Canadian Royalties must raise additional $135 million for work to resume
200 face layoff as problems plague nickel project
About 200 workers at the Nunavik Nickel Mine site have been told they will be laid off by the end of October as Canadian Royalties faces serious financial and logistical problems and a dispute with its minority partner.
Under the best-case scenario, the mine's startup in May 2010 will be delayed by six months, Canadian Royalties' CEO Richard Faucher said in an interview earlier this week from Montreal.
The problems are bringing work on the mine site, located between between Salluit and Kangiqsujuaq, to a standstill. For work to resume, Canadian Royalties needs to raise another $135 million for its $500-million project.
That's because banks are worried that the company's current problems make the project a more risky investment.
For guarantees, the banks now want $70 million more plus all the working cash for the project, $60 million, up front – "not when we start production, but now," Faucher said.
A major obstacle is logistical – the continued lack of access to the nearby Donaldson airstrip, which is owned by Xtrata's giant Raglan mine.
The conditions of the Quebec environmental permit granted to Canadian Royalties this spring don't allow the company to build a second airport for its mine.
But there's been no deal yet between Canadian Royalties and Xstrata on the use of Donaldson airport.
"It's been 12 weeks now. It's been delayed and delayed. We expected we would be using Donaldson by early June, based on what the government told us," Faucher said.
This delay means Canadian Royalties has had to rely on 10-seater Twin Otters landing on a gravel airstrip to ferry in its staff and supplies – all at great additional cost to the company.
Faucher was reluctant to point any fingers at Xstrata, a huge multinational mining company, which some say has no interest in sharing Raglan's infrastructure with a competing nickel mine.
Faucher said Canadian Royalties is still talking with Xstrata, but that the pace of discussions has hurt the smaller mining company.
"That's what is so unfortunate," Faucher said.
Canadian Royalties also faces more legal wrangling with its 30 per cent minority owner, Nearctic Nickel Mines Inc. (formerly called Ungava Minerals).
Faucher would only say they have been "very difficult partners." The dispute is going into arbitration by the end of August, with a decision expected within a few months.
The future looked bright for Canadian Royalties earlier this summer, which finally had all its environmental permits, land leases and Inuit benefits agreement in place.
Now the company is actively scouting for other partners who have money to invest in Australia and Russia.
The Caisse de depot et placement du Quebec increased its stake in Canadian Royalties by buying 2.1 million shares in the company earlier this month. The Quebec pension fund manager now holds more than 3.5 million shares in Canadian Royalties.
But since then Canadian Royalties announced a second quarter loss and has seen its stocks lowered from "strong buy" to ‘'outperform." The company's stock has dropped $1.72 to .89 since the beginning of August.
"It is difficult. But it's a great project," Faucher said. "It has a lot of value and it should be financed."
For the Qaqqalik Landholding Corp. in Salluit, Canadian Royalties' problems came as a surprise.
The landholding group, which manages and invests compensation money on behalf of the Inuit of Salluit, had signed a $5 million joint-venture contract with Canadian Royalties to build four fuel tanks in Deception Bay.
Work on the fuel tanks has been cancelled, although materials for the project had already been ordered.
The Nunavik Nickel mine's open-pit and underground mines would create 300 jobs and produce nickel, copper, cobalt, platinum and palladium.
Norilsk Nickel, the world's biggest producer of nickel and palladium, had agreed to buy the nickel concentrates produced by the Nunavik Nickel mine and bought a $25 million stake in the project last year.