Acadian Mining

Source: Exec Digital Canada

Date :4/11/2008 4:38:38 AM

Acadian Mining Corp.’s success is intimately tied to geography. Exec learns more

Written by Megan Santosus and Produced by Rich Gentile

For Acadian Mining Corp., success is intimately tied to geography. Located in Halifax, Nova Scotia, the company is in the business of mining for zinc and lead - two base metals that occur in ore grade quantities at Gays River, Nova Scotia. Acadian turns the ore into concentrates - a powder-like form in their 2,300 tonnes per day milling complex and sells to customers around the world.

From Acadian’s perspective, Nova Scotia is fortunate in that the geography boasts and abundance of dolomite, a sedimentary rock in which high-grade zinc and lead are found. Other deposits where zinc and lead are mined in Canada are generally hosted in volcanic rocks, which yield lower quality concentrate. “Our concentrates are unique,” says Terry Coughlan, Acadian’s vice president and director. “They are premium, high-grade concentrates, containing less than one percent iron.” A feature favoured by smelters that complete the final step in the process by converting the concentrates into zinc and lead metals utilized by industry worldwide.

The dolomite hosted zinc-lead deposits is not the only advantage enjoyed by Acadian. Acadian’s Scotia Mine in Gays River, is only 65 highway kilometers from Halifax, and 80 highway kilometers from Sheet Harbour, two ports from which ships can transport zinc and lead concentrates to world markets 365 days per year. (One Acadian competitor in Alaska has an abbreviated transportation schedule due to frozen shipping lanes.) In addition, Acadian Mining enjoys advantages of operating in a location with a highly developed infrastructure, i.e. an extensive network of roads and advanced industrial support.

New funding

Acadian Mining was founded in 2003, and since this date has raised over $55 million in the venture capital markets to fund its acquisition, exploration and development activities and start-up mining operations at Scotia Mine. “We are debt-free and have cash flow,” says Coughlan, “giving Acadian a strong foundation to grow the company both organically and through acquisition.” Currently, there are over 130 dedicated employees, including a management group of experienced professionals including four engineers, six geologists and two chartered accountants.

2007 was a milestone year for Acadian. The Nova Scotia Department of Environment and Labour granted Acadian a permit to open the Scotia Mine in February, 2007. When production began at the mine (which Acadian refurbished at a cost of $5 million) in May, 2007, it signaled the company’s transition from a purely exploration and development venture to a production company.

By the third quarter of 2007, the mine had met its targeted production rate, milling 2,000 tonnes of ore per day, and in November, Acadian announced its first shipment of 5,000 tonnes of zinc concentrate and 800 tonnes of lead concentrate.

Acadian also entered into agreements with two Swiss companies, Trafigura AG and MRI Trading AG, to buy the zinc and lead concentrate produced at the Scotia Mine. When Acadian loads the concentrate on ships, either MRI Trading AG or Trafigura AG takes ownership of the shipments that to date included destinations in Germany, China and the United States.

Acadian built a new warehouse on tidewater at Sheet Harbour, Nova Scotia that enables zinc concentrates to be loaded onto freighters in bulk via conveyor belts. This automation has cut handling costs by 32 percent.

High demand

According to Coughlan, zinc and lead concentrates of the quality produced by Acadian are in high demand, and as such it’s relatively easy for Trafigura and MRI to place the concentrates with smelters who convert it into high grade metal. For the most part, the lead produced is used to make car batteries. (In fact, 80 percent of global lead production is used in car batteries.) The zinc is used primarily to coat steel. The coated or galvanized steel stands up to corrosion and as such finds applications in automobile bodies, roofing, microwave towers, highway guardrails, etc.

For 2008, Coughlan anticipates another good year for Acadian. He projects that the Scotia Mine should produce 30,000 tons of zinc concentrate, and 12,000 tons of lead concentrate which equates to approximately 28 million lbs of payable zinc and 20 million lbs of payable lead. Provided that the price of base metals remains at current levels of US $1.10 for zinc and US $1.20 for lead and an exchange rate of $0.99, and “if we achieve our production targets, we should have revenues of $50 million in 2008,” he says.

Throughout Nova Scotia and in Newfoundland through a publicly traded subsidiary, Royal Roads Corp. (RRO-V), Acadian is actively exploring and developing other areas for zinc and lead deposits as well as barite, a mineral used in natural gas and oil drilling operations. “We control the largest insitu deposit of barite in Atlantic Canada,” Coughlan says. Mining and marketing barite to the oil and gas industry - particularly to companies that operate in the Gulf of Mexico - is an integral part of Acadian’s strategy for growing its business organically.

In addition to base metal mining, Acadian is pursuing precious metal mining, namely gold. Acadian is developing four advanced gold properties—which form the core of its Scotia Goldfields Project. All four gold properties boast past producing gold mines that collectively are host to the largest National Instrument 43-101 compliant gold resource in Nova Scotia. Acadian’s objective is to develop these into four mining operations with a central gold recovery system located at one of these sites.

Since 2003, the company has conducted major drilling campaigns at several of the gold properties in order to outline sufficient gold resources to support the commencement of feasibility studies. Success in this regard would lead into the development of these gold deposits into operating mines. According to Coughlan, Acadian is presently investigating the merits of spinning out the gold assets into a separate publicly traded company in an effort to boost shareholder value as well as expedite the development of these properties at a time when the gold price is at record highs. (Acadian is publicly traded on the Toronto Stock Exchange under the symbol ADA.)

Challenges ahead?

For the most part, challenges revolve around technical, regulatory and cultural issues. “We face engineering issues which are dealt with as a matter of course, however the biggest challenge facing companies such as Acadian are environmental permitting issues,” he says.

And for gold mining, there can be resistance to development among some people who adopt a negative position based on misinformation. In some ways this is a cultural issue because Nova Scotia doesn’t have the extensive metal mining history such as that of Ontario and Quebec, for example. The mining industry, unbeknownst to most people, is probably the most environmentally regulated group in the resource industry.

Adhering to the strict environmental regulations governing the Scotia Mine operations is a priority for Acadian, and by doing so has gained local support from the area. The local area is also benefiting economically from the Scotia Mine. “We pay over $500,000 in wages alone every month,” he says, a contribution that is appreciated by the local population. In addition, a further $1.5 million per month is spent on supplies and contractor services.

Another challenge has to do with metal prices. At the present time, the prices for both lead and zinc are highly attractive, and the price of gold has hit historic highs. Changing metal prices requires careful management of resources and reserves at the mine to ensure that both the maximum value is realized as well as not leaving behind economically extractable ore.

If the activities of 2007 are any indication, Acadian is well on its way to achieving growth in 2008 and beyond. With a zinc and lead mine operating 24 hours per day, 7 days a week, and a number of other advanced projects in barite and gold mining under development, Coughlan is very optimistic about Acadian’s prospects. “We have a vision to become one of the top mining companies—in both exploration and production—in Atlantic Canada,” he says.