VGM featured on Canadian Business News Magazine, Winter 2006
virginmetals.com
PROFILE:
VIRGIN METALS INC.
Okay, we’re here,” Chris Davie shouts as the big Dodge Ram pickup stops near the summit of a rust-colored, serrated peak in the Sierra Madre Mountains of northwest Mexico. Davie, chief executive officer of Torontobased Virgin Metals Inc., has spent four decades putting mines into production around the world. Over the past few months, Virgin has been drilling at the top of this isolated mountaintop, known as Los Verdes. It is located 240 kilometres southeast of Hermosillo, capital of the Mexican state of Sonora, and Davie still retains a boyish enthusiasm despite a career distinguished by glittering successes and bitter disappointments. “After seeing the results of our exploration program,” says Davie, “our geologist told me: ‘It’s a jewel box down there.’”
The “jewels” in question are copper and molybdenum, the latter being an additive that hardens the steel used in Arctic pipelines, nuclear reactors and other specialized applications. Both minerals are currently trading at historic highs on world commodity markets. Copper is going for over (U.S.) $3 a pound and molybdenum for about (U.S.) $28 a pound largely due to shortages in supplies and Chinese-driven demand.
Given those prices, and the size of Virgin’s deposit—perhaps as much as seven million tonnes—Davie estimates that the “jewel box” may be worth $1 billion. However, mining that resource will only be feasible if the gross value of the minerals exceeds projected capital and operating costs.
Others have attempted to exploit the deposit. In the 1950s, residents of the rustic village of Santa Ana, a farming community of about 650 people at the base of the mountain, quarried into the backside of the peak and their 100-foot deep pit is still there. Twenty years later, two big companies, Canada’s Cominco and Industrias Penoles, Mexico’s second largest miner, drilled the property. They put the size of the resource at seven million tonnes, but they were looking for larger deposits and pulled out. Virgin acquired the rights last year and has sunk 46 holes to determine the dimensions of the ore body.
As a result of that work, Davie estimates that Virgin will have to strip away 30 metres of waste rock at the summit to reach a deposit that is 130 metres deep—a very low ratio of waste to ore. The company hopes to begin small-scale production—about 100 to 200 tonnes per day—from an underground mine in 2007, but is really aiming for an open pit operation by 2010 that would yield over 2,700 tonnes a day. But there are hurdles to clear first.
Virgin must complete a feasibility study that establishes a unit cost of production and demonstrates that the reserve is economical. The company needs federal permits regulating operations, water use and explosives. It must also decide where to build a primary processing facility and the tailing ponds that will hold the waste after the ore has been removed.
Those are all big, though not insurmountable challenges. If he gets a mine up and operating, and generating cash flow for Virgin, Davie will then begin looking for other workable deposits in the surrounding peaks, and the company holds the rights to 58 square kilometres. Virgin’s investors are hoping he succeeds, and so are the residents of Santa Ana. “They’re absolutely thrilled that their mine is reopening,” says Davie. “They’ve been waiting 50 years for this.”
PROFILE:
VIRGIN METALS INC.
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Chris Davie |
