MINING UPDATE

New mining projects in Peru will attract over $3.6 billion in investments this year, adding to the overall industry forecast of $10 billion, the president for the country’s National Society of Mining, Oil and Energy (SNMPE), Eva Arias said recently.

The South American nation’s extractive sector, which accounts for some 60% of the economy, saw investments for $8.5 billion last year and is expected to bring $53 billion over the next decade, added Arias.

According to LPBnews (in Spanish), mining investment jumped 18% last year compared to 2011 despite large-scale protests against exploration and extraction activities that swept the country in 2012.

SNMPE warned in September last year that, as a result of non-stop anti-mining protests in different regions of the country, investors had started looking for greener pastures and so mining investment in the South American nation was expected to fall. Although that didn’t happen, the body said Peru did fall to third place from second in the list of world’s top copper and silver producers.

Panaust Seeks Joint Copper/Gold Projects with Codelco in Chile

PanAust Ltd., an Australian operator of copper and gold mines in Laos and Thailand, is seeking to acquire assets in Chile with partner Corp Nacional del Cobre de Chile to add to their Inca de Oro project.

PanAust wants to form ventures with Codelco, as the world’s largest copper producer is known, for projects that have an annual output capacity of 50,000 metric tons to 150,000 tons, Managing Director Gary Stafford said in an interview yesterday. The partners are studying ways to boost the reserves of Inca de Oro, 34 percent owned by Codelco, and a decision is expected next year, he said.

PanAust is boosting investments as it expects copper to stay between $3.50 and $3.80 a pound this year on sustained demand and limited supply, he said. Codelco, which invested a record $4.2 billion in 2012, plans to spend more than $5 billion this year as it begins to dig underneath its century-old Chuquicamata mine to access new deposits.

“They’ve got such a massive capital investment program focused on their core assets” that PanAust has the opportunity to develop Codelco’s smaller deposits, Stafford said by phone from Brisbane, where the PanAust is based. PanAust is seeking partnerships “with Codelco for projects that aren’t receiving focus from them at the moment,” he said.

PanAust shares fell 6.8 percent to A$2.62 at the close of trading in Sydney yesterday, giving the miner a market value of A$1.6 billion ($1.64 billion). Ten analysts rate the stock a buy, seven a hold and three a sell, according to data compiled by Bloomberg.

Copper, which rose 6.3 percent in 2012, has fallen 1.6 percent this year and traded at $3.59 a pound on Comex in New York as of 4:13 p.m. in Melbourne yesterday. Gold may trade in a range of $1,500 to $1,800 an ounce on continued central bank purchases, Stafford said. The metal rose 7.1 percent last year, the 12th consecutive year of annual gains.

PanAust aims to produce as much as 65,000 tons of copper and as much as 175,000 ounces of gold this year.

Vale’s CEO Bullish About Iron Ore in 2013

Murilo Ferreira, CEO of Vale. Murilo Ferreira, CEO of Brazil’s mining giant VALE (NYSE: VALE) said he expect less volatility in terms of iron prices for 2013, local newspaper Folha de S. Paulo reports.

Unlike Sam Walsh, head of Rio Tinto's iron ore business, Ferreira said he is happy with current iron ore prices of around $150 a tonne, but acknowledged the scenario is not as promising as those of recent years.

Vale, which is the world number one producer of the commodity, believes the firm will benefit from a recovering Chinese demand for construction and manufacturing materials.

“I don’t see a scenario that is as pessimistic as in September 2012, or as exuberant as in 2008 and 2010, when prices reached $200,” Ferreira said.

According to the top executive, the high iron ore prices being recorded in January were driven mostly by Asian demand.

Encanto Potash close to $700m/year Indian deal

Encanto Potash (TSX-V:EPO) details of a possible deal with India's Rashtriya Chemicals and Fertilizers Ltd. (RCF) surfaced on a government website. The Vancouver-based company is advancing a potash project in Saskatchewan that could produce up to 2.8 million tonnes of potash a year for the next 50 years.

Construction costs are pegged at $2.4 billion and the mine could start producing by 2017. The proposed agreement with the Indian concern calls for an offtake agreement for 2 million tonnes of potash at an 8% discount to market price – worth roughly $736 million a year.

A similar deal was inked by another potash junior – Karnalyte Resources – to provide India with the fertilizer ingredient from a proposed new mine in the Canadian province recently.

Encanto also published details of an agreement with a Kuwaiti concern to raise $7 million and appoint two new directors.

Mustang Announces Increase to Mayville Resource in Manitoba

Mustang Minerals Corp. (TSX VENTURE:MUM)(NJF.F) recently announced the results of a National Instrument 43-101 compliant resource estimate for its Mayville Deposit located in southeastern Manitoba. Indicated resources increased significantly from the resource estimate announced April 15, 2010. The indicated resource announced in 2010 was 11.6 million tonnes at 0.55% copper and 0.21% nickel which increased to 24.3 million tonnes at 0.45% copper and 0.19% nickel (0.69% copper equivalent). Inferred resources increased from 0.2 million tonnes at 0.55% copper and 0.2% nickel in 2010 to 4.1 million tonnes at 0.45% copper and 0.18% nickel (0.68% copper equivalent). The updated resource estimate was reported at a $20 NSR cut-off.

A substantially larger mineral resource at Mayville provides a positive catalyst for development of the Makwa and Mayville Deposits. The Company has announced that it plans to complete a Preliminary Economic Assessment based on co-development of the two deposits. The Mayville Property in particular has excellent exploration potential and remains open at depth and along strike. The Mayville and Makwa deposits are located within Mustang''s mineral tenements in the highly prospective Bird River Greenstone Belt - an emerging area prospective for nickel, copper and platinum group metals.

Alamos Gold Makes $780 million Takeover Bid for Aurizon Mines

Canadian miner Alamos Gold (TSX:AGI) has offered $780 million, or $4.65 per share in cash and stock., for Vancouver-based Aurizon Mines Ltd. (TSE:ARZ) the Toronto-based firm announced recently.

Alamos is after Aurizon’s only operating gold mine, Casa Berardi, in northern Quebec. The targeted company also owns other eight properties in Quebec, which include an advanced-stage gold development property of the Heva and Hosco West Extension areas.

The combined entity is expected to have an estimated market value of about $2.6 billion, Alamos said.

The takeover bid, which will be open for acceptance for at least 35 days following the mailing of the take-over bid circular, will be fully financed and will not require approval by its shareholders, the miner added.

Anglo American and Cliffs Sell Amapa Mine in Brazil

Anglo American plc and Cliffs Natural Resources Inc have sold their stakes in the jointly-owned Amapa iron ore mine in Brazil for an undisclosed sum.

Anglo American said the terms of the sale, which would transfer 100% of Amapa to private Brazilian iron ore company, Zamin Ferrous Ltd, would remain confidential. The deal is subject to regulatory approval.

Anglo American announced in July that it was exploring the possibility of divesting its 70% interest in Amapa as it did not intend to hold the mine over the long term. Cliffs held the remaining 30%.

In November, media reports said Zamin, as well as Glencore International plc and Severstal Resources, had lodged bids for Anglo American’s stake.

Anglo American acquired Amapa in January 2008 from Eike Batista’s MMX as part of a US$5.5 billion deal, which also saw it obtain the final 51% of the Minas Rio project.

Since then the company has increased pellet feed and sinter feed production at Amapa from 1.2Mt/y to 4.8Mt in 2011.

Cliffs said it would record a pre-tax impairment charge of approximately US$380 million to US$420 million following the sale of its stake, which in September last year was valued at US$480 million.

Asia Consortium to buy ArcelorMittal Stake in Canadian Iron Ore Unit for US$1.1bn

ArcelorMittal SA has agreed to sell 15% of its Canadian iron ore operations for US$1.1 billion to an Asian consortium, it said. The bidders are led by steelmakers POSCO of South Korea and Taiwan-listed China Steel Corp. As part of the transaction, the Asian companies will enter into long-term off-take agreements in proportion to their stakes.

The move is the latest in a series of transactions by Asian firms designed secure supplies of raw materials for their fast growing economies. ArcelorMittal Mines Canada owns the Mont-Wright mining complex, Fire Lake mine and Port-Cartier industrial complex in the Labrador Trough of Canada. In July, the company confirmed a US$2.1 billion expansion of production was underway from 16Mt/y of iron-ore concentrate to 24Mt/y, due for completion this year. Over the past 18 months, ArcelorMittal has been selling off non-core assets to reduce its debt in the face of weak steel demand in Europe. It has recently cut its stake in iron-ore explorer Baffinland Iron Mines Corp, also in Canada, and agreed to sell its 50% interest in a South African manganese operation.

AUSTRALIA

MMG’s Dugald River Zinc-Lead-Silver Mine Needs Total Capital Of A$1.49bn

Chinese mining group MMG Ltd estimated total capital costs of its Dugald River zinc-lead-silver mining project in Australia will hit A$1.49 billion ($1.57 billion) with production starting a year later than expected.

MMG has invested A$293 million in the project in northwest Queensland so far and needs about A$1.2 billion to produce its first shipment of concentrate in late 2015, the company said in a statement recently.

The Dugald River project, which was originally slated for start-up in 2014, is being developed to replace MMG's nearby Century zinc mine.

MMG expects Dugald River to produce concentrates containing about 200,000 tonnes of zinc a year compared to the 500,000 tonnes annual output of the Century mine, which is scheduled to run dry by around the middle of the decade unless fresh reserves can be found and exploited.

Fortescue to Resume 40Mt/y Kings Development in Western Australia

Fortescue Metals Group Ltd is to resume work on its key Kings iron ore deposit in Western Australia’s Pilbara region, the company said.

In September, Fortescue put the project on hold after a fall in iron ore prices forced it to seek ways to reduce costs and spending.

The deposit is part of the company’s Pilbara iron ore expansion plan with Kings expected to deliver 40Mt/y by the end of 2013, helping Fortescue to hit 155Mt/y of capacity a year from now.

The improvement in iron-ore prices and market outlook, in addition to the sale of some non-core assets have encouraged the company to resume mining at Kings, FMG said.

Three months ago, the miner suspended work as part of an A$1.6 billion (US$1.6 billion) capital expenditure cut back.

Since then, the company has secured both a new credit and debt facility, sold a 25% stake in the Pilbara Nullagine joint venture iron-ore project to BC Iron Ltd for US$199 million, and put a minority stake in its logistics company, The Pilbara Infrastructure, up for sale.

Frieda Copper-Gold Project Capex Increases by US$300M

The initial capital cost of Xstrata plc and Highlands Pacific Ltd’s Frieda copper-gold project in Papua New Guinea has increased by US$300 million in line with a depreciating US dollar over the past three to five years, Highlands said.

A new extended study from 72% project owner Xstrata has shown an increased cost to US$5.6 billion, from US$5.3 billion anticipated in November 2010.

The study outlines a 20-year open-pit mine life with 304,000t/y of copper and 451,000oz of gold output in the first five years of production. Project development could commence in 2015, Highlands said.

“Frieda’s upfront capital spend is reflective of a greenfield start up and also of the major depreciation in value of the US dollar in the past three to five years, which has seen new projects worldwide increase in US dollar cost terms,” managing director of Highlands, John Gooding said.

The work carried out this year has identified potential capital savings, which could reduce the capital spend to below US$5 billion though, Highlands said.

Xstrata and Highlands will hold discussions with the Papua New Guinea government next year in regards to the latter’s desire to take up a 30% direct equity stake in the project, according to Highlands.

ASIA

Mongolia Cancels Key Oyu Tolgoi Licences

FT.com reports Mongolia has revoked the licences for a key section of Rio Tinto's Oyu Tolgoi giant copper-gold mine.

The London paper reports "Rio is meeting with the government, as the two sides are under pressure to reach agreement before funding runs out for the $6.6bn mine.

"If an agreement is not reached either the mine will suspend operations or Rio will extend credit to the mine, according to a person with direct knowledge of the matter."

The Anglo-Australian company has been at loggerheads with the government of the Asian nation over costs, revenues and taxes since a new government laden with resource nationalists took power last year.

Mongolia's president Tsakhiagiin Elbegdorj, who is also the architect of draft legislation being considered by Mongolia's parliament that would place severe restrictions on foreign miners in Mongolia, has accused Rio of working fast and loose with financing for the project.

The Mongolian government holds 34% of Oyu Tolgoi and Turquoise Hill Resources (TSX:TRQ), controlled by Rio, holds the rest.

These events follow recent news that authorities had revoked a licence for Vancouver's Entrée Gold (TSX:ETG) to mine near Oyu Tolgoi. Rio Tinto holds a 23% stake in Entrée.

The massive mine near the Chinese border has been a decade in the making and to develop it to full capacity with an underground mine to compliment the open pit could cost close to $13 billion by some estimates.

At full tilt mine is set to produce more than 1.2 billion pounds of copper worth $4.6 billion at today's prices, 650,000 ounces of gold ($1.1 billion) and 3 million ounces of silver (just under $100 million) each year.

Oyu Tolgoi will account for 30% of the economy of the nation of just over 3 million people.

News of Mongolia Coalmine Launch Intrigues Foreign Investors

Major foreign investors have long sought to invest in the 7.5 billion tonne coal development at the core of a mining boom expected to transform Mongolia's fortunes.

Mongolia will begin producing coal from a block of its giant Tavan Tolgoi mine this year, a senior official at the state-run company in charge of the deposit said recently, a step that may give foreign firms a way into the long-delayed project.

Major foreign mining companies, including U.S.-based Peabody Energy and China's Shenhua Group, have long sought to invest in the 7.5 billion tonne coal development at the core of a mining boom expected to transform land-locked Mongolia's fortunes.

Batdorj Enkhbat, the chief financial officer of Erdenes-Tavan Tolgoi (E-TT), told a mining conference that coal extraction at the western Tsankhi block would begin soon, providing a much-needed fillip for the cash-strapped company which last month was forced to suspend deliveries to its only customer China because of financial difficulties.

A local newspaper, citing E-TT, said production would start by April.

Domestic miner Khishig Arvin LLC would carry out the initial development work, but Enkhbat would not say whether E-TT would finally take on foreign partners. "We don't yet know the answer to the question," he said.

The development of the western block would add 888 million tonnes of reserves to the mine, bringing the total current exploitable reserves to 1.8 billion tonnes, Enkhbat said.

The project, situated near the Chinese border, is facing a host of financing problems and bureaucratic hold-ups as well as political opposition to the role likely to be played by foreign investors.

In 2011, Peabody and Shenhua were named as members of a consortium that would be granted the rights to develop Tavan Tolgoi's western block, but the Mongolian government was forced to backtrack after other bidders from Japan and South Korea branded the decision unfair.

Peabody was asked last year to draw up logistic and infrastructure plans for the block, with a view to becoming the temporary mine contractor ahead of any new bidding process.

Peabody was offered a contract by E-TT last month, but it has not yet made a formal decision whether to accept it.

In a statement, Peabody said it would continue to hold talks with the government on the development of Tavan Tolgoi but said it "would not comment on the status of specific discussions related to the project."

E-TT's chief executive Batsuuri Yaichil told Reuters in January that the company was under severe financial strain, and that Mongolia would delay a long-awaited international IPO for Tavan Tolgoi's eastern block until next year until the market improved.

Turkish Gold Mining Successful

Since enacting important liberal reforms in 2010, Turkey has been home to a number of mining success stories.

Only 15 years ago, 85% of mining operations in Turkey were government controlled. This ratio is now reversed.

And whatever one may think about Prime Minister Erdoğan's brand of politics, his decade-long, investment-friendly tenure has opened Turkey's doors to mining companies looking to cash in on the rich, often unexplored Anatolian geography.

Vancouver-based producer Eldorado Gold Corp (ELD) has been enjoying Turkey's relatively low income tax burden and their attractive investment tax credits. Eldorado has two operating gold mines in Turkey – the sales from which helped push 2012 Q4 profits up to 13%.

This January, Centerra Gold (CG), a producer based in Toronto, finalized the acquisition of Stratex's (STI) stake in the promising Turkish Oksut gold project.

Toronto-based producer Alamos Gold Inc. (AGI) has increased inferred resources on its Turkey properties from 1 million to 3 million ounces since 2010.

Alamos CEO John McCluskey applauds the efforts of the Turkish government to open up and develop its mining sector, and he sees both market consolidation for the juniors and a handful of new producing mines on the horizon.

Lynas Produces First Rare Earths Product

Lynas Corp has produced its first rare earths product for customers from its controversial material plant in Malaysia after successful commissioning last month.

The company has been battling in the courts with non-governmental organisations in Malaysia over operating its plant.

