Argex Mining transitions to development with vast titanium, vanadium deposit
Resource Intelligence: Your La Blache project is actually comprised of three zones and you have drilled two of them – West Hervieux and East Hervieux. These are important zones obviously, based on the historical resources you are reporting. How would you describe La Blache to an investor?Michael Dehn: Our La Blache deposit is not only a large titanium, vanadium, iron ore and chromium project, but it's also high grade and exceptionally homogeneous. With the technology we are using to extract the titanium we believe that La Blache is going to be one of the richest deposits of its kind in the world.
RI: You're presently re-drilling these projects to confirm the resources and complete a scoping study, is that correct?
MD: Exactly right. We are doing a lot of technical
work simultaneously. Once the first few holes confirmed the style and grade of mineralization, and the preliminary metallurgical results exceeded our expectations, Argex's team moved into high speed to advance the project to a production decision.
RI: How much drilling have you done?
MD: Drilling on the La Blache Properties has now seen in excess of 116 holes. Totaling more than 9,000 metres completed in 41 holes at the West Hervieux occurrence and more than 10,500 m in 77 holes on the East Hervieux occurrence, located approximately 2 km east and 1.25 km north of the West Hervieux occurrence.
What we have learned is that mineralization continues to depth and is open below 300 metres. There are fault offsets within the zones, the zones are cut by unmineralized dykes, but mineralization within the zones is very homogeneous.
RI: And how much more do you plan to complete before you arrive at the next major leg of the journey?
MD: I think we have completed all the drilling we have to do from an exploration point of view. There may be some requirements for infill drilling that is flagged by Met-Chem in the 43-101 resource calculation, or BBA in the pit design from the scoping study, but generally I think the next drilling we will do is for condemnation of infrastructure sites on the property so we don't build on or near mineralization outside of the main zones.
RI: Can you describe these two deposits in terms of their physical dimensions and size?
MD: Both zones outcrop on surface. The West Hervieux zone is approximately 700 m long, with an average thickness of 50 m that we have comfortably drilled to a 200 m vertical depth. The East Hervieux zone is approximately 1,250 m long with an average thickness of 30 m and again, we have comfortably tested the zone to a 200 m vertical depth.
The historic resource estimate reported was by Bersimis Mining in 1964 and was 79 million tons grading 48% Fe, 20.5% TiO2, 0.19% Cr and 0.36% V2O5. Based on what we've seen so far, we should come in close to that size. The vanadium pentoxide numbers in the historic resource appear to slightly underestimate the grades we have released to date, the iron and titanium dioxide numbers are slightly higher in the historic resource, but all of the composite intervals we have released to date include internal dilution from dykes, and the historic resource did not include any dilution.
RI: You're working on a preliminary economic assessment (PEA). When can investors expect to see that?
MD: We expect to have it out at the end of the first quarter or early second quarter of 2011.
RI: Your metallurgical results have been outstanding, with recovery rates around the 90% level.
MD: I expect when we have some additional metallurgical results out that the numbers will look even better!
RI: You are building a mini-pilot plant. Where are you in that process and what will it tell you?
MD: The mini plant should be up and running by the end of January 2011. We will be running three, eight-hour shifts per day, seven days a week, with up to 14 people per shift. The results from the mini plant will demonstrate continuous operation of the process and provide us with product for customers for materials testing.
The East Hervieux Zone has been drilled to 200 metres
RI: On the other hand, you plan to begin production using modules, which cost in the area of $100 million each.
MD: We intend to build commercial plants in modules. If the scoping study delivers the positive results as we expect, I think we will see the production plant's first module construction commencing before December 2011. Each module is expected to produce 60,000 tonnes of TiO2 and we are currently planning 10 modules. But some of the size and numbers of modules will be finalized with the results of the scoping study (PEA) that BBA is preparing.
RI: You have a proprietary technology for separating these metals. How new is this? How will it improve upon existing technologies?
MD: The proprietary technology belongs to Canadian Titanium Limited, and will we have a license to use the technology. The big differences in the technology is the energy savings, and it's environmentally friendly.
