Production in Québec

Producers overcome Covid challenges to capitalize on rising commodity prices

When the pandemic struck, its’ impact on commodity prices and production levels was highly uncertain. The government of Québec initially declared aluminum production to be an essential service and required that all other mining companies scale down operations to a minimum in its initial directive on March 23, 2020. However, by April 13, 2020, the provincial government reversed course and allowed mining operations in the province to resume, subject to compliance with health and safety orders and recommendations. Results across commodities and companies have since diverged.

Mines like Canadian Malartic, the largest gold mine in Canada, bounced back quickly to deliver big production and cash flow for its 50/50 owners Agnico Eagle and Yamana, as well as Osisko Gold Royalties (OGR), who has a 5% net smelter return royalty on the mine. In addition to successful production, the mine owners came to a positive decision on the underground development of the mine. OGR president and CEO Sandeep Singh highlighted that this decision to spend US$1.3 billion to build the underground deposit doubles the value of their royalty. “That will take our flagship asset to two decades of mine life today, with the expectation that it will continue to grow significantly beyond that. Canadian Malartic is a substantial asset that underpins the value of our company,” Singh affirmed.

image

“At the end of 2019, in parallel with our work at Westwood, we started mining a small open pit deposit called Grand Duc, which is adjacent to the Doyon mill complex. This work would have been completed in 18 months, but as we progressed, we realized that there was significantly more gold ore than originally anticipated, and it was much higher grade compared to our conservative initial estimates.”

Gordon Stothart, President and CEO, IAMGOLD

Another important operation in the province is Eldorado Gold’s Lamaque mine. After acquiring the project in 2017, Eldorado began producing in March 2019. Exactly one year later production ground to a halt due to province-wide restrictions for almost four weeks due to Covid. Despite the unexpected path, Lamaque reached over 144,000 ounces of production in 2020, 14,000 ounces more that its stated production goal. Eldorado president and CEO, George Burns reflected: “We lost about 8% of the hours of work that were going to be done underground, in the plant, and in our exploration. That put us on our backfoot.”

Adding to the issue, like other miners, Eldorado could not move people within the mine the way they used to due to physical distancing requirements. Despite both of those headwinds, the company still managed to outperform budget. “They moved more tons, by stretching out the underground ahead of plan. They pushed more through the plant than we expected, and this is a testament to our people's ability to create value and problem solve,” Burns said of the Eldorado team.

Eldorado’s ambitions with Lamaque and the surrounding area do not stop there. Management is open that their focus is on expanding and extending mine life at Lamaque. Consistent with their vision, in April 2021, Eldorado closed the acquisition of QMX Gold. “The QMX acquisition increases our land position in Québec by 5.5 times. QMX also sits adjacent to Lamaque, so there is deep knowledge and comfort with the geology and surrounding community. We invested in QMX over a year ago, similar to what we did with Integra, getting in early, familiarizing ourselves with their team. We think there is a bright future here and we have the operating capability to turn these exploration opportunities into gold production, and into profits and value for shareholders,” Burns asserted.

Since acquiring Casa Berardi in 2014, Hecla Mining Company has made the property a key pillar of its strategy to find high quality assets in stable jurisdictions. As part of Hecla’s portfolio, which includes Greens Creek in Alaska and Lucky Friday in Idaho, Casa Berardi is yet to achieve its full potential. However, Hecla president and CEO Phil Baker is determined to continue to improve their Québec operation. Of the eight years Hecla has owned Casa Berardi, it has generated positive free cash flow in seven of them, but Baker believes the 37 km long land position with both underground and surface mineralization has much more to offer. “(Casa Berardi) has a mill with a capacity of 4,000 mt/d that was only operating at about 2,300 mt/d, so there was a lot of capacity, and that has been our focus over the last eight years. Figuring out how to increase the throughput of the mine to utilize that infrastructure that is in place was a challenge, and we have successfully done that,” Baker stated.

