COAL AND IRON ORE ARE NOT GLAMOROUS BUT IN 2011
THEY LOOK LIKE BEAUTIES
Canadian Stock Exchanges E. A. Schiller
The year 2011 opened with floods on almost every continent bringing considerable disruption to peoples’ lives, and for NFL followers’ unexpected upsets of the favourite Saints and the Patriots sent home to lick their wounds. Super bowl candidates were decided on January 23 and it will be the Packers against the Steelers. The floods created inundated open pit coal mines in Australia and prompted increased prices, especially metallurgical coal. Precious metal prices came off from 2010 highs but expectations for return to higher levels is being predicted. Copper continued its unabated strength and iron ore prices were solid with several mergers/takeovers announced. The new darling commodities, rare earths and lithium continued their popularity as the demands of the electronic age became very evident with battery powered cars, cell phone/internet and star wars’ gadgetry showing no end to innovation.
So where do we start. Coal although not glamorous became a sought after commodity as Queensland coal mines suffered severe damage to surface workings and rail lines to port facilities. Met coal prices could double to record highs as 46 coal projects were affected. In 2010 met coal was priced around $225 a tonne and jumped to $250.00 in early January. Australia supplies’ 2/3’s of the world’s coking coal. Fortunately, Canadian coal mines did not have any water problems and benefited from Australia’s crisis; three companies bounded upwards, sidewards and downwards in January led by Teck Resources Limited (TCK.B-TSX) at almost $64.00, then down to around $59.80 up from $45.00 in October, Grand Cache Coal Corp (GCE-TSX) at $11.35, then down to $10.40 up from $7.00 in October and Western Coal Corporation (WTN-TSX) at $12.25 up from $7.00 in October. WTN has entered into an arrangement agreement with Walter Energy (WLT-NYSE) whereby Walter is to acquire all of the shares of Western Coal for Cad $11.50 a share or 0.114 of a Walter Energy share, or a combination thereof, all subject to pro-ration. The transaction represents a total value of Cad $3.3 billion. The transaction will create the world’s leading publicly traded “pure-play” metallurgical producer with total coal reserves of approximately 385 million tons.
Al Gore’s sidekick Dr. James Hansen described coal trains (of all ranks) as moving factories of death due to their polluting effects. We all recognize coal’s influence on the environment but if we want to the keep lights on and continue to do all the wonderful things electricity provides we have to find an alternative - how many wind mills and nuclear reactors can we build overnight.
Moving onto another unattractive but lucrative commodity – iron ore - but treasured by the world’s steel producing countries, especially China, we witnessed unparalleled demand for the ore in 2010 and the companies that produce it and in one particular case a company that is just exploring it. In the latter case we go to the far reaches of northern Baffin Island and Baffinland Iron Mines Corporation (BIM-TSX). Located 160 kms south of the community of Pond Inlet, and 1000 kms northwest of Iqaluit, the capital of Nunavut, the Mary River iron deposit is one of the highest grade iron ore deposits in the world. As of late January a joint offer by ArcelorMittal and Nunavut Iron Ore Acquisition Inc was made to acquire all of the outstanding shares of Baffinland at $1.50 in cash per common share. ArcelorMittal is the number one steel company in the world with 320,000 employees in 60 countries. It has over 1.5 billion shares outstanding and the state of Luxembourg owns 38,965,330 shares in the company.
Moving onto another iron ore acquisition we note that Cliffs Natural Resources Inc.(CLF-NYSE) has offered to acquire all of the outstanding shares of Consolidated Thompson Iron Mines (CLM-TSX) at a price of $17.25 a share valued at $4.9 billion representing a 30% premium to its closing price. CLM is an iron ore producer in Quebec that commenced production in 2010 and adjoins the three other iron ore producing operations in the Wabush-Labrador City, Newfoundland area (Iron Ore Company of Canada, Cliff’s Natural Resources and ArcelorMittal). CLM stock is at $17.30 up from $7.30 in October.
A strong performer in this iron ore camp is Alderon Resources Corp (ASV-TSX-V) with their well advanced Kamistiatusset project. In 2010 they completed 27,000 meters of drilling with the objective of establishing resources of 500,000,000 tonnes of iron grading 30% providing ores for an 8 million tonne annual production rate over a 21 year mine life. The stock has performed like a champion at $3.70 up from $1.50 in October. To the north of Wabush/Labrador City, iron exploration is taking place by Labrador Iron Mines Holding Limited (LIM –TSX-V) and New Millennium Capital Corp. (NML-TSX-V) with future production plans in the making. To the north of Schefferville, within the Labrador Trough that hosts all of these Labrador/Quebec iron mines and prospects is Adriana Resources Inc. (ADI-TSX-V) exploring their Lac Otelnik Iron Project with resources of 4.29 billion tonnes indicated and 1.97 tonnes inferred grading about 29% Fe. ADI trades at $1.50 up from 40 cents last October.
