Northern Orion Resources

Source: Exec Digital Canada

Date :02/07/2007 12:52:46

Northern Orion Resources has laid a sturdy foundation from which to develop and expand its gold and copper mining capabilities

Written and produced by James Buchanan & Jason Wright

Few commodities are more concretely tied to the laws of supply and demand than those that are mined from the ground.

A shortage due to lack of exploitable resources or overheated demand can send prices for these commodities such as gold, copper, and silver soaring.

“Currently there are high metal prices as compared to historic trends, though, on an inflation adjusted basis, we are not at all time highs” says David Cohen, president and CEO of Northern Orion Resources, a mining company based in Vancouver, B.C. “The demand for metals is significant, as there is increasing and large demand in Asia as the Chinese and Indian economies continue to grow, and there is little erosion in demand in Europe and North America. I do not anticipate this changing for some time.”

Cohen adds that the supply side of the equation has been somewhat constrained over the past few years. Only 15 percent of what had been anticipated to be in production five years ago has actually been brought online in the copper sector. The net result is relatively high prices that have so far remained stable, which is a good thing for the mining industry, says Cohen.

“You don’t want prices to get too high because then you attract the development of mines — mines that otherwise wouldn’t be profitable in the long term coming online, and that destabilizes the market,” he says. “If prices get too high it makes doing any long-term business planning all but impossible.”

With the financial environment being so conducive to the mining of metals, Cohen believes his company is well positioned to take advantage of the strong market.

“Northern Orion is focused primarily on the mining of copper, gold and molybdenum,” says Cohen. “Our assets are located solely in Argentina, and they consist of a 12.5 percent share in the Bajo de la Alumbrera mine in the northwest part of the country, and 100 percent of the Agua Rica deposit, which is currently in development.”

The Alumbrera mine is currently the largest producer for the company.

“It is a highly productive mine that is producing significant cash flow for us,” Cohen says. “Last year we drew $140 million, which we expect will hold for the next few years and then drop by about a third, but remain a reliable source of income for the company.”

The mine, located in northwest Argentina, is co-owned by Xstrata plc, which owns 50 percent, and Goldcorp, which holds a 37.5 percent stake in the mine. Operations at the mine commenced in 1997 and it is what is referred to as an open pit mine.

Both the Alumbrera and proposed Agua Rica mines are open pit, which means neither requires expensive, technically intensive and challenging underground techniques and resources.

“We don’t have to go underground, which is the easiest and cheapest type of mining,” says Cohen.

Alumbrera, according to the company’s website, is one of the world’s largest copper and gold mining operations and among the lowest cash cost copper producers. Since June of 2003, when Northern Orion acquired its share of the mine, and March 2007, the company’s share in the mine has netted it 189,713,600 pounds of copper and 291,165 ounces of gold. By December 31, 2006, proven and probable reserves are estimated to have been at 3.79 billion pounds of copper and 5.84 million ounces of gold.

With the success of the mine, the company takes its impact on the environment very seriously.

The design, development and operation of the facilities at the mine are managed to reduce the impact of mining operations; ensure efficient use of energy, water and other resources; and minimize waste generation and disposal, says the company’s website.

Further, environmental protection across all of the company’s sites is maintained through site specific environmental management systems.

For example, approximately 75 percent of the water in the tailings storage facility is recycled for use in processing the ore pulled from the mine; a tailings pump-back system has been implemented to prevent water from seeping from the tailings storage facility; and a joint water monitoring program has been established with representatives from the provincial government to monitor the area impacted by the mine.

While the Alumbrera mine is the primary source of the company’s revenue, the Agua Rica mine holds great promise, says Cohen.

“The Agua Rica mine should be a good producer for us for the next 25 years when it comes online in 2011,” he says. “We hold 100 percent ownership of the mine so our cash flow will go up substantially from this one mine. When you consider the revenue it will generate for 25 years, with the Alumbrera mine our revenue will go up by an order of magnitude, a very strong growth profile for the company.”

The Agua Rica deposit is also in the northwest part of Argentina and is located approximately 25 miles from the Alumbrera mine.

Cohen describes Agua Rica as literally over the hill from the Alumbrera mine, which could provide the company with a number of cost saving efficiencies. The two mines could be able to share a number of resources and infrastructure such as trained and experienced employees, distribution routes from the mines and utilities.

According to feasibility studies done in 2006, the mine holds approximately 21.8 billion pounds of copper, 13.3 million ounces of gold, and 1.7 million pounds of molybdenum.

“The company has a huge resource base, which is measured,” says Cohen. “This is very large for a company of our size. We have strong cash flow, growth profile and we have a very good mine that we will bring online soon.”

Being strictly a mining operation, the company devotes few of its resources to processing the metals after they are mined from the ground.

“Basically, we mine the stuff up, take it away by truck, and crush it down at our concentrate mill,” says Cohen. “The metal concentrates are removed and taken to smelters that buy the concentrate. Principally, our customers are the smelters.”

The excess material is taken to a tailings dam, which is basically a waste dump for dirt.

“This is essentially only dirt because we don’t use any harmful chemicals in our mining processes,” says Cohen. “We make sure the tailings dam is stable and will treat any water that passes through primarily for discoloration and to ensure the quality and standards meet specifications.”

According to Cohen, strategies to grow the company include exploiting current resources, developing new resources and through accretive acquisitions.

“We have a very active exploration program,” says Cohen. “There are no concrete results to report yet, but it’s quite active. We are also actively seeking out strategic acquisitions.”

Further, the company expects the continued cash flow from Alumbrera will enable it to bring Agua Rica online and pursue accretive acquisitions on a 100 percent ownership basis or joint venture partnerships.

The location of the company’s headquarters in Vancouver is related to the dual needs of the company, which is to mine for resources and manage the business side of the operation.

According to Cohen the office in Canada has a small head office compliment, but “there is access to international capital markets up here, which are where our shareholders are.”