After a decade of expansion through mergers and acquisitions, diversified Swiss miner Xstrata (XTA-L) is turning to organic growth to provide its next generation of mines and to increase production through the expansion of others.
It will be 10 years in March since Xstrata first listed on the London Stock Exchange. The management team has transformed the company from a $500-million-market cap junior miner to a more than $50-billion global mining powerhouse, increasing revenues from operations 15-fold while acquiring the scale and size necessary to compete in the upper echelons of today’s resource-scarce world.
Xstrata has acquired a steady stream of projects over the past decade through three major mergers and acquisitions, including the $22.5-billion takeover of Canadian nickel-zinc-copper miner Falconbridge in 2006, as well as over 40 other transactions.
In an investor seminar held in London in early December, the heads of Xstrata’s nickel, zinc, copper and coal groups discussed the company’s operations and plans for future growth. Here’s a look at Xstrata’s expanding pipeline of mines, expansion projects and exploration prospects across Canada.
As the world’s fifth-largest nickel producer, Xstrata Nickel manages a 92,000-tonne annual production profile of refined nickel per year from its fully integrated operations around the world.
In Canada, much of the operations previously owned by Falconbridge were regrouped into Xstrata Nickel, a Toronto-based subgroup that contributes a significant portion of the company’s cash flow and production.
Xstrata has three nickel miningcomplexes in the country, including the Raglan nickel mine in northern Quebec, the newly commissioned Nickel Rim South mine and older Fraser mine in the Sudbury basin, and a mill and smelter in Sudbury, Ont.
Construction of the $920-million Nickel Rim South mine was completed in 2010 on time and within budget, with the mine now producing 18,000 tonnes of nickel at negative cash costs supported by rich by-product credits. Xstrata is planning an expansion of the Fraser mine in partnership with Vale (VALE-N) that will deliver an extra 2,000 tonnes nickel and 10,000 tonnes copper per year. A $119-million project dubbed Fraser Morgan is in the works to deliver an additional 6,000 tonnes of nickel and 2,000 tonnes of copper per year, starting from 2013.
At Raglan, the company is executing a $530-million plan to grow production to 40,000 tonnes of nickel per year by 2016, up from the current 27,000-tonne-per-year operation. Xstrata is exploring its way through 70 km of strike potential at the project, of which it says it has explored about 30% so far. A 7,000-tonne-per-year, $95-million expansion in the form of the Kikialik project was completed in July, ahead of schedule and on budget.
Lastly, the Sudbury smelter is being upgraded and expanded to produce up to 85,000 tonnes per year of nickel-in-concentrate, up from 2010 production of 73,600 tonnes.
With the upcoming closure of the Brunswick underground zinc mine in New Brunswick looming over Xstrata’s production figures, as well the depletion of the Perseverance zinc orebodies in early 2013, Xstrata Zinc has embarked on an expansion and exploration plan to replenish the zinc supply needed to feed its smelters.
In Quebec’s Matagami camp, construction of the Bracemac-McLeod zinc mine is on schedule for first ore delivery in the first half of 2013. Ore from the mine will be fed into the mill shortly after the stock from Perseverance runs out. This will extend the life of the camp to at least 2017, with annual production expected to be 90,000 tonnes zinc per year. PD1, a small nearby deposit, provides an option to supplement the feed to the Matagami concentrator and bring throughput up to 1 million tonnes per year.
Xstrata Zinc is advancing two earlier-stage exploration projects in Canada. The first, Hackett River in Nunavut, is expected to produce 250,000 tonnes zinc per year, similar to Brunswick’s levels. Santiago Zaldumbide, Xstrata’s Zinc’s chief executive, is understandably bullish on the project: he helped organize the $50-million deal to buy Hackett River and another property from Sabina Gold & Silver (SBB-T) earlier this year. “We are very sure that we have at least sixty-six million tonnes of resources,” Zaldumbide says, “but the potential for increasing that to over one hundred million we believe is very high.” Production is slated to start around 2016.
The second project, Errington-Vermillion, in Sudbury, has 10 million tonnes of combined resources containing zinc, copper, lead, silver and gold. Xstrata is looking to complete a feasibility study there in 2012, with anticipated zinc production of 46,000 tonnes per year.
Xstrata produces nearly 86,000 tonnes zinc per year from its Kidd copper-zinc-silver mine in Timmins, Ont., which is part of Xstrata’s copper division.
A geographically diverse division, Xstrata Copper operates in nine countries but has only the Kidd copper mine in Canada, as well as a copper smelter and copper refinery in Quebec. The company completed a $120-million extension to Kidd in December, extending the mine life until at least 2018. Approved by Xstrata in 2008, it recently extended the mining zone at Mine D from 2,774 metres to 2,926 metres, making it the deepest base-metal mine in the world. The mine produced 52,600 tonnes of copper in concentrate in 2010.
Xstrata is the world’s largest exporter of thermal coal and a high-quality, hard-coking coal producer, but the company has no operating coal mines in Canada. Instead it has two advanced-stage coal projects in the country, and 30 coal mines worldwide.
The first, named Donkin, is in its permitting stage in Nova Scotia. The company plans on building a $300-million, 2.75-million-tonne-per-year coking coal operation there assuming the environmental authorities give it the green light in mid-2013. The second project is a large group of contiguous claims in northern B.C.’s coalfields, acquired earlier this year in the $177-million takeover of private B.C. junior First Coal.
According to Xstrata’s Coal’s chief executive Peter Freyberg, metallurgical coal comprises 17% of the division’s production but drives nearly 45% of its earnings. Freyberg sees metallurgical coal as being an important area for future growth, and says that “the acquisition in Canada has been, I think, particularly well-timed. We have managed to acquire a very significant, very large contiguous lease in excess of one thousand square kilometres. This area contains very significant occurrences of metallurgical coals, ranging from high-quality hard coking coal to pulverized coal injection . . . we have positioned a team in Canada in order to develop this very exciting and interesting prospect.”
Although the claims have a National Instrument 43-101-compliant resource of 280 million tonnes, Xstrata has an exploration target of more than 1 billion tonnes, based on previous work by Gulf Canada. Freyberg notes the project is adjacent to rail infrastructure servicing an expandable port, which will help reduce capital costs.
In addition to the business groups listed above, Xstrata – the world’s largest producer of ferrochrome and a leading producer of primary vanadium – also has a large iron ore group and a large alloy division, with operations outside of Canada.