the sedimentary rock and created what we call these skarns --full of veins too."

Three intrusions date to the early Jurassic and Cretaceous periods, the most recent of which is the key to Northern Dancer. The oldest intrusion on the northern wing of the property is about 186 million years old and left behind two dioritic stocks and associated satellite dykes. This intrusion is about 1 to 2 km wide and 4 km long.

The next intrusion occurred during the mid-Cretaceous about 110 million years ago and left behind monzogranitic stock and associated pegmatic dykes and sills over a 2.5 by 1.5-km area.

But it is the third that matters the most to Largo. Just a bit younger than the mid-Cretaceous intrusion, the third intrusion created a felsic porphyry dyke complex, the main host to the tungsten-moly mineralization, found in a strongly fractured vein set.

It's this vein set that has been the focus of Largo's drilling campaign. "Therearetwofoci," Mann explains. "There is mainly tungsten in the southwest and moly in the northeast."

While tungsten-bearing scheelite has been the focus of the project, Farshid Ghazanfari, a geological technical co-ordinator, says that moly isn't merely a credit at Northern Dancer. "It is not just a byproduct," he says, noting the higher grades encountered in the northeast.

Still, tungsten is driving Northern Dancer. In a dark, windowless room set up in the core shack, Ghazanfari scans an ultraviolet (UV) light across a length of core. The scheelite glows intensely, an iridescent white-blue -- a quality that Largo plans to put to good use.

The plan

Largo is currently in the throes of a prefeasibility study looking at the development of an open-pit mine with dry-stack tailings.

"We're looking to get the higher-grade tungsten into the mill as fast as possible," Mann says.

Largo would mill concentrate on-site, getting tungsten down to about 80% purity with conventional flotation, and then truck it to the port of Skagway, Alaska, about 315 km southwest.

As for infrastructure, although the site is not all that remote in comparison with many other projects in the North, "power is always an issue," Mann says. Since extending the grid would be too expensive, Largo's design is currently based on diesel-generated electricity, with natural gas potentially playing a role. But if energy prices remain high, the company will consider renewables.

"Maybe wind, maybe a small hydro plant," he says.

The other burning question right now is mill size and how to keep infrastructure as small as possible. That's where the glowing quality of scheelite comes in.

Largo has been working with a company called Terra Vision to design an optical sorting system for heavy media separation. Preconcentrated ore means less tailings, and less, higher-grade throughput means a smaller -- and cheaper -- mill design.

Terra Vision tried a number of different sorting schemes including hand-picking, UV and X-ray and found that UV was best. Mann expects Largo will be able to reject 50% of what would otherwise be null feed. "Obviously," he says, "this optical sorting is a technical breakthrough."

With it, they can look at mining 40,000 tonnes a day, rejecting that 50%, and milling 20,000 tonnes. He also says they may look at a 10,000- tonne-per-day option. It's all part of getting "the most bang for your buck," Mann says. He and Campbell hope to have operations started by 2013.

Here we go again?

Between 1962 and 1986, the Cantung mine did quite well, taking advantage of hot tungsten prices in the latter half of the 1970s. In fact, it put Canada on the map as a supplier of 8% of the world's tungsten. But when the Chinese flooded the market during the 1980s, Cantung couldn't survive and the mine closed up shop for the next decade and a half.

For that reason, some might reasonably wonder at the chances for survival of Northern Dancer, among other tungsten plays in the Yukon. Could history repeat itself? Could the Chinese flood the market again?

Although anything is possible, in its latest assessment of tungsten production worldwide, the United States Geological Survey (USGS) rhymed off a litany of tungsten commandments the Chinese government has recently made. These help explain Largo's optimism for what some analysts are calling the "new tungsten market."

"China's government restricted the amounts of tungsten that could be produced and exported, increased the resource tax on tungsten mining, banned foreign investment in Chinese mines, banned tolling of tungsten concentrate, introduced regulations to limit the building or expansion of tungsten processing plants, continued to shift the balance of export quotas towards value-added downstream tungsten materials and products, and imposed export duties on most tungsten materials."

And perhaps most importantly to those eyeing the development of tungsten resources outside China, the USGS predicts that: "To conserve its resources and meet increasing domestic demand, the Chinese government (is) expected to continue to limit tungsten production and exports and to increase imports of tungsten."

That's what Largo is depending on. Back in the Northern Dancer cook-shack, Campbell sums up his feelings.

"We really see the price of tungsten continuing to rise. Really."

Largo Resources' geological technical co-ordinator Farshid Ghazanfari trudges up the mountainside at the Northern Dancer project, in the Yukon, after a mid-June snowfall.

The Northern Miner, Volume 94 Number 24, Aug 4 - 10, 2008