Quebec gold junior uses cash advantage to snap up niobium asset
TORONTO (miningweekly.com) – Sure, it may have just announced plans to buy as much as 75% of an advanced niobium/tantalum project, but Montreal-based MDN Inc remains firmly a gold-focused company, says exploration vice-president Marc Boisvert.
For MDN, the end game is to find a “company maker” gold deposit on its exploration prospects on Tanzania's rich greenstone belt and Quebec, (or elsewhere) and the foray into niobium is quite simply a means to that end.
“We want to be sure the exploration is not going to stop, and that means we have to guarantee it with our own cash,” Boisvert said in an interview.
“It is all about near-term cash flow.”
MDN is well funded for now, with a comfortable C$24-million in cash, thanks to a steady stream of revenue from its 30% interest in Barrick Gold's Tulawaka mine in the east African nation.
But production at Tulawaka will decline this year after the operation transitioned to underground mining, and unless the current underground exploration program succeeds in extending the mine life, the current reserves will be mined out by 2011, which means that MDN will need to find another way to pay for its own exploration activities.
The company believes it has found a neat little solution, after securing an option to buy a controlling interest in privately-held Les Minéraux Crevier (MCI), which owns a lucrative niobium/tantalum resource in Quebec that MDN believes could be producing metal as early as 2012.
If it exercises the option in full, MDN will spend C$13,5-million to buy 75% of MCI in two stages, redeem an MCI convertible debenture and complete the necessary preproduction and feasibility studies on the project.
MCI is currently 50%-owned by Toronto-based Iamgold, whose Niobec ferroniobium operation is located about 190 km away.
The balance of the firm is held by three individual investors, including MCI's chairperson and president.
The Iamgold continued ownership and technical involvement will also be a key asset as the project moves closer to production, said MDN senior adviser Martin Wong.
Like Niobec, Iamgold inherited the MCI asset when it acquired fellow Canadian Cambior, in 2006.
MCI’s ore type differs from the Niobec mine , because the project will produce niobium oxide, as opposed to Niobec's ferroniobium, as well as tantalum oxide, and so it was not something the larger company could integrate in their current mill, said Boisvert.
At the end of the day, it was a matter of being at the right place at the right time, he commented.
“They [MCI] needed cash to move ahead with the project and we are one of the companies in this market that has the funds to move quickly.”
MDN will fund the completion of a feasibility study within 36 months, although the firm expects it will likely be closer to 20 months.
The company has received indications of support for the project from the government of Quebec, Wong said.
MDN will fund the MCI acquisition and feasibility study from its own cash, but would need to look at external financing if a construction decision is made.
“But that is not going to be a problem,” assured Boisvert.
“We have already been approached banks and it's clear people are willing to get involved in the project.” STRATEGIC METALS
Niobium and tantalum are both considered strategic metals by a number of governments, including the US, and demand for both metals is forecast to grow by around 5% a year for the foreseeable future.
Niobium is used in speciality high-strength steels, while tantalum is essential to most electronic devices, because of its distinction as the metal with the highest known specific capacitance, or ability to hold and instantaneously release electrical charge.
The metals are sold in a similar way to uranium, generally over long-term contracts, which is where the industry contacts and intelligence available from Iamgold will be key.
The MCI resource contains NI 43-101-compliant resources of 5,12-million kilograms of tantalum oxide and 47,89-million kilograms of niobium oxide in the indicated category, plus 3,44-million kilograms of tantalum oxide and 27,34-million niobium oxide in inferred resources.
Based on available numbers, the mine could produce 1,15-million kilograms of niobium oxide and 115 000 kilograms of tantalum oxide a year, over a life of 17 to 20 years.
At April 2009 prices, this would generate annual revenue of $51,75-million from niobium sales and $14,03-million from tantalum.
Once in production, MCI could be one of the five largest sources of tantalum and niobium, Wong estimates. ON THE PROWL
With the MCI transaction under its belt, MDN continues to look for further opportunities to grow, and put its advantage as a cashed up junior to best use.
The firm would consider teaming up or buying rivals that own near-feasibility gold projects, but don't have the funds to see their project through, Boisvert said.
“No, it's quite the opposite,” he chuckled when asked if MDN might be a takeover target for a larger gold-miner.