For the serious investor, two upcoming exploration/mining conferences are a must if you want to hear from the horse’s mouth what is going on in the mineral sector. The Round-Up in Vancouver starts January 24, and the Prospectors and Developers kicks’ off in Toronto on March 5. I mention this for those who play the junior market game looking for information as we go into the 2011 field season. I forecast a lot of rare earth and lithium projects to be highlighted at both these shows, and the following lithium efforts mostly exploring in what is called the sweet spot of Argentina’s lithium salares is worth a look-see. Leading the pack is Orocobre Limited (ORL-TSX-V) who has received approval for the development and exploitation of its Salar de Olaroz Lithium-Potash Project. This project is joint-ventured with Toyota Tusho, a Toyota Group company and is expected to commence commercial production in 2012. Within the top 55 meters from surface, an inferred resource of 1.5 million tonnes of lithium equivalent and 4.1 million tonnes of potash has been estimated. In addition the company is pit sampling the nearby Salinas Grandes and Guayatoyoc Salar where promising lithium and potash values have been discovered. ORL trades around $3.20 up from $2.40 last October.
Neighbours to ORL are Rodinia Lithium Inc (RM-TSX-V) working on the Salar de Diablilos, Dajin Resources Corp (DJI-TSX-V) at Salinas Grandes/Guayatoyoc and Lithium 1 Inc.(LI-TSX-V) at Sal de Vida on the Salar del Hombre Muerto. Lithium 1 is located on the same salar that FMC Corporation produce lithium brines from their Fenix operation and ship to North Carolina for processing. Lithium 1 has a financing and off-take agreement with a Korean Consortium. All have reported potentially viable lithium brines with associated potash and boron and since last year all have appreciated in value. In Nevada we have similar lithium brine deposits under investigation by several companies, and in Quebec a couple hard rock – spodumene pegmatite deposits are under advanced exploration/development. (Spodumene is a lithium silicate and a common pegmatite mineral).
Canada Lithium Corporation (CLQ-TSX-V) has completed a Feasibility Study for the development of their Quebec Lithium Project 60 km north of Val-d’or with anticipated production of 20,000 tonnes of battery-grade lithium carbonate annually in late 2012. Measured and indicated mineral resources are 46.7 Mt at 1.19% Li2O with additional inferred mineral resources of 57.6 Mt at 1.18% Li2O. Between 1955 and 1965 this deposit produced ceramic-grade and chemical-grade spodumene concentrate, lithium carbonate, lithium hydroxide monohydrate as well as a small quantity of lithium chloride and feldspar. CLQ is partnered with Mitsui and Co Ltd as marketing agent in South East Asia. Nemaska Exploration (NMX-TSX-V) is exploring their Whabouchi property, 280 km north-west of Chibougamau accessible via the Route du Nord. Measured and indicated resources are 9,774,000 tonnes grading 1.63% Li2O and 449 ppm BeO and inferred resources of 15,396,000 tonnes grading 1.57% Li2O and 420 ppm BeO. A recently completed 43-101 report concludes that a spodumene concentrate can be economically produced and shipped to end users.
The weather gage stock for lithium is Sociedad Quicica y Minera de Chile S.A. (SQM-NYSE) the recognized leader in Salar brine production from deposits in the Atacama desert of Chile. They contain the largest deposits of lithium and potassium concentrates ever know, in addition to considerable sulphate, boron and iodine concentrates. The company markets a wide range of products derived from these unique salar lakes. SQM trades around $53.90 up from $30.00 last May. Potash Corporation of Saskatchewan (POT-TSX) owns about 30% of SQM. Last but not least is Talison Lithium (TLH-TSX), a spodumene producer in Western Australia and exploring seven salares covering 117,904 hectares of brine lakes in the Atacama desert, in Chile. Talison’s WA Greenbushes operation in the last quarter of 2010 produced 97,559 tonnes of lithium concentrates equally about 14,500 tonnes of lithium carbonate. TLH trades around $6.30 up from $5.30 in October.
As for rare earths, this commodity has been exposed to a media blitz and concern from the US Government and others that the Chinese are restricting export of REE’s has raised some red flags. The world consumes annually about 120,000 tons of REEs of which the Chinese provide 97% of world production, utilize about 70,000 tons and the world, principally the US uses about 50,000 tons. Molycorp Inc. (MCP-NYSE) is in the intial stages of putting its Mountain Pass Rare Earth deposit in California and when fully in operation will alleviate any REE short fall. The mine was previously owned by Unocal Corp, then Chevron who sold the project to Molycorp when mining was suspended in 2002. Discovered in the 1950’s it was the world’s primary producer of rare earths in the 1980s and 1990s and one of California’s top 15 industrial emitters of toxic chemicals. The operations past environmental problems have been solved and production is slated to commence in 2011. The deposit has proven and probable reserves of 2.21 billion pounds of REEs grading 8.24% at a cut-off of 5%.