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Replenishing reserves

December 11th, 2014

With a decade of diamond demand outgrowing supply, Canada’s a target for new sources

by Greg Klein

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Diamonds: Global supply and demand

Miners of other commodities might welcome half of the diamond dilemma. Forecasts see continued market growth for another decade. But production will taper off. That’s the 10-year prognosis from Bain & Company and the Antwerp World Diamond Centre. Meanwhile another report from the NWT and Nunavut Chamber of Mines addresses the need to maintain production in the Northwest Territories, the world’s third-largest source of diamonds by value and home to a busy exploration scene.

The December 9 Bain study, which generally agrees with a September report from De Beers, expects an average 4% to 5% compound annual growth in rough diamond demand to 2024 driven largely by India, the U.S. and especially China. Supply growth, on the other hand, should lag behind at 3.5% to 4% up to 2019, then fall to somewhere between 1.5% and 2% for another five years.

With a decade of diamond demand outgrowing supply, Canada’s a target for new sources

The world’s largest source of new production would be Gahcho Kué, the De Beers/Mountain Province Diamonds TSX:MPV joint venture slated for 2016 production in the NWT’s Lac de Gras region. The mine’s expected to produce between five and six million carats annually to 2020.

Bain forecasts Lukoil’s Grib mine in Russia at four to 4.5 million carats a year when it begins operation in 2016. After that would come the Karpinsky-1 pipe at ALROSA’s Lomonosov project in Russia, expected to yield about three million carats annually after reaching commercial production in 2015. Stornoway Diamond’s (TSX:SWY) Renard project in Quebec, slated for 2016 commercial production, should be good for another 1.5 million carats a year. Looking farther ahead, Rio Tinto’s (NYSE:RIO) Bunder mine in India is projected to yield another three million carats annually on reaching full production in 2020 or 2021.

“Other new mines under development are relatively small; each is projected to produce one million or fewer carats annually,” the report states.

“Because it takes seven to 10 years to develop a mine, even if major new deposits were discovered within the next few years, there would not be enough time to bring them to full production by the end of the forecast period,” the study adds.

Diamond supply: The Canadian outlook

The supply/demand imbalance notwithstanding, jewelry retailers show increasing eagerness to trace diamonds to ethical sources, Bain points out.

Among those sources is Canada, renowned for high-quality, conflict-free stones. Diamond mining now takes place in Ontario and the NWT, with Quebec expected to join soon and Saskatchewan another possible contender. Output from just three mines in Lac de Gras ranks the NWT region third globally for diamond production by value.

Of those three, Dominion Diamond’s (TSX:DDC) majority-held Ekati is projected to run out of ore in 2019, according to the NWT and Nunavut Chamber of Mines. The chamber gives the Dominion/Rio Diavik operation a life expectancy to 2024 and De Beers’ Snap Lake until 2028.

Rio has since announced plans to bring Diavik’s A-21 deposit online. Yet the chamber maintains A-21’s expected to maintain current production, not extend mine life.

Ekati’s best chance for a stay of execution is the Jay project, “the largest diamondiferous resource in North America,” according to Dominion, and a potential extension of 10 or more years to the Ekati operation. Should environmental approval arrive by the end of 2015, Dominion hopes to begin operations by 2019.

Diamond exploration: The juniors move in

Not surprisingly, it’s up to the juniors to meet growing demand. Since Canadian diamonds are found in kimberlites and kimberlites tend to come in clusters, most exploration takes place near known deposits—with the hope that nearby kimberlites will also contain diamonds.

The hottest hotbed of activity is the NWT, especially around Gahcho Kué. Kennady Diamonds TSXV:KDI holds turf on three sides of the project. Last month the company mobilized for more exploration and delineation drilling on Kelvin, one of the Kennady North project’s four diamond-bearing kimberlites. Diamond recovery results are expected by year-end from two more mini-bulk samples.

Another Gahcho Kué neighbour, Prima Diamond TSXV:PMD holds the 42,000-hectare Godspeed Lake project immediately south of the mine-to-be. Forty kilometres northwest of Gahcho Kué and 35 kilometres east of Snap Lake, Prima holds the 14,000-hectare Munn Lake project. A 581-kilogram sample from one Munn Lake kimberlite gave up 226 diamonds while a 42-kilogram sample from another revealed 14 diamonds. Prima also optioned the Orion diamond property, 2,275 hectares in Quebec’s Otish Corridor, north of Stornoway’s upcoming operation.

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Urban dependence

November 6th, 2014

The livelihood of city dwellers relies more on resource industries than many people realize

by Greg Klein

People in Dawson Creek, Sudbury and Val-d’Or get it. But what about those living in larger, southern Canadian cities like Vancouver? How many people realize how much we depend on resource extraction, and not just for the commodities we consume? As a new report points out, Greater Vancouver’s economy relies heavily on British Columbia’s resource industries.

That’s the message of Community Impacts: Exploring the Natural Resource Sector’s Economic Impact on B.C., Its Regions and Urban Centres. The study was released last month by Resource Works, which considers the campaigns for B.C.’s November 15 municipal elections an opportunity to influence public debate.

The livelihood of city dwellers relies more on resource industries than many people realize

Just how far removed is Vancouver
from British Columbia’s resource industries?

Even so, Resource Works executive director Stewart Muir says the organization’s “not choosing candidates.” Calling the study impartial, he tells ResourceClips.com, “We don’t believe it’s political in itself.”

The non-profit group was founded in March with seed money from the Business Council of British Columbia. It’s now looking for donations from individuals and organizations, he says.

The group is backed by an advisory board representing “a coalition of people who would advise and, through their participation, show their support for what we’re trying to do. They include leaders from first nations, labour, business, multicultural groups, academia and the environmental movement. They meet quarterly, advise us and are central to our success.”

Report author Peter Severinson emphasizes his study is illustrative, not representative. Without trying to estimate the full extent of economic impacts, his research presents some examples that might otherwise be overlooked or taken for granted. The three-part study, which underwent independent academic reviews, evaluated the impact of B.C.’s top three resource industries of forestry, mining, and oil and gas.

Severinson used BC Stats data to look at province-wide impacts, while using industrial property assessments to gauge the sector’s regional prominence. Part three focuses on eight Greater Vancouver municipalities “where the connection with the resource sector is least obvious.”

There, Severinson evaluated the spending of seven companies: Catalyst Paper TSX:CYT, Copper Mountain Mining TSX:CUM, Encana Corp TSX:ECA, New Gold TSX:NGD, Taseko Mines TSX:TKO, Teck Resources TSX:TