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Mining where others fear to tread

By Nick Rockel | January 22, 2013
Mining where others fear to tread
Ron Thiessen

For Ronald Thiessen, president and chief executive officer of mining group Hunter Dickinson Inc., today’s economic climate is a blessing and a curse.

On one hand, Vancouver-based HDI’s publicly traded exploration and development companies must battle poor market conditions and weak investor appetite for stocks. On the other hand, its valuation and acquisition team members keep finding bargains in the junior mining sector. “They’re going, ‘You can’t believe how cheap this is. We’ve got to go and buy this stuff,’” Thiessen says.

Thiessen, who joined HDI in 1994 and became president and CEO in 2000, has capitalized on the ups and downs of the commodity cycle before. HDI made some of its best acquisitions early last decade, during what he describes as nuclear winter for the mining industry. It’s important to seize the moment again, Thiessen says. “We aren’t going to use less minerals and metals in the future; we’re going to continue to use more.”

A global business, HDI sees junior mining opportunities where others don’t. Since Robert Dickinson and Robert Hunter founded its predecessor in 1985, the privately-held shop has raised more than $1.4-billion in equity financing and averaged 25 per cent compound annual growth.

As Thiessen explains, 160-employee HDI is an incubator of mineral resource projects. Its business model: Establish standalone public companies devoted to one or several projects and supply them with management and technical services. HDI makes most of its money from rising share prices, says Thiessen, who holds a chartered accountant designation.

With each company, HDI decides whether to pursue a joint venture, sell the business or keep building it. From several million dollars in seed capital, these companies sometimes grow to billions of dollars in value. Detour Gold Corp., which has become independent since HDI launched it on the Toronto Stock Exchange in 2007, began with $10-million. “Today it’s a $2.5-billion company and on the cusp of completing a $1.4-billion capital project,” Thiessen says.

HDI’s eight current companies run North American and European projects in various stages of maturity. They include Northern Dynasty Minerals, co-owner of Alaska’s Pebble project, the world’s largest undeveloped copper-gold-molybdenum system. Last year, HDI companies Continental Minerals Corp. and Farallon Mining sold for $432-million and $409-million, respectively.

For HDI, everything hinges on finding the right projects. HDI’s preferred target is a property whose owner, often a major mining company, has lost interest after compiling a wealth of geological data through exploration. Its geologists have a knack for spotting overlooked mines. “If we can get in and take a look at the database and try and develop a different geological theory or outcome to that project that suggests there’s more to it than what they’re seeing right now, then that’s what we want to acquire,” Thiessen says. “You need to find out what the other side needs to make a deal work.”

With so many big capital projects running well over budget in mining and other industries, “one of the things is knowing your limitations,” Thiessen says. “Our objective is to get to a stage where we can make a decision that we should build it, we should sell it or we should joint-venture it,” he adds of HDI’s companies.

Realizing early on that Pebble was a large Tier 1 project, HDI knew Northern Dynasty Minerals would require a consortium to cover the cost of development. To win credibility in the marketplace and with the Alaskan and U.S. governments, it secured a $200-million investment from British-Australian mining company Rio Tinto Group in 2006. The following year, Northern Dynasty formed a 50-50 partnership with miner Anglo-American that requires the London-based multinational to contribute upward of $1.5-billion in project financing.

Partners with strong balance sheets are one thing. But HDI’s staff, a multidisciplinary team whose members range from geologists and engineers to environmental scientists and financial analysts, make its projects work, Thiessen says. Attracting and keeping top employees takes effort, he admits. “Mining is a small industry where talented people are hunted to go anywhere.”

Part of HDI’s solution is to give all 160 staff a financial stake in its projects. “When we start up all our newer companies, we make sure that everybody in that 160 people gets some stock options,” Thiessen says. “And they get stock options in all of the companies, so they’re happy to work at any company.”

Looking ahead, Thiessen only sees growing demand for minerals and metals. For example, the world needs more copper for everything from China’s vast electrical grid to environmentally friendly automobiles. The average car uses 22 to 25 kilograms of copper, but an electric car with a lithium-ion battery calls for 160 kilograms, Thiessen says. “The more green we get, the more metal we need.”

With several projects in British Columbia, HDI hopes North America will meet much of that demand. B.C. mines are less capital-intensive than their counterparts in other jurisdictions, Thiessen notes. He cites the Gibraltar mine run by HDI’s Taseko Mines, whose 325 employees processes 50,000 tonnes of copper concentrate a day at a cost of roughly $8 a tonne. In Chile, a comparable mine employs more than 3,000 people; its cost to concentrate is about $20 a tonne.

“The big difference comes in the capital intensity,” Thiessen says. “You can build that project in British Columbia for less than $20,000 per tonne of daily throughput. It’s going to cost you $60,000 in Chile.”

Then there’s the robust regulatory environment. “Those areas of the world where regulation is almost absent because government is so intimately involved in the project because the government owns a big piece of it, that’s where you’re ripe for environmental problems,” Thiessen says. “I like North America. Title is strong; laws are strong. And in general the regulatory framework is good, and it’s rigorous. And it should be.”

Over the next decade, British Columbia could build half a dozen $1-billion-plus mines, Thiessen reckons. “Each one of those mines would employ at least 2,000 people during construction and at least 800 people during operations,” he says. “In North America, we have an opportunity for a renaissance in the mining industry.”

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