RI: How does the infrastructure of the project look?
MD: The existing infrastructure is excellent. There are roads right into the property and currently we have plans to put in a new road that should save about 30 km of driving. We are about 19 km away from power and are right next to Hydro-Quebec's dam system that provides most of New York's hydroelectric power. There's plenty of water where we are also, although water requirements aren't very demanding for what we're doing.
RI: I understand that you have an exploration agreement in place with the Innu, First Nations?
MD: That's correct. The agreement we have allows us unencumbered access to explore the property and an area of 100 km as well. In exchange for that, the Innu have the right of participation in any development financing we do, which is unique. We are now working on an agreement with the Innu people that will see us into production.
Solid infrastructure: Roads lead right onto the project
RI: You raised some cash a little while back with the involvement of a number of institutions as well. How much did you raise and what do you have in the bank today?
MD: We raised $5.25 million and at the end of 2010 we still have $2 million in the bank. This burn rate is largely due to engineering. We will probably do two financings this year. One will be a small one just to get the Quebec institutions involved in the story and line them up for the capital raise that will be required for the plant development. Then we will be doing the large capital raise for the construction of the site and infrastructure. We expect to raise as much debt as possible and it should be in the range of $150 to $250 million.
RI: This clearly signals to investors that you plan on taking this into production with your team. Will you be adding other management members?
MD: Those things are underway as we speak, in terms of an operating officer. By the time the PDAC comes around we will probably have that senior operation person who is going to take over managing all the engineering firms that are involved in La Blache — environmental, metallurgical and construction resources.
RI: If I take a calculator and punch in the historic grades and resources that you've got at La Blache, including a conservative recovery rate, the value I get is in the tens of billions of dollars — largely because of the titanium content. Why wasn't this deposit mined for its titanium when first discovered?
MD: When it was first discovered titanium wasn't as rich a commodity as it is today and the technology to separate the titanium and iron from this deposit was unavailable. The titanium and iron are interwoven and no matter how fine you grind the material they continue to be interwoven. Until we went to a leaching process with hydrochloric acid there really wasn't a process out there that was feasible to use on this deposit. Our technology is much more economically efficient and environmentally friendly than any other technology being used today.
RI: Is your titanium at La Blache considered to be high-grade by today's standard?
MD: By today's standard it would be considered to be high-grade in bedrock but typically when titanium is mined it's mined as a sand more so than as a bed rock material. It's enriched up to 55 or 65 percent and sold as a feedstock. Our rock could not be sold as a feedstock and we actually do the mining and processing within one company and outside of QIT I don't think anyone is doing that on any large scale. When you see who is doing the refining and finishing steps you're going to the DuPont's of the world who take a feedstock material and clean it up and then sell it on to the pigment and paint producers.
We will be producing a high purity TiO2 unfinished product. It's not a feedstock and it's not the final base used for paint. I expect our main consumers will be using our product for paints, plastics and titanium sponge, which would go on to make titanium metal and other products.
RI: Let's talk about the titanium market. How much could you supply to the market?
MD: Our expectation is to produce about 600,000 tonnes of TiO2 per year when we hit full production which will be close to 20% of the world's production.
RI: What are the supply and demand fundamentals like for TiO2?
MD: It's expected right now that there is 5 to 6 million tonnes of TIO2 available annually around the world. That number is not really increasing along with demand. I expect to see some producers disappear and new mines are not coming on line fast enough to fuel the requirements of industry. The sand producers are typically lower cost but they also get squeezed out a lot more by chemical upgrading facilities. Consequently, there is a need for an Argex in the world who not only mines it but also makes a product that is readily useable.