It has taken five months for Lynas to reach commercial production since being approved a temporary operating licence in September, after a five-year wait.

The company said the recovery rates from the plant’s cracking units continue to be higher than 90% of the contained rare earth oxides.

“Following commissioning of the cracking and leaching circuits, the company has been working through early stage production issues that are typical for any start-up of a new plant,” Lynas said.

Lynas has a target for phase one nameplate production capacity of 11,000t/y of rare earth oxides in the June quarter.

Coal India to Redouble Efforts to for Overseas Mines to Meet Demand

With $12bn burning a hole in its pocket, Coal India is going shopping for mines outside of the country to bolster its reserves.

With Coal India likely to fall short of its annual production target by 12 million tonnes in the current financial year, the firm is going back to the drawing board and hopes to utilise its $12 billion cash pile to buy overseas mines.

Despite being in negotiations with four suitable prospects, the past two years have seen the company not inking any deals. It is now considering seven share sale proposals from Australia and Indonesia.

At the time of its IPO in 2010, the company said it had plans to invest in countries like Australia, South Africa and New Zealand and was keen to achieve top line growth of 16% and ramp-up capacity expansion by 20% in the next two years.

Coal India recently confirmed that it would fall short of the annual output target and gave a revised estimate of 452 million tonnes. The earlier production target was 464 million tonne.

Lower production in the October-November period and heavy rains had derailed the target, the group said. In the first ten months of the current financial year, the company recorded production of 355.51 million tonne.

Coal India recently invited bids for taking up drilling at the blocks and to assess reserves of its mines in Mozambique. The coal producer has been facing problems enhancing coal production.

Coal India Africana Limitada had won a five year licence for the exploration and development of mines in Mozambique in August 2009.

"In order to establish coal resource base, Coal India African Limitada, a subsidiary of Coal India, plans to take up exploration in Mozambique's Tete Province, through outsourcing. Bids are invited from the interested bidders for the following job," Coal India said in a notice.

PricewaterhouseCoopers has been roped in to assist Coal India to develop a pact for the supply of imported coal for power firms entering into fuel supply agreements with the state owned company.

Last month, India's Coal Minister Sriprakash Jaiswal said the acquisition of coal mines overseas should be done in an aggressive manner to meet the energy requirements of the nation.

In order to tide over the shortage of the fossil fuel, the government is also proposing to import coal and pooling domestic and international prices. It is here that PwC has been brought in to lend its expertise.

India's demand supply gap of coal was 161.5 million tonnes in the last fiscal and is estimated to go up to 200 million tonne in 2016-17.

AFRICA

Vale: Eyes $7 Billion In Planned Investments For Africa

Brazilian miner Vale SA plans to invest $7 billion in seven African nations in the coming years with a focus on coal in Mozambique, iron ore and bauxite in Guinea and copper in Zambia, the Democratic Republic of Congo and Angola, said the company's global head of corporate affairs Wednesday. In Guinea, the company has partnered with privately owned BSG Resources Ltd. to develop the Simandou iron ore project. Rafael Tiago Juk Benke said the company is still waiting for clarity on some key logistical parameters before going ahead with its investment. He noted on the sidelines of the Indaba Mining conference that no timeline has been provided by the government to finalize those details.

"We are now waiting for some final parameters for the projects that the government is doing along[side] a portfolio of [other] projects in the country," he said.

In Zambia, the company has joint venture with African Rainbow Minerals Ltd. (ARI.JO) and the state-owned mining holding company ZCCM in the Lubambe mine, which started production in October 2012 and has a production capacity of 45,000 tons of copper concentrate.

In Angola, it is also exploring for copper and in the Congo, it has a partnership with ARM to look for copper.

In Mozambique, the company started producing coal in 2011 from its Moatize project and is ramping it up to 4.5 million tons of coal output a year. The first phase allows up to 11 million tons of coal production a year with a further $2 billion planned to be spent on the project to reach 22 million tons of coal a year, including investment in rail infrastructure, he added.

Vale is also developing a multi-user Nacala railway line that will traverse Malawi in order to reach the coast. The line will cost a total of $4.4 billion to develop.

So far Vale has spent $1.6 billion in contracts with 800 Mozambican companies to develop its projects in Mozambique, Mr. Benke said.

