Production and Development
Ontario miners weather market volatility
With world-class mining districts such as Red Lake, Hemlo, Thunder Bay, Timmins, Ring of Fire, and Kirkland Lake, Ontario is peppered with prospective geology. According to the Government of Ontario, the province is one of Canada’s top mineral producers, generating C$11.1 billion worth of minerals in 2021 – representing 20% of Canada’s total mineral production value. In terms of gold production, the province produced just under 100,000 kg of gold valued at C$5.8 billion, which represents 42% of total production in Canada.
This production is driven by mines such as Detour Lake, Porcupine, Young-Davidson, Hemlo, Rainy River and Macassa. Reflecting the run up in metals prices, there has been a rush to consolidate, optimize, and extend mine life. This past year has seen significant deals closed that include Agnico Eagles’ US$11 billion acquisition of Kirkland Lake Gold, and Kinross’s acquisition of Great Bear Resources, which included C$1.35 billion in cash and a share issuance of 49.3 million shares and around 59.3 million Contingent Value Rights (CVRs) to Great Bear shareholders.
While acquisitions are an essential part of growing reserves and replacing depleting pipelines, in a jurisdiction such as Ontario that has been bringing minerals to market for over a century, many of the most straightforward deposits have been mined. This fact does not dissuade BHP’s vice president of metals exploration, Keenan Jennings, from still considering deposits in the province. “We have had a good crack at the first 400 meters of the earth’s crust and, as a result, often think that exploration is mature. However, we have a lot of uncertainty beyond that. This is a new greenfield search space for us, and we believe there is a tremendous amount of potential in Canada,” he commented.
Jennings added that this is an opportunity to build a new generation of mines that are more likely to be underground. In turn, they will have smaller footprints and they will be more discreet, which could potentially help limit environmental disruption and improve licenses to operate.
Majors Act to Expand Ontario Presence
When it comes to companies making considerable bets on Ontario, few have been more strategically significant than Agnico Eagle’s merger with Kirkland Lake Gold. The merger created one of the industry's highest-quality and lowest-risk senior gold producers, because both companies have proven assets in leading jurisdictions. Before the merger, Kirkland Lake was in the process of building a new mine at Macassa. Now, under Agnico Eagle, the combined company is in the final stages of completing its number four shaft, which will unlock substantial value.
With respect to synergies resulting from the deal, Agnico Eagle’s VP of Ontario operations, Andre Leite, explained: “Our plan is to explore and better delineate the ore body at our near surface deposit, but the merger also brought in the AK zone, which is an ore body that is very close to our existing infrastructure for the near surface. We are currently in the process of evaluating when that ore body will be coming into production. If the deposit existed solely under Agnico’s purview it would probably not be viable, but because of synergies associated with the merger, the deposit can now be part of an effort to bring on additional ounces earlier than expected.”
At Detour Lake, formerly a Kirkland Lake asset, 2021 was a record year in production. However, 2022 is expected to exceed the 700,000 oz produced in the year prior. According to Leite: “The reason for our success can largely be attributed to the fact that we completed several different projects in relation to the plant that optimized our process.”
Since the merger, Agnico Eagle has increased reserves by approximately 5.6 million oz at Detour, which extends mine life an additional 10 years out to 2052. “This allows Detour to become a very long-term play, because we will have 30 years of operation that will allow us to explore the potential for the asset. Much of our focus in 2023 will be towards better understanding the potential for underground at Detour,” Leite said.
At Barrick, 2022 was about hitting production guidance, continuing to build a strong balance sheet with a sustainable dividend, and shoring up life-of-mine plans to ensure a 10-year production profile remains intact. While Nevada Gold Mines is Barrick’s value foundation, and its presence in Africa and the Middle East region is its most consistent producer, Barrick president and CEO, Mark Bristow stated: “Barrick is under-invested in Canada and we mean to correct that.”
Barrick is particularly focused on Northern Ontario’s Uchi Belt. Since assembling a high-powered exploration team to identify Tier-One and Tier-Two opportunities, it has consolidated an exploration property portfolio of 124,000 hectares in the underexplored belt. Bristow highlights that the goal from here is to continue to build on that: “The Uchi Belt is host to the world-class Red Lake deposit which, in addition to recent new discoveries in unconventional host rocks, has supported our views that this district remains highly prospective.”
Barrick is also not yet ready to let go of Hemlo after 34 years of value creation there. Operations at Hemlo are being modernized and refocused to secure the gold mine’s continued viability. Several programs have been introduced to improve its performance and the mine has moved to an underground contract mining model. “The objective is to upgrade Hemlo to a Tier Two asset and extend its Life of Mine well into the future,” Bristow said. “By repositioning Hemlo as a smaller but more profitable business, we are ensuring that it will continue to deliver value to its community, employees and other stakeholders for years to come.”
Venturing Out of Africa
The Lac des Iles mine has been operating since 1993 and currently employs just under 900 workers plus a few hundred contractors who currently operate the open pit and underground mine, as well as a mill. However, since the asset was acquired by Implats in December 2019, the availability of capital has vastly increased. Lac des Iles was Implats’ first acquisition outside of the African continent, and today, Impala Canada contributes 20% of the group's palladium and about 8% of all PGEs. According to Impala Canada CEO, Tim Hill, the company significantly expanded the underground operation, increasing underground production by approximately 65%, with current production rates of about 11,600 t/d. At the time of acquisition, the mine was producing approximately 7,000 t/d. “At this increased production rate, our operation is one of the largest underground mines in Canada. Our goal in 2023 will be to achieve an average production rate of 12,200 t/d from underground,” Hill stated.
In 2022, Impala also completed construction on its new crushing circuit, which is the first phase of a three-phase optimization program for its mill. The commissioning is the next phase, and will be complete by in spring 2023, and this consists of a number of initiatives for downstream processes in the mill. “We led with the construction of the new crushing circuit because our current crushing plant has had difficulty processing the increased quantity of underground ore. The new crushing circuit will provide additional throughput capacity.”
Multi Asset Senior Mid-Tiers
Throughout 2022, Alamos Gold continued to double down on organic growth, completing construction at La Yaqui Grande in Mexico. The asset is made up of high-grade, good leaching ore, which provides Alamos with low-cost production, and helps the broader Mulatos operation. In Ontario, Island Gold and Young-Davidson also contributed strong production numbers and, despite inflationary pressures, production costs still fell within cost guidance for 2022.
Although Alamos has grown via notable acquisitions in the past, today the company is allocating its capital primarily toward its Island Gold asset. A Phase 3+ expansion study was completed in 2022 that revealed expectations to produce 287,000 oz Au on average every year from 2026 onwards at Island Gold, which is 22% higher than the company’s previous estimate made in 2020 and more than double its 2021 production. “With all the high-grade gold we found at Island Gold, it made sense to expand the infrastructure of that mine to accommodate higher throughput. Effectively, we are taking Island Gold from producing 1,200 t/d to 2,400 t/d,” said John McCluskey, president and CEO of Alamos Gold.
Reserves and resources at Island Gold are now in excess of 5 million oz, and given the stated level of production, the company still has 17 years of production ahead. Regarding his M&A outlook, McCluskey observed: “It is clear to the market that investments made in our existing projects are highly profitable and lower risk, and shareholders look encouragingly at that. In contrast, stepping out into this market and doing M&A has proved to be very problematic.”
One of the notable deals of 2021 was Equinox Gold’s acquisition of Premier Gold and its Greenstone project in Ontario. Greenstone is the biggest project Equinox Gold has ever owned, and the deposit has over 5 million oz in reserves for a 14-year mine life in the main open pit. It has a life of mine grade of 1.27 g/t and is going to produce more than 400,000 oz/y Au for the first five years, making it one of the largest, highest-grade open pit mines in Canada. Equinox currently owns 60% of the project, so Greenstone will add close to 250,000 oz/y of low-cost gold production to the company’s portfolio. According to Equinox president and CEO Greg Smith: “We are progressing well with construction and the project is on schedule to pour gold in the first half of 2024.”
