Old mine won’t die

Way back in 1895, when Dr. Robert Bell whacked his prospector’s hammer at a promising sulphide showing in northern Quebec, he likely had little idea of the massive metal resource under his boots.

The acclaimed Canadian Government geologist’s discovery near Matagami Lake would lie dormant for another 64 years before the next explorer came along in 1959 and began to prove its world-class worth.

Since the Matagami camp’s first mine came on stream in 1963, ten others have opened. As of 2004, they had shipped 10.2 billion pounds of zinc and 979 million pounds of copper, plus healthy gold and silver recoveries.

But the Matagami just won’t quit, and keeps on yielding world-class numbers.

With a big announcement in July of this year, the Canadian junior Donner Metals Ltd. and the international giant Xstrata said they will joint venture to bring their new high-grade Bracemac-McLeod discovery into full production by early 2013.

They expect to add another 176 million pounds of zinc and 22 million pounds of copper a year to the district’s fabulous legacy, and there is potential for the discovery of more significant deposits within economic reach of the existing mill.

The project will be managed and operated by Xstrata Zinc, which is investing approximately $104 million of the estimated total development cost of $158 million.

Old Hands, New Methods

The story of how Xstrata got teamed up with Vancouver-based Donner shows that when good people with expert knowledge are given a challenge, and they apply some innovative geological sleuthing, mines can be made.

Xstrata’s corporate connection to the district goes back 50 years through its Matagami camp ancestors, Falconbridge and Noranda. When it took ownership in 2006, Xstrata had a challenge looming on the near horizon: knowing that its 100 per cent-owned Perseverance deposit (opened in 2008) would be exhausted by 2012, it needed new ore to keep the camp viable.

Xstrata was especially motivated by its investment to upgrade the old Matagami Lake concentrator for Perseverance ore, and was keen on finding another mine, fast, to feed it without interruption.

Donner Metals Ltd. (TSX: DON) was already on the ground at Matagami through a prior arrangement with Falconbridge, explains Andrea Magee, Donner’s Investor Relations representative.

“It was actually Falconbridge’s last deal before they got taken over by Xstrata -they inherited our project.”

The well-seasoned Donner team had decades of combined experience with majors like Teck, Falconbridge and Noranda.

Donner CEO and Director Harvey Keats, whose resume includes leading the exploration team for Diamond Fields Resources, was also a senior Falconbridge executive. Robin Adair, Donner’s VP of exploration, is an expert in this type of deposit, with 25 years experience at Noranda and Falconbridge and familiarity with many of the same people now under Xstrata’s umbrella.

So how did they do it -find big new deposits on mature ground that had already been probed and picked over for more than 50 years?

Knowing that 50 years of exploration had already revealed 18 VMS (Volcanogenic Massive Sulphides), the exploration team, in hindsight, proved again that the next mine just might be pretty close to the last one.

They also believed that the newest technology could find mines that older methods missed.

So the joint Xstrata/Donner team applied modern survey and mapping technology and better ways of blending old and new data to help find new targets. This sleuthing helped develop a fresh assumption: that Matagami’s mineral zones could occur in layers.

Indeed that’s what happened: over the millennia, three mineral zones built up (picture hot thermal vents bubbling from the ocean floor) separated by layers of gabbro and basalt. Geological forces then tipped the layers, like books leaning on a self.

And by the way, that Bracemac- McLeod zone? It’s only six kilometres from the existing mill.

Just-in-Time Serendipity

“The project is a low capital cost, high return project that will provide a continued feed of ore to Xstrata’s Matagami concentrator once the Perseverance Mine comes to the end of its life,” said Jean Desrosiers, Vice-President of Mining Operations for Xstrata Zinc Canada, in the July 9 start-up announcement.

Donner is close to completing its obligations to earn an initial 50% interest from Xstrata in its entire 4737 km2 area covering the Matagami mining camp.

Once Donner has earned its interest, the entire area will be divided into five 50/50 joint venture areas. Xstrata can earn-back a 15% interest in each area by spending up $20 million on a feasibility study. By mid-summer 2010 this deal was already nearing completion for the Bracemac-McLeod area, as a 65/35 joint venture between Xstrata and Donner.

Xstrata’s production decision on Bracemac-McLeod was also made months before the May 2011 deadline Donner had to satisfy its earn-in obligations.

“Going from first discovery, to resource, to production decision in such a short time frame is highly unusual,” says Magee. That’s warp speed as far as junior exploration companies are concerned.

Achieving full production by early 2013 captures even more serendipitous advantages for the joint venture.

Bracemac-McLeod will keep the 2600 tpd mill going, preserving 150 jobs that would otherwise have disappeared (and adds another 100).

Land disturbance is reduced, as they are collaring the 2.7 km underground ramp into the zone via the nearby abandoned Bell-Allard South open pit. From there, it’s only a 3.4-km surface haul on an existing road to the concentrator.

And because the geochemistry is virtually the same, tuning the mill up for the new ore feed should be minimal.

The existing Hydro-Qubec power grid, a permitted and operating tailings facility, and infrastructure including rail, road and air networks support all the region’s mines. The 1500-strong town of Matagami is only a 20-minute drive from work for many of the miners and mill-workers who live there.

Zinc concentrates produced at Matagami are refined at the Noranda Income Fund zinc refinery in Valleyfield, Qubec (Xstrata already owns 25% of the units and manages the refinery, and on July 30th announced it intends to take full ownership). Copper concentrates are smelted at Xstrata’s Horne smelter in Rouyn-Noranda and refined at its Canadian Copper Refinery in Montreal, Qubec.

Low costs, high returns

Donner’s corporate message that Qubec is a “mining-friendly” jurisdiction comes from solid government support of the industry, which includes a generous rebate program for mineral exploration.

Xstrata Zinc’s definition drill program is focussed on turning indicated resources of 3.62 million tonnes grading 11.52% zinc, 1.60% copper, 31.55g/t silver, 0.49g/t gold (announced February 25, 2009) into a mining reserve.

The year-round, revised exploration program envisions a 15-year resource, and has so far turned up three more promising targets within economic range of the mill: McLeod Deep, Daniel 1, and Bell Channel. In a July 2010 release on drilling results to date, Donner announced the discovery of the McLeod Deep zone 400 metres down-dip from the McLeod zone.

Well before these findings, the Bracemac-McLeod discovery was deemed so solid it earned the Qubec Mineral Exploration Association’s Prospector of the Year Award in 2007.

And in December of 2008, the UK-based Mining Journal gave the Donner-Xstrata team its Outstanding Exploration Award in London, England, celebrating the highest achievements in the global mining industry.

The Donner-Xstrata team may need to keep some extra space on the trophy shelf.

“We still have 4,737 square kilometers of area to follow up on,” says Magee. “There’s a lot more blue-sky potential in the Matagami Camp.”

---