 | TONNES FOR TIBET |
Last month, Continental Minerals announced a mineral resource estimate on their second deposit in Tibet – and turns out it’s bigger than the first. One of the last frontiers for mineral exploration, it’s also been the darling of protestors. Is it politically safe to mine there? We caught up with XL-er Ron Thiessen about their new discovery and found out first-hand what it’s like to navigate Chinese waters.
XL Editor Jeff Clark: First, Ron, congratulations on the discovery.
Ron Thiessen: Yes, thank you. Initially we thought this was a one-trick pony, but it turns out there are two deposits there – and I believe there are substantially more. It’s got great exploration potential. This is one of the last frontiers in terms of mineral exploration. If you have ever been to Northern Chile, the Altiplano, you’d think that’s where you were if you saw this deposit. The geography is very similar, as well as the geology.
XL: Is it true this is the largest new mine under development in China?
Ron: I would say that is correct, and more importantly, it’s the kind of deposit China is after, which is copper. This is a predominantly copper-generating mine and is of significant size. It has the focus of the Chinese government in terms of bringing new infrastructure to this region, so it’s got tonnes, it’s got grade, and it’s got support.
XL: Let’s talk more about that support in China. First, what’s meant by the “Tibet Autonomous Region?”
Ron: It’s just like a province in Canada or a state in the United States. It has its own internal government, just like a state or province does, and operates autonomously, similar to how the state of Washington is operating autonomously from Washington D.C.
XL: What is it about Tibet that seems to attract activists? I saw them protesting at PDAC, and I can remember those “Free Tibet” bumper stickers from the ‘70s.
Ron: Tibet is internationally famous. Obviously, the Dalai Lama is well recognized and has a significant presence throughout the world. Also, the cause of the Tibetan people is something that has been promoted by some fairly famous people around the world. Of course, we’re not here to diminish the cause of the Tibetan people, but hopefully to help it.
XL: So what are the basic politics for mining in Tibet?
Ron: It’s like the rest of China. It is a single-party rule, and then you have different departments of bureaucracy including a mining agency. The one thing is that when they finally make a decision to do something, you usually have more or less one agency to deal with. Now, they do have what we would call ministries of environment, ministries of land and resources, which are equivalent to our mining ministry. But on a day-to-day basis, you don’t really notice too much difference. It’s on the permitting end of the business where things are a little different. They are much more prescriptive in China, and as long as you can fit yourself into their prescriptive formula, things go very well.
XL: Tell us about the differences in permitting. And what about government royalties?
Ron: To tell you the honest truth, it is not that much different than it is in the West. They don’t have a concept of private land ownership; the state owns all the land. But that’s not much different than the BLM [Bureau of Land Management], is it? So the Chinese government owns the land, and you have to lease the land and the surface rights. And when you extract the minerals, there are taxes and royalties to be paid, just like in the rest of the world. They are very comparable to what British Columbia would be.
XL: So they’re reasonable?
Ron: They are reasonable. This is not like some other parts of the world where the government is thinking, "Well, we want 50% of the deposit" or "We want 40% carried interest" – it’s nothing like that.
XL: You make it sound like you would feel safer operating there than in, for example, Russia.
Ron: To tell you the truth, I would, yes.
XL: Tell me a little bit more about the deposit. I understand it’s a low-grade, open pittable deposit?
Ron: I would not call this low grade. It is a porphyry deposit, and porphyries by their nature tend to be large, very disseminated, and homogenous ore bodies. So something that is 1% copper is considered high grade, and something 0.3% would be considered low grade. The copper grade in the Xietongmen deposit is actually 0.45%, and that would make it a medium or moderate-grade copper deposit. But we also have gold and silver there, and if you convert the gold and silver into a copper percentage, you are talking about something that is probably 0.8%, which would be considered high grade.
XL: I saw that KMK got Explorer of the Year in 2007.
Ron: Yes, at the China Mining Conference.
XL: Is there an exciting discovery story there?
Ron: We acquired interest in the Xietongmen property in 2004. It had an adit [a horizontal mine opening] that went into the ore body – not too many people wanted to go into it – and two bore holes, that’s it. So basically it was a grassroots exploration discovery by our team. The interesting part, and this will tell you a bit about how smooth operations can go in China and in Tibet, is that we have since taken it from a grassroots exploration play through all of the exploration and resource delineation, 95% of all the engineering and probably 90% of all the permitting. Of the 20 permits that you ultimately will need to start building a mine, we have 18. We paid close attention to the detail of what the bureaucrats wanted in the various ministries, and we were in constant touch.
XL: That must pay off when you’re applying for permits.
Ron: Yes. And this is how it’s different in China than North America. Many North American companies will do all these studies and come to all these conclusions, and then hand a ton of paperwork to the government agency and say, "Here's my environmental impact study, plus all of my geological engineering studies, so go read all of it and give me my permits, please, or come back with questions."
In China, you actually work with something called a Design Institute, which is a government-certified engineering company, and the objective of the Design Institute is to help you comply, in terms of all of your studies, with the government requirements. At many steps along the way, the government bureaucrats get involved in your studies. They are actually working in there with you. And if they see deficiencies, they’ll tell you, "We’ll need this, we’ll need that," and so by the time you’re finished, they probably know as much of what’s in those studies as you do.
So when the application for a license lands on their desk, it doesn’t take them two years to review, it takes them about 90 days. So from that standpoint, it is a far more collaborative approach. Now I am not suggesting that it’s less rigorous. In fact, the Chinese requirements are far more rigorous than other jurisdictions. China has not had experience with really large mines, so their tendency is to overprescribe rather than underprescribe, because this thing is going to be here forever.
