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Monday, 22 April 2013
Canada Fluorspar on the up as company sees additional value from Director Vein
Canada Fluorspar (CVE:CFI) has recently started to generate some buzz from its assets, jumping full swing into the exploration of its 100 per cent owned St. Lawrence veins, which sit just outside its Newspar joint venture in Newfoundland - part of the Canadian junior's two-prong strategy.
The Newspar joint venture is owned 50/50 split by Canada Fluorspar (CFI) and French chemical giant Arkema Inc. (Arkema), which has funded a total of $75 million for its half, through a direct investment in Newspar of $60 million and a $15.5 million investment in CFI at $0.75 per share. The junior company also has $17 million in available financing from the Newfoundland government, with an average 1.2 percent interest rate. The partnership currently has approximately $65 million in the bank.
The project, which has an estimated 131,000 tonnes per year of production based on a pre-feasibility study released in January, 2013, is located less than 2 kilometres from tide water, commanding its high value as the finished product would be able to ship inexpensively. Capex was estimated at $154 million, with a pre-tax IRR of 16.4 percent.
Though CEO Lindsay E Gorrill tells Proactive Investors that the Newspar venture is fully permitted with the ability to start construction once final engineering is finished and current cost reviews are completed (although he can’t provide any assurances), the company's 100 percent-owned Director Vein is the key, he says, to unlocking the "bigger dollars".
The company has 41 known mineralized veins on its fluorspar assets in St. Lawrence, two of which – Blue Beach and Tarefare - have been drilled and vended into the partnership with Arkema, while drill rigs started working at its own Director Vein in January, with the first results received in March.
The first holes drilled returned values of 80.12% fluorspar over 3.95 metres, and 51.94% fluorspar over 13.39 metres, with the company saying the drilling confirmed that the Director vein in this area extends well below historical workings, as well as further along strike to the north.
The company’s Tarefare vein –which is now part of the Arkema joint venture - along with “the middle part” of the Director Vein, were mined previously by the Aluminum Company of Canada (Alcan), which produced more than 4.2 million tonnes of fluorspar during a 44 year period from 1942 to 1977. Production resumed in 1986 and continued for five years until 1991, when St. Lawrence Fluorspar re-opened the nearby Blue Beach North Mine and processed 440,000 tonnes of ore from small open pits, one of which was located in a surface pillar at the Director Mine.
With the Blue Beach and Tarefare veins now being reviewed under the partnership, the Canadian company is looking to unlock the potential value of the Director Vein, as well as the Grebes Nest Vein, this year through drilling.
“We are planning 18,000 metres of drilling this year, and if grades are as the 2012 trenching shows, the Director vein has the potential to be as large as or larger than Blue Beach and Tarefare, providing a catalyst to attract investment,” says Gorrill.
Indeed, trenching at the southern part of Director uncovered a vein structure with grades up to 90%, which the chief says is “just unheard of” and among the highest grades in the world.
“We’re one of the only high grade, high tonnage deposit within 2km to tide water in the world,” the CEO asserts.
The company is now drilling underneath these trenches, and plans to prove it has two “world-class” deposits in a North and South Director vein. All drilling in the area is anticipated to wrap up by the end of the summer of 2013, with an NI 43-101 report to follow in the fall.
After the rigs are finished turning at Director, they will move to the second high priority exploration vein – Grebes Nest – with 5,000 metres of drilling planned and an NI 43-101 report from this region expected by the end of the year.
Canada Fluorspar’s assets could therefore become a much-needed supply for its namesake mineral, which has reached critical status in both China and Europe and is above graphite under this criterion. Fluorspar is the commercial name for fluorite, and in its pure form, consists of 51 percent calcium and 49 percent fluorine.
In 2012, 6.2 million tonnes of fluorspar were consumed, valuing the market at around $3 billion, with the talc-like powder used in a range of consumer products worth approximately $112 billion.
“You have to have it for these products, currently there is no replacement.”
The mineral is used to reduce the amount of energy needed to produce aluminum, and is also used for photovoltaic solar panels, but the biggest application is fluoro chemicals – which are used in products ranging from air conditioners and refrigerants to lithium batteries and the material Gore-Tex.
Consumption of fluorspar is expected to reach 7 million tonnes by 2015, but there is currently no domestic supply in Canada or the U.S. as these two countries rely on Mexico, the second biggest producer after China – which Gorrill expects will become a net importer soon.
“The big end users are now buying up fluorspar assets because they need the supply. Russia no longer has any independent fluorspar producers, while Europe just sold off its last one in Bulgaria and China and Mexico continue to consolidate.”
Clearly, there is abundant demand for the mineral. Gorrill explains that when commodities collapsed in 2008, fluorspar pricing did not tumble like other minerals, as the majority of the business is for products that are continually consumed like air conditioners and refrigerants.
Logistics, however, is the big issue with industrial minerals, the chief says, as the mineral “is worth zero if you can’t get it out and ship it inexpensively”. But Canada Fluorspar’s properties sit right on the water, meaning as a vessel pulls up, all it needs to do is load it up. Its mill is under two kilometres from the wharf from which it intends to ship, with the town of St. Lawrence equipped with the infrastructure required, including roads and power.
The aim of the company is to become a 300,000 tonne plus producer of fluorspar, with the Newspar venture set to produce 130,000 of these tonnes per year, and the other 100 percent owned fluorspar assets to provide the additional production if proved up.
The CEO adds that the company’s Newfoundland properties can be permitted quickly, as the major issues with permitting are typically the wharf and the tailings pond – which have already been permitted. “Opening up just a pit is easy in comparison,” Gorrill states.
Indeed, the support in Canada Fluorspar, which has coverage by four analysts – including a buy rating and 60 cent price target from Jennings Capital analyst Ken Chernin- is proved by the fact that insiders own half of the business, with Gorrill himself being the third largest shareholder, adding that no large funds hold its stock.
With approximately $3 million of cash in the bank, and another $1.5 million on its way through a flow-through financing , the CEO says he expects a steady news flow and “a lot of energy” hailing from its Director Vein, where it has completed over 16 drill holes already with only 2 assays announced to date.
“Blue Beach and Tarefare averaged grades of 36% and 43% respectively over approximately 4 metres, meaning the first two assays show Director may have a higher value.
“If the partners decide to move to final engineering this year, the Newspar venture would start production toward the latter half of 2015, with the other developed fluorspar veins able to go into production in less time than the construction time allotted for Newspar,” he concludes.