WILLIAMS LAKE, BC, Feb. 19, 2013 /CNW/ - Unprofitable low-grade mines that scare away banks and might normally be unviable are getting support because private royalty investment companies can still score strong profits from them - even if no one else makes money, according to Franco Nevada Chairman Pierre Lassonde.
Mr. Lassonde's recent televised comments on the Business News Network`s (BNN) "Commodities" show with Andrew Bell have reinforced serious concerns for the Tsilhqot'in Nation about the economic viability of the proposed New Prosperity Mine in BC, which would be funded by Franco Nevada if it were allowed to proceed.
Described by mining media in Canada and the US as a gold "legend" and "guru," Mr. Lassonde told BNN that companies who pursue mines with a very low 0.5 gram-per-tonne gold cut-off may find it hard to make any money or generate growth. However, his company - one of the biggest in North America - still invests in some of them because it can make large returns through royalties and options.
Mr. Lassonde, who was recently inducted into the Canadian Mining Hall of Fame, said companies are increasingly turning to Franco Nevada because they cannot get funding from banks.
"Now for Franco, you know, as far as we're concerned, if an operator goes down from ... you know, let's say a 1 gram cut-off to a 0.5 cut-off, the operator may not make any money, but the royalty holder makes money, okay?
"So for us, as long as the operator keeps expanding and keeps putting (in) capital, we are happy," Mr. Lassonde told BNN's Commodities show last month.
These revelations alarm the Tsilhqot'in Nation because according to the Franco Nevada website, it has a loan agreement with Taseko Mines Ltd. (TML) for $350 million of the projected $1.3 billion construction cost of the proposed New Prosperity mine. This is contingent on TML getting all permits and full funding, and would be in return for 22% of the gold the mine produces at a fixed price of US$400 per ounce. Any difference between this price and the market price of gold would go to paying off the loan.
According to TML's 2009 updated feasibility study, the mine would produce just 0.41 gram-per-tonne of gold - almost 20% lower than the 0.5 gram cut-off Mr. Lassonde cited.
Based on Mr. Lassonde's comments - and presuming the deal is designed to help Franco Nevada maintain the 30% annual return that Mr. Lassonde highlighted on BNN - it is difficult to see how TML could make money from this mine based on such a low-grade.
The ore grade for the copper at the site is also very low - only 0.21% of the ore mined contains the mineral - and prices have dropped in recent years , which makes it hard to see how TML could make money just off this, especially given the rising project costs. In fact, mining giant Barrick Gold has just taken a US $3.1-billion loss on its copper operations, recorded a US $4.2B write down, and is cancelling or delaying US $4B in new mines.
"It might make sense for Franco Nevada, but if no one else is going to make money, why should anyone, including the provincial government support it,' said Tsilhqot'in Nation Tribal Chair Chief Joe Alphonse.
Franco Nevada can make money on losing mining because its royalties are based on the value of the gold extract, whereas BC gets no revenue unless the company makes an actual profit.
Chief Russell Myers Ross of the Yunesit'in First Nation, one of the six Tsilhqot'in communities, said: "The environmental risks are too high to begin with. The economic risk, while ultimately the responsibility of the province, taxpayers and company, calls further into question any guarantees from the company that the environment and our rights can be adequately protected.
"Why would we - or the province, taxpayers or company investors for that matter - support a mine that, after paying out on such loans - might make no money and eventually be abandoned with insufficient funds to restore the land and lakes."
Meanwhile, the Tsilhqot'in were angered by Mr. Lassonde's view of Canada and its mining opportunities, which appears to include no recognition of the country's indigenous peoples. In a keynote speech to the AME BC Mining Roundup, Mr. Lassonde said: "Ninety percent of [Canada's] population sits within one hundred miles of the U.S. border, the rest is empty. We should be able to get out there and make discoveries. For sure there is a lot more out there, but we do not have the proper tools." He made similar comments on the BNN interview.
"To ignore First Nations and their long history on the land is offensive and alarming, not just for the Tsilhqot'in," said Chief Marilyn Baptiste of the Xeni Gwet'in First Nation. "Is it any wonder that mining in BC, and across Canada, is so confrontational, when we are up against attitudes that say the land is there for the taking, and that even very low-grade, high-risk open-pit mines should be pursued as long as someone somewhere can make money."
Grand Chief Stewart Phillip, President of the Union of B.C. Indian Chiefs said: "Even with the recent Yukon Court victory on free entry claim staking and leave to appeal being granted to the Tsilhqot'in Title case by the Supreme Court of Canada, the mining industry or the provincial government does not want to discuss the fundamentally essential legislation, regulation and policy reforms that respect and uphold our inherent, constitutionally-enshrined, judicially recognized Indigenous Title, Rights and Treaty Rights.
"Industry and government must end their frontier-style, gold rush attitudes and discuss the need for critical reformation of the mining permitting process which is absolutely essential to guarantee any economic certainty in the mining industry in B.C.," said Grand Chief Phillip.
Chief Alphonse added: "Surely it is in the interest of government, and mining companies and all British Columbians and Canadians to work on changes that encourage cooperation and generate real benefits for all, instead of sustaining a system that fosters massive, risky mines that cause great harm, provide benefits to none but a select few, and create confrontation and conflict."
SOURCE: Tsilhqot'in National Government
For further information:
Chief Joe Alphonse: O: 250-394-4212. C: 250-305-8282.
Chief Marilyn Baptiste: O: 250-394-7023 C: 250-267-1401
Grand Chief Stewart Phillip: 250-490-5314