Zimplats Expansion of $460 Million Recovery Plant on Schedule

Zimplats Holdings Ltd., Zimbabwe’s biggest producer of platinum, will complete the expansion of a recovery plant on schedule in April, processing ore from a new 2 million metric ton underground mine, Chief Executive Officer Alex Mhembere said.

The $460 million project will increase annual production to 270,000 ounces from 187,000 ounces last year. “The second stage, which is underground mining development, will reach full production in 2015 as originally planned,” Mhembere said in an e-mailed response to questions.

Zimbabwe, which has the biggest platinum and chrome reserves after South Africa, doesn’t have a refinery and most of Zimplats’s platinum is processed at Impala Platinum Ltd.’s plant near Johannesburg. Impala, which owned 87 percent of Zimplats, on Jan. 11 signed the terms to sell 51 percent to the country’s black citizens.

Zimplats has spent $30 million on a feasibility study for a refinery in Zimbabwe that will cost at least $2 billion, Mhembere said. “Building a refinery is not only down to cost and the availability of feedstock but also depends on the availability of a number of factors, chief amongst them a stable and adequate power supply,” he said.

Zesa Ltd., the southern African country’s only power utility, produces 1,100 megawatts, while demand is estimated at 2,100 megawatts. The deficit has led to outages that can last as long as 13 hours a day, curbing output, according to the Confederation of Zimbabwe Industries.

Zimplats “isn’t expecting any major shifts” in platinum prices “from current levels in the short term. The medium to longer-term price levels will more than likely respond to supply factors,” Mhembere said.

Congo Gives Green Light for Chinese Takeover of Sundance

Sundance Resources Ltd said it has received government approval to develop and mine the Nabeba iron-ore deposit in the Republic of Congo, (ROC) completing all conditions needed for Hanlong Africa Mining Investment Ltd’s US$1.4 billion takeover of the company.

Both companies have been renegotiating the deal since the Chinese group’s original bid in September 2011.

In December, Hanlong requested an extension to the deal deadline after its biggest lender, the China Development Bank (CDB), requested a review of some of the terms of the transaction.

Sundance initially rejected this request, but now the deal is expected to be completed by February 26.

Giulio Casello, Sundance’s managing director and chief executive, said the approval from ROC’s ministerial council, coupled with the recently signed Mbalam convention in Cameroon, allowed work to start on the operation once financing had been confirmed.

Nabeba is part of Sundance’s Mbalam-Nabeba iron-ore project located on the borders of both Cameroon and the ROC. Stage one envisages a 35Mt/y direct shipping operation of ore for a minimum of 10 years.

NEW PRODUCTS

Baldwin Filters Releases Extreme Performance Nanofiber Air Filters

Baldwin Filters, A Clarcor company, recently released its new line of Extreme Performance heavy-duty air filters featuring Baldwin's patented ProTura® nanofiber technology. These new heavy-duty air filters fit common agricultural, mining and construction applications.

"We recognize that many customers using our filters operate their equipment in high dust environments where contaminant control is critical," said Farrell Calcaterra, Vice President Engineering.

Baldwin's Extreme Performance filters feature fibers with an average diameter of 90nm (a nanometer is one billionth of a meter). These ultra fine fibers bonded to cellulose media provide unequalled performance in removing submicron contaminants.

"The nanofiber technology used in the Extreme Performance filters enables us to manufacture a filter that more effectively removes submicron particles," Calcaterra said. "Contaminant removal is crucial in high dust conditions. Extreme Performance filters allow users to capture higher amounts of the submicron contaminant, while providing better engine protection and longer filter service life," Calcaterra continued. "We performed field tests in tough mining environments. The filters in the field tests had excellent performance as expected based on extensive lab testing."

With the ProTura nanofiber media, the fine contaminants tend to load on the media surface resulting in higher initial contaminant removal efficiency and lower flow restriction, according to Calcaterra. Through normal use, the submicron particles tend to cake on the surface of the media then fall to the bottom of the housing where the contaminants can be removed by the dust ejector, increasing the filter's contaminant removal capacity.

McIlvaine Company

Northfield, IL 60093-2743

Tel: 847-784-0012; Fax: 847-784-0061

E-mail: editor@mcilvainecompany.com

Web site: www.mcilvainecompany.com