Many of the deposits in major mining companies’ portfolios begin to look like dead weight as the firms grow bigger and more averse to risk. The assets, often considered too old, small or geographically risky, traditionally have little value other than as balance-sheet write-offs.

A new generation of enterprising junior and intermediate producers has a different perspective. Encouraged by decade-high metal prices, they are snapping up abandoned base metal deposits with the potential to reach production before the price cycle ends, often using existing infrastructure, contract miners and third-party mills for processing.

“Things have changed,” says Elizabeth Kirkwood, president of First Nickel Inc., one of the smaller companies attempting to follow the model. “The majors with operations or mines they can’t operate profitably are giving them to the juniors in exchange for an investment in the company and saying, ‘Go for it’.”

Such an arrangement gives the junior a relatively low-risk means of growth, while the major can profit from deposits in its portfolio that would otherwise have been dormant.
Investors benefit by getting the best of both worlds: cash flow and the steadying hand of a senior producer, coupled with potential for growth through exploration.

One of the pioneers of the new wave in Canada is FNX Mining Co. The junior bought five former nickel producers in the Sudbury basin from Inco Ltd. in 2002, and began production the next year in partnership with contract miner Dynatec Mining Ltd. FNX reported earnings of $6.5 million (13¢ a share) in 2004, its first profitable year.
Other juniors thrive by going where seniors fear to tread. First Quantum Minerals Ltd., for example, recognized an opportunity in the Zambian copper belt, one of the biggest copper deposits in the world in one of the riskiest places to operate. With the nimbleness of a junior explorer, First Quantum moved into Zambia in the late 1990s and has since expanded into wartorn Democratic Republic of Congo.

The company’s biggest success story is the Kansanshi mine, which was abandoned by Phelps Dodge Corp., a major copper producer, after tens of thousands of metres of exploration drilling. First Quantum acquired the deposit in 2001 and achieved commercial production at the beginning of this year. The former junior is now considered a growing mid-tier copper producer, with earnings of US$44 million for the first nine months of 2004, compared with US$12 million in the same period in 2003 and US$3 million the previous year.

In this case, although the Zambian resources were big enough to interest a major, the country’s risk was considered too high to proceed. Majors won’t expose themselves, and their existing assets, to high-risk areas until they are satisfied with a number of environmental, financial and geopolitical factors, says Jim Mustard, senior mining analyst at Haywood Securities Inc. in Vancouver. Juniors, on the other hand, often have little to lose and much to gain by taking the risk.

Another strategy is to venture into older mining camps that have seen better days and profit from the remnants. HudBay Minerals Inc. (formerly Ontzinc Corp., founded by Cliff Frame of Curragh Resources/ Westray fame) hopes to do just that in the zinc-copper camp the junior acquired through the purchase of Hudson Bay Mining and Smelting Co. from Anglo American PLC for $325 million. The HudBay assets in Manitoba and Saskatchewan include four mines producing 115,000 tonnes of zinc and 88,000 tonnes of copper a year, two concentrators, a zinc plant and a copper smelter.

The purchase was an audacious move by a junior that would not have been possible without strong market appetite for these types of deals and desire on behalf of Anglo American to shed non-core assets.

To fund the Hudson Bay M&S acquisition, Ontzinc completed an offering of subscription receipts for proceeds of about $143.8 million and an offering of senior secured notes due Jan. 15, 2012, for proceeds of $175 million.

“There is a lot of capital looking for advanced projects right now,” Mustard confirms.

Other Toronto Stock Exchange-listed juniors that recently have picked up producing or advanced assets: Amerigo Resources Ltd. and Anvil Mining Ltd., with copper assets in
Chile and DRC, respectively; Ivernia Inc., which plans to ship concentrate from its
lead mine in Australia by the end of this quarter; Lundin Mining Corp., a lead/zinc/silver miner with assets in Sweden; and EuroZinc Mining Corp., which recently purchased the producing Neves-Corvo copper mine in Portugal and also holds zinc assets there.