Right now the manufacturers who produce the majority of the TIO2 are buying feedstock that is from mineral sands globally. Exxaro in South Africa, Iluka in Australia and Kenmare in Mozambique. The biggest producer based in Canada is QIT-Fer et Titane which is a division of Rio Tinto Zinc. They had been mining in Quebec but now they are taking their feedstock from Madagascar in Southern Africa to process in Canada. What they provide is an enriched slag product. When you go to the chemical and paint producers they are wanting to buy a very high purity material of 98 or 99 percent and there are only one or two producers producing that in bulk globally. DuPont is the largest and has typically been such a dominant player in the market that they can squeeze the feedstock suppliers as well as the pigment and paint producers on the other side. This is why, I think the world is looking for an Argex to come into the market and take away a lot of that squeezing on the bottom end and work out long-term relationships on the top end for the pigment and paint producers.
Drilling on the La Blache Properties has now seen in excess of 116 holes.
RI: So Argex will produce a high purity product that will compete with DuPont?
MD: We will probably be producing one of the purest, if not the purest, products, which supplies the chemicals industry.
RI: Compared with other metals how common is titanium in the earth's crust?
MD: Titanium is extremely common in the earth's crust much like lithium is. It's just not very common economic concentrations. Almost every rock has titanium and almost every rock has iron as well as magnesium but only certain rocks have economic concentrations of those metals.
RI: Do you have some specifics on the forecasts for titanium products?
MD: If you look at the 2010 year-end the price was around US$2,400 per tonne globally. In 2011, the forecast is close to $3,000 per tonne and the 2012 the forecast is close to $3,500 per tonne. By 2013 the forecast is about $3,850 per tonne. In 2014, the forecast is $4,300 per tonne and 2015 the forecast is about $4,800 per tonne. So you're looking at a double in the price from 2010 to 2015.
RI: Vanadium is the second most valuable portion of your product, grading somewhere from 0.2% to 0.3% over 79 million historical tonnes of ore. What is the potential gross value of this metal for Argex?
MD: In our case, the gross value for this is in excess of $250 million per year at peak capacity with a minimum mine life of 20 years.
RI: China, South Africa and Russia account for about 90% of the global supplies of vanadium with production interruptions occurring frequently. Do you see Argex as a potential supplier in the near-term and if so to whom?
MD: Our product would be a chemical grade vanadium, not just the steel grade vanadium. There are a lot of specialty plastics and specialty electronics that would be buying our vanadium. There is one processor in the US that consumes about 25 million pounds a year of vanadium at the chemical level and Nike is one of the partners of that company. I could see them, or similar companies, doing an off take with us. Any company that requires a secure supply of very clean vanadium going forward coming from a safe jurisdiction would be interested in our product.
RI: How much annually would you produce?
MD: Our expectation is about 25 million pounds vanadium at peak capacity.
RI: What do you think investors should know about Argex?
MD: The most important thing investors need to know about Argex is that we're moving very quickly toward production of two hot commodities. Once we reach that stage, our production capacity will be large and we'll generate a lot of cash flow.
I expect within a year we'll have letters of agreement in place with buyers and we'll have secured financing to build our production modules. For a company with such a low market capitalization, we're well on our way to being a major player in both the titanium and vanadium markets.
Argex is the only public company in Canada that is serious about titanium. The only other company with North American projects on the mining side is Rio Tinto. You have to recognize that titanium and vanadium industries are incredibly lucrative and with growth in both sectors, there is plenty of room for Argex Mining to create wealth for our investors.
Investor Highlights:
Stage: Transitioning from Exploration to Development Company focusing on Titianium, Vanadium and Iron
Market cap: $40 million as of 1 February 2011
Share price: up 60% in 12 months
Share price: $0.495 as of 1 February 2011
Commodity: TiO2, V2O5, Fe2O3
Production planned: 2nd half of 2012
Mine life: expected 20+years
Cash: $1.5 million as of 1 February 2011
Highlights:
Phase I test work has produced 99.8% pure TiO2
Historic deposit of 79 million tons grading 48% Fe, 20.5% TiO2, 0.19% Cr and 0.36% V2O5
Preliminary Economic Assessment is imminent and will establish project economics
Construction of production modules to commence by December 2011
Argex is the only serious junior player in the titanium sector in North America
Proprietary production process requires low energy input and low environmental impact
Production could top 600,000 tonnes TiO2 per year, close to 20% of world production
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