Smith expressed his belief that Greenstone has the potential to be a transformative asset for Equinox, as the project possesses a number of favorable elements beyond prospective geology. “It was an incredibly rare opportunity to buy a permitted project in Canada, of scale, almost construction ready, with a great team, fantastic infrastructure, and with good community relations and government support,” Smith reflected. “Currently we are focused on getting Greenstone into production, but our number one M&A target over the next few years would be to consolidate Greenstone. We would love to have 100% ownership of Greenstone in the future.”
Adequate Size Leads to Outsized Returns
Jake Klein, executive chairman of Evolution Mining, holds the view that the senior mid-tier space (one to two million ounces of production) is the best space to be from a risk-return perspective. At this stage he suggests: “Discovery can make a material difference to your value and you can do M&A or asset deals which are accretive. This is the space in which Evolution operates and we feel it has the potential to provide superior returns to investors over the long term.”
One transaction Klein hopes will deliver over the long run is Evolution’s cornerstone Red Lake asset acquired in 2020. Currently an operational transformation plan is underway to restore Red Lake to a premier Canadian gold mine. The key to Red Lake’s future, according to Klein, lies in establishing a new mine in the Upper Campbell area. “It has a decline access that will give us an alternate, independent, new high-grade area to mine. That is really important because there are three other mines that are accessed via the two shafts. All of these lower areas are capable of delivering close to a million tonnes of high-grade ore per year.”
The high-grade feed coming from Upper Campbell will enable Evolution to establish a baseline of 200,000 oz/y of production, and from there Klein anticipates Red Lake will be a 300,000 to 500,000 oz/y operation.
Poland Meets Sudbury
When Polish multinational KGHM acquired Quadra FNX and its Victoria project located in the Sudbury basin over a decade ago, it was optimistic the transaction would guarantee future profits and open new horizons for company growth. Unfortunately, the project was mothballed shortly thereafter due to slumping mineral prices. Thanks to the renewed enthusiasm for critical mineral projects in safe jurisdictions, KGHM’s C$1 billion Victoria mine in Sudbury is now moving ahead. The asset contains a multi-element ore body with high-grade copper, nickel, cobalt, and a host of precious metals.
Steven Dunlop, general manager‑Canada for KGHM International outlined that KGHM’s vision is to develop a lower energy intensity project through green initiatives such as BEV. He noted: “If Canada is going to succeed in its efforts to decarbonize, copper and nickel will play an important role in getting us there.” The company will also leverage access to new technologies they gain exposure to by being in close proximity to the Sudbury technology ecosystem. “Sudbury is now an established global mining hub, and we are fortunate to have these breakthrough technologies available to KGHM within an arm’s reach,” Dunlop commented.
Perhaps one of the silver linings of Victoria’s dormant period was that management was able to better plan out the mine and strengthen partnerships with area First Nations. These are all welcome benefits, because there is a large capital spend on the horizon and every effort to mitigate unexpected costs is beneficial. “KGHM has been able to leverage its international arm to help fund and work towards its vision for sustainable growth. Additionally, KGHM has worked closely with our Indigenous communities, Vale, DMC Mining Services, the City of Sudbury and a host of others to move this project forward,” Dunlop said.
Passing Salt
Further displaying the diversity of minerals being produced in Ontario is Compass Minerals’ Goderich Salt mine, which began operating in 1959 after oil exploration efforts inadvertently led to the discovery of a huge salt formation. Today, the Goderich mine is the largest underground salt mine in the world, and it has the capacity to produce up to 8 million t/y, with most of that salt used for de-icing snow and ice conditions.
Remarkably, the salt deposit has enough reserves to sustain production for the next 60 to 80 years, but the company’s financial results are highly correlated to snowfall in the Great Lakes region in Southern Canada and the Northern US Rust Belt states. In order to diversify, Compass has an emerging lithium and fire-retardant businesses to serve as counter-seasonal businesses to its core salt segment. The lithium business has garnered particular attention after Koch Minerals & Trading, a subsidiary of Koch Industries, agreed to make a US$252 million investment in Compass Minerals. “Our goal is to build out an overall business that is more steady throughout the year with these counterbalancing, seasonally anticyclical businesses we are moving into,” Compass Minerals president and CEO Kevin Crutchfield stated.
Article header image courtesy of McEwen Mining