Frozen Fortune: Nunavut's Ice
May Hide Precious-Metal Trove
By PETER A. MCKAY
Staff Reporter of THE WALL STREET JOURNAL
RANKIN INLET, Nunavut -- Flying by helicopter from this Canadian outpost to a nearby project run by the Australian drilling firm Western Mining Corp., the color white is everywhere.
It stretches far over the snowy, flat Arctic landscape to the horizon. Most of this frozen region, formerly part of Canada's Northwest Territories, is so rugged, the white is interrupted only by occasional, isolated huts -- places virtually inaccessible until the brief summer, when the sun will shine all day and mosquitoes will grow immense.
But inside WMC's camp, geologists pore over cylindrical rock samples flecked with a different color that locals hope will be more vital to the region's future: gold.
In fact, Canadian government officials and analysts believe Nunavut has huge reserves of various precious metals, including previously scarce platinum and palladium, as well as diamonds. If these reserves are mined commercially, it could have a considerable effect on world prices. But that is a big if, given that the Arctic conditions are so severe that NASA testers use parts of northern Nunavut to simulate conditions on Mars.
WMC officials believe they have found more than 400,000 ounces of gold at their site, dubbed Meliadine East; they also jointly operate a second 4.96 million-ounce Meliadine West project nearby with Cumberland Resources Ltd., of Vancouver. Those two firms have a lot of company, as such exploration projects have been ramping up in Nunavut (pronounced NOO-na-voot) after an almost 40-year layoff. Even the companies involved admit such undertakings are risky, both in terms of safety and the cost of mining some of the planet's most unforgiving terrain.
But with platinum and palladium prices soaring, and increasingly intricate "forward-selling" strategies by producers becoming more prevalent in the gold industry, mining firms and analysts say market conditions may be ripe for Nunavut mines to start producing resources potentially worth billions. If that happens, analysts say the output could markedly swing world prices, particularly for scarce platinum and palladium; the latter recently topped $960 an ounce, up 114% for the year.
The emerging Nunavut mines also could mean survival for another generation of the native Inuit tribe, which gained unprecedented regional autonomy from Canada last year. Locals hope the mines will bring badly needed jobs to stem unemployment rates around 70% in parts of Nunavut, as well as inflated suicide and alcoholism rates.
Conversely, some locals worry about further erosion of traditional culture. And although the Inuit have settled the issues of land rights and royalties to the regional government, it remains unclear how much individual residents will reap from any newfound prosperity.
Nunavut, which means "our land," was created on April 1, 1999 -- the first major change to Canada's territorial map in about 50 years. It has only about 27,000 residents -- 85% of whom are Inuit -- scattered over an area about twice the size of Alaska, stretching from the Manitoba border to an archipelago near the North Pole. Temperatures have hit 40 below this year, and wind chills 65 below.
The land has been known to be mineral-rich since at least the 1950s but is only beginning to be fully understood, Canadian government officials admit. The reason for such ignorance, officials say, was a combination of Nunavut's ruggedness, questions about mining rights, and low metal prices that made the region unattractive.
It is that last factor that analysts focus on in evaluating the region -- and whether prices have risen enough to justify increased production now. Opinions are mixed, although no one doubts the presence of untapped deposits.
"This could definitely be a major find. I think they are going to come into production, eventually, because there's just not enough metal out there anywhere," said Jim Ryan, an independent analyst who has been closely following the development of Nunavut's main platinum and palladium project, owned by Starfield Resources of Vancouver.
Nunavut exported about $225 million in zinc and lead last year, all of it from two mines owned separately by Cominco Ltd. and Breakwater Resources Ltd. If successful, the proposed new mining projects in Nunavut could dwarf the region's current mineral exports and provide a boon to the fledgling regional government, which stands to earn royalties of 5% to 14% on each producing mine's profits. Although the development projects are mostly by smaller producers so far, major mining firms such as DeBeers and Echo Bay Mines have also begun projects of their own.
Exploration Boom
The number of mine exploration projects in the territory has swelled during the past five years to include five potential gold mines; a 10-mile-long deposit with as much as $2.5 billion in platinum, palladium and other metals; and several possible diamond mines, including one thought to contain as much as three million carats of stones.
The techniques for exploring and mining Nunavut's difficult landscape can vary widely from project to project, since the territory is so vast. All projects scale back or shut down completely in the dead of winter. All use helicopters or local contractors with large all-terrain vehicles for their transportation over land, since there are only 12 miles of roads in all of Nunavut. Also, all companies rely to some extent on sometimes spotty satellite communication with their headquarters.
But projects in the south, such as the two Meliadine gold sites, have the "luxury" of a very brief summer, around late July or early August, in which temperatures hit a balmy 70 degrees or so and drilling takes off sharply. By contrast, the northern parts of the territory, where Cominco's Polaris mine is the biggest project, remain frigid virtually year-round but rely more heavily on water shipping via specially equipped ships, since that part of the territory is a series of islands.
David Christensen, global coordinator of metals research for Merrill Lynch & Co., said the economics of such projects can be tricky, though not impossible for mining firms to surmount even in the bear markets some metals are experiencing. For example, he said many gold-exploration projects around the world would now need a gold price of about $310 an ounce -- about $35 above the current price -- to justify actual production.
By contrast, he said platinum and palladium deposits are so rare, any new one that is found stands a better chance of becoming a real mine.
"It's kind of the Holy Grail of the metals industry right now to find a world-class platinum-group metals deposit in North America," said Mr. Christensen, who wasn't familiar with the Starfield deposit in particular and doesn't believe it has yet caught industry watchers' attention as the long-awaited find.
Certainly, the bloated prices for platinum (about $610 an ounce) and palladium have Starfield executives hopeful. "The size of this project is so large, most geologists just shake their heads," Starfield President Glen J. Indra said of his firm's Nunavut operation.
Production Possibilities
The outlook isn't as sunny for projects mining gold and other metals whose prices have languished. Cumberland Resources, for example, acknowledges that gold may have to rise for their two Nunavut gold deposits, totaling seven million ounces, to come into production. Right now, the company estimates its cash costs to mine are $200 an ounce.
But another solution could be for the company to just find more gold, says Kerry M. Curtis, Cumberland's senior vice president. If the firm's geologists find a larger deposit as they test the land farther down and outward, Mr. Curtis says Cumberland would have enough physical gold to sell forward to finance actual production, even at current low prices.
In Cumberland's studies of its projects' potential, geologists start their ratings of retrievable gold just three feet below the surface, close enough that, if the ground wasn't so frozen most of the year, novices with shovels could reach it.
And some do try just that. Still, many Inuit remain skeptical of the "southerners" who have come to mine.
At a recent mining conference, a government official explains the basics of mining, including the economics of metal markets and the legalities of staking a prospector's claim. He glowingly cites a hypothetical example in which a prospector sells a claim that eventually turns into a $500 million mine. The prospector keeps a 2% commission and reaps a $10 million personal windfall during the project's life.
Few Inuit stay through a short break after which the official explains how to apply for a prospector's license. Among the people who walk out is Thomas Angoshadluk, a 26-year-old student in a two-year business management program at nearby Arctic College.
"Ten million dollars is a lot of money," he says of the hypothetical claim. "But it's nothing compared to the guy who's making $500 million on our land. That's a rip-off."
At least Mr. Angoshadluk showed up. His 30 classmates from Arctic College, who were all registered for the mining conference, didn't come the first day (though some came later). "People knew they were only going to talk about the good things about mining, and they didn't want to hear it," he said. The whole topic can get too heated as locals disagree about the benefits of the new mines, he says. "We were talking about mining in class last week, and the discussion got kind of ...."
Mr. Angoshadluk raised his eyebrows, pointed his thumbs up, his index fingers out, and shook them like recoiling pistols in a shoot-out. |
