Kitsault moly mine work underway
SIX YEARS after it bought the site of a former molybdenum mine at Kitsault on the north coast, followed by intensive periods of drilling and exploration and then thousands of pages of technical, environmental and other studies leading up to federal and provincial approvals and an economic benefits deal signed with the Nisga'a Nation, Avanti Mining is working up to what it expects will be full-on construction starting next year for a revived operation to open in 2017.
The work being done this summer and into fall consists of building a four kilometre road to where the mine's planned main processing plant will be and site clearing and preparation for an accommodation camp.
“It'll be of the same standard as a forest service road,” said Avanti chief operating officer Jeff Lowe of the gravelled access road which will branch off of an existing forest service road.
Work at the plant site includes expanding the current 50-person exploration camp to hold 150 people and preparing the ground for permanent facilities such as a kitchen, rec centre and offices, he said.
Road construction is being done through a contract let to Hobiyee and Bear Creek Contracting Joint Venture made up of Bear Creek Contracting of Terrace and Nisga'a-owned Hobiyee Management Ltd.
“We'd like to get as much of that work done as possible in order to put in those facilities when they are ready,” Lowe added.
Mike Edwards from Bear Creek described the road project as exciting in two respects.
“It's great to be involved in a local project like this and we're excited about our partnership with Hobiyee,” he said.
“There's good opportunity for training of Nisga'a people and we're looking forward to being involved with local people.”
The work now underway is part of a multi-pronged plan for next year's start of actual construction which, at the peak, will employ 700 people. Avanti has hired AMEC, a mines engineering and consulting company, to prepare the detailed kind of drawings and specifications needed.
“Having that detail is pretty important as we start soliciting quotes from manufacturers,” said Lowe.
“As we get into summer you can expect us to start signing some pretty major contracts.”
The object, said Lowe, is to have “everything fit together like a glove” starting next year.
Plant site earthworks and power line work is to start this fall.
Avanti is forecasting a 14-year mine life employing 300 directly but additional drilling at the location has officials optimistic of extending operations.
A successful start up by Avanti will be the third time molybdenum has been mined from Kitsault. The second attempt in the late 1970s resulted in a town being built but production ceased in 1982 when the market for molybdenum, which is primarily used in steel alloys, collapsed.
Concentrate produced at the site will be shipped south of Kitsault on a forest service road before turning east on the Cranberry Connector then south on Hwy37 South to Hwy16 at Kitwanga for the journey to port facilities at Vancouver.
From there it will be shipped to overseas smelters.
Avanti already has an agreement with a German firm to buy half of its production and an agreement with a major South Korean steel manufacturer to buy another 20 per cent of its production.
Those kinds of agreements go a long way in negotiations now underway for the company to line up the approximately $1 billion it needs in construction capital and then working capital during the mine's early operating life before it can establish cash flow, says Avanti chief financial officer Graham du Preez.
The German off take agreement to ThyssenKrupp Metallurgical Products brought on an additional advantage for Avanti.
Based on the amount of its product to be sold and consumed within Germany, the German federal government has agreed to provide a loan guarantee of up to $300 million of any debt undertaken to finance the project.
The off take agreement (50 per cent of production for the life of the mine) with German steelmaker Thyssen Krupp, comes with an additional advantage for Avanti.
The amount of molybdenum sold and consumed inside Germany, is sufficient to qualify Avanti for a German government loan guarantee through a program it maintains.
Under that loan guarantee program, European banks are mandated to collectively provide US $300 million of the total project finance facility for the mine’s development.
“For a junior resource company like Avanti, that makes a huge difference and gives the project credibility,” du Preez said of the financial groundwork already in place.
“The Korean off take agreement in particular makes the project attractive to Asian financiers as well,” du Preez added.
Avanti's Kitsault deposits also contain an amount of silver, leading to the possibility of selling that as one way of raising capital.
“There are companies that would be willing to pay a percentage up front in this type of streaming transaction,” said du Preez.
The ability to sell a byproduct further adds to the kind of innovative financing junior resource companies need to undertake to move their projects forward, he said.