Hecla has now reached the mill’s capacity of 4,000 mt/d, and moving forward, the company is seeking to establish the reliability of the operation, where interruptions that drive the cost up are a thing of the past.

“Stornoway Diamonds’ Renard mine is composed of several kimberlites, of which two are currently being mined, with an estimated mine life extending to 2028. Additional kimberlites can be mined if rough diamond demand and prices maintain encouraging levels, thus extending the Renard mine life by a decade or more.”

Patrick Sévigny, COO, Stornoway Diamonds

Iron

While the majority of Québec’s producing mines are gold, the Labrador Trough has an history as Canada’s leading iron ore producing region.

Because of its potential for high grade iron ore, Champion Iron executive chairman, Michael O’Keeffe moved to Canada in pursuit of assets in the Labrador Trough. In 2014, the company’s current CEO David Cataford joined the team as Champion shifted from an exploration company into developing the Fire Lake project. Along the way, Champion worked with the Québec government as part of their Plan Nord initiate to develop infrastructure in the region and enable different projects in the north of Québec to eventually see the light of day. After leading a feasibility study for a new rail that would go from the Fermont district to Pointe-Noire, the Bloom Lake mine became available.

Cataford and his team jumped at the opportunity to buy Bloom Lake in 2016, and ever since, it has proven to be a great investment. “We were buying C$4 billion worth of infrastructure and assets for about C$10 million. That gave us a great steppingstone to enter the high-grade iron ore market quickly,” Cataford explained.

image

Although in hindsight, it seems like an obvious bet after operating at record levels yielding record EBITDA, the Bloom Lake acquisition was not always in favor. “There was a lot of chatter about Bloom Lake being a high grade asset, but being a high cost producer. However, with the feasibility study that we completed, we saw an angle where we could halve the operating costs at the site. We started the project on time and on budget in 2018, and we have now delivered three full years of operations demonstrating that we halved the operating costs compared to the previous operator, while also increasing throughput to new records to about 8 million mt/y,” said Cataford.

He continued, underscoring that despite being impacted by the government mandated ramp-down of operations in Q1 2021, one of the keys to its swift recovery to new highs was owed to investments made prior to the pandemic. “We did our feasibility study in 2018, and we identified areas that we could improve. It gets very cold around Bloom Lake, and there were elements related to weather that were not optimized. In the first year of operation, we found what those were, and we invested right away to fix them.

Looking ahead, Champion is working to nearly double production to 15 million mt/y in the next year. Concurrently, Cataford is adamant that the company remain disciplined in maintaining its commitment to producing quality high-grade iron ore with a low level of impurities. “It is very easy when prices are up to shift quality to get more throughput out, but we have upheld the high-grade production. We also came out with a new product at an even higher-grade iron ore, which is around 68% Fe, qualifying it to go down the electric arc route to produce steel,” said Cataford.

image

Niobium

Another acquisition made early last decade that now has strong momentum behind it is in the niobium space with Magris’ (Now Magris Performance Materials) acquisition of IAMGOLD’s Niobec mine. Magris acquired this asset with the vision that niobium was a desirable market to be in due to an absence of producers and positive market dynamics. Niobium is used to effectively reduce the weight and enhance corrosion resistance of high strength steels; it is primarily used in automotive construction and pipeline applications. “In the current ESG environment, niobium lends itself well to a positive story of reducing environmental footprint.” Matthew Fenton, president and CFO of Magris explained.

The fundamentals of niobium from a market growth perspective are positive. Niobec produces ferro-niobium, and the market has been growing at 5%-10% per year over the past few decades. A significant part of the demand and expected growth is coming from Asia, as they upgrade the quality of their steel. China is significantly behind in terms of the niobium per capita that they consume relative to western markets, and thus continues to be a large growth market.

In describing the assets’ recent performance: “We saw a unique opportunity to acquire a great asset and business that has a long duration and significant free cash flow. Since acquisition, the asset has exceeded all our expectations,” Aaron Regent, the company’s chairman and CEO reflected.

Image courtesy of Stornoway