XL: And with China now being the world’s #1 gold producer, hopefully government efforts are becoming more supportive. Do you get that sense from working there?
Ron: Absolutely. My sense is that the government realizes that in order for the country and the people to prosper, they have to provide the opportunity for employment, the opportunity to earn an income, and the opportunity to acquire things.
XL: So they get it.
Ron: They do. As I like to say, the Chinese are the original capitalists.
XL: Has your site seen any protests?
Ron: You mean violence? No. That was predominantly taking place in the city of Lhasa and has been focused predominantly in the tourist regions where foreigners are. I do not want to minimize those things – they happened, they were real, and they were extremely unfortunate.
XL: Can you give us some production numbers and a timeline?
Ron: We’re hoping to achieve final permitting this year, and then start with mine development next year, principally earthworks. The other great thing about China is that for projects like this, capital is readily available there. Trying to get bank financing for a project like this – a single-asset company – would be just about impossible in the West. But China needs copper.
What people need to understand is that the developed world, the modern world, runs on electricity, and you get that electricity only from one medium: copper wire. In terms of creating a modern society, one of the most important things is the electrification of China, and so they need copper. They are pushing development and are really pushing copper development hard. Loans are readily available. And the more products that KMK can buy in China, the more money they are willing to loan us.
In fact, in my discussions with some of the bankers, if we can get our purchases up to around 85% of the total capital sourced from China, we can probably get 70% project financing on this from banks, and because of our location, at subsidized interest rates.
XL: That’s a huge benefit. I read you’ll hit 200,000 ounces of gold per year when production ramps up.
Ron: Yes. About 115 to 120 million pounds of copper, 190,000 to 200,000 ounces of gold, and about 1.75 million ounces of silver.
XL: And what’s the mine life?
Ron: The first deposit – Xietongmen – will have a 13- to 14-year mine life. And then we’ll bring the second deposit on line, which is called Newtongmen. The second deposit is actually larger than the first. It has slightly lower copper and gold grades, but as the second deposit discovery, infrastructure would already be in place.
XL: The stock has tripled already this year, so is it too late to buy?
Ron: Definitely not. It’s never too late to buy a good thing.
XL: What are your thoughts on gold?
Ron: I believe gold represents multiple uses. First, in times of distress, it represents a store of wealth like money, and it is the ultimate store of wealth. It is the ultimate piece of liquidity in distressed times, so for now and through the potential deflation or inflation – which is probably where we are going – I think gold is going to have a luster that far exceeds its own luster.
And then there’s the jewelry application. We all have wives, and I know my wife is trying to keep the jewelry industry in business on her own! And then there is industrial application. Gold has really some very unique properties, and as the world moves into more high-tech types of things and more electrification of these high-tech things, I think we are going to see a greater use of some of the precious metals in doing this stuff.
Electrification is on the tip of everybody's tongue, but what people need to realize is that producing things like lithium-ion batteries and nickel hydride batteries uses a tremendous amount of electricity, and I believe there will be opportunities for gold in those kinds of things, maybe in circuits where gold becomes more efficient and a better conductor of electricity.
XL: Would there be enough gold for that?
Ron: Well, it would be used in minute amounts, but if you look at an automobile, we still have mechanical steering and mechanical brakes. Did you know that we have not had mechanical steering and mechanical brakes on airplanes since the jet age?
XL: I didn’t.
Ron: We fly by wire in airplanes. Why don’t we eliminate the steering column and all that heavy mechanism in the steering system and simply have wires from motor to wheel to turn them? You would probably save 400 or 500 pounds in car waste and improve your fuel consumption by 5% or 10%. You could do the same with hydraulic breaks – remove the hydraulic system and work with electronics.
XL: I bet we’ll see those kinds of things someday. Just to wrap it up, where’s most of your focus right now?
Ron: My children. And I’m doing a lot of work on Northern Dynasty (NAK; NDM.T) and Continental right now.
XL: Exciting times for them, indeed.
Ron: They really are at the forefront, and that is why you have seen their stocks perform so well. They both have the perfect combination of minerals and metals – copper, gold, and silver. It feels great.
XL: Thanks for your time, Ron.
Ron: You’re welcome.
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| NAME THE EXPLORER |
Will Continental Minerals be a winning investment? Here’s what some of our XL-ers have said on the subject of identifying a successful speculation. Who said it?
“From my point of view, the real wealth is created by recognizing a discovery early on, or recognizing a good discovery group early on, and accumulating a position and being patient and being believers in it. That’s how I’ve made all my money. I trade for fun, but to make real money, it’s all about accumulating a meaningful position in the real people of our industry. There are a lot of people you see in the industry whom you roll your eyes at, who jump from sector to sector, and gold is just the latest fad to them. It’s the people who are the dedicated toilers and the strivers in our industry who know how to create real fundamental wealth.” Name the Explorer
“My guess is that the biggest mistake they make is not doing their own homework but relying on brokers to do it for them. They fail to go to investment shows to meet with management groups, and don't bother subscribing to the better newsletters, such as Doug Casey's or Bob Bishop's. I think there is a tendency to not pay enough attention to management or to the financial structure of the companies they buy.” Name the Explorer
“Winning in the mining/exploration game is a combination of knowing what you're doing, and, to some extent, being lucky. It's people who are in that first part who are the ones you have to look at. People who know what they are doing – and that's not only technical, it's also people who can get out on the forefront, who are prepared or who have identified situations that have escaped most other people... for example, in countries that are just opening up. I think these are the sort of things that give you an edge on the competition.” Name the Explorer
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