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Smaller players are digging deeper—but not for nickel

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If it seems like the trillion-dollar Sudbury mining region of Ontario has a fresh glow to it, there's an easy explanation the increasing number of new projects focused on high concentrations of copper and precious metals located deep beneath the surface.

While nickel remains the undisputed king of the Sudbury Basin—a 37-mile-long, 18-mile-wide metallic motherlode created by the impact of a giant meteorite almost 2 billion years ago—mining companies both large and small have been digging deeper and unearthing copper and precious metal deposits in areas that have long since been abandoned.

Nickel prices have tapered off considerably from their highs last year of almost $25 per pound—they're closer to $10 per pound in today's market—but copper has been trading near record highs this year and gold and platinum have soared to once-unimaginable levels. There are few signs of a significant pullback.

FNX Mining Co. Inc., Toronto, is one of the companies at the forefront. Led by executive chairman Terry MacGibbon, a veteran of the former Inco Ltd., it has quickly made a name for itself as the Sudbury Basin's No. 3 nickel producer after Vale Inco Ltd. and Xstrata Plc's nickel division, the company formerly known as Falconbridge Ltd. The company focuses on acquiring what were considered non-core assets of the major players, including rich but hard-to-get-at footwall deposits. The existence of these have been known for a long time, but only recently garnered significant attention thanks to the robust bull market for copper and precious metals.

Footwalls don't contain a huge amount of ore and are difficult to track down, but they do have high grades, making recovered metal content quite attractive at today's prices. Historically they've taken a backseat to the primary focus of Inco and Falconbridge nickel.

That's started to change recently. Vale Inco announced plans in March to spend $132 million developing the "170" footwall ore body at its Coleman Mine. Expected to enter production in 2012, the narrow-vein deposit has reserves of 2 million tonnes grading 7.5-percent copper and 0.5 ounce of precious metals per tonne. The company already is producing metal from its "153" footwall deposit at its McCreedy East Mine. Xstrata also has a footwall project, known as Nickel Rim South, which is expected to come on-stream next year.

FNX has made these types of deposits a primary focus. Its Podolsky Mine in the northeast corner of the Sudbury Basin began production earlier this year with copper grades around 10 percent. It's an impressive figure, considering that typical grades of a copper deposit are one-tenth that. FNX also owns the Levack Footwall, expected to enter production next year.

FNX has an enthusiastic customer after signing a deal in June to sell 50 percent of its gold, platinum and palladium production from Podolsky and other members of its stable to the newly formed Gold Wheaton Corp., Vancouver, British Columbia.

Toronto-based First Nickel Inc. is another company that has turned to old mines in search of new footwall deposits. It bought properties from Falconbridge in 2005, including the Lockerby Mine that resumed production in early 2006.

There's a common belief that more rich copper and precious metal deposits are waiting to be found. Money spent on mine exploration throughout Ontario is expected to total $629 million this year, up 25 percent from 2007 and more than double the $307 million spent in 2004, according to the provincial Ministry of Northern Development and Mines. The number of exploration concessions claimed in the Sudbury district alone rose 36 percent to 27,000 last year, according to the ministry.

The sharp rise in activity is not only attributable to the huge gains seen in commodity prices, but also to companies shifting their focus to low-risk countries such as Canada at a time when developing nations, especially those in South America, are threatening to rewrite mineral claims in their favor.

FNX and other smaller players in the Sudbury region, meanwhile, are keeping a watchful eye on any synergy discussions between Vale Inco and Xstrata that could result in certain assets being put up for sale.

Inco and Falconbridge had long mulled such a deal to unlock millions of dollars in cost savings by better coordinating mining activities in the basin. After the two companies came under foreign ownership, Xstrata announced it hoped to have such a plan in place by the end of last year that would have involved possible joint ventures, asset swaps or sales. But that deadline passed without a deal and there appears to be little momentum to get back to the bargaining table.

Union officials speculate that nickel prices may not be low enough for the two companies to make the synergy discussions a priority. Cost efficiency, after all, becomes a lot more critical when prices are low, and nickel is still well above the $5-a-pound range of two and a half years ago.

Whatever happens, Sudbury will continue to be one of the jewels in the global mining industry for a long time to come. But its main product may have to start sharing the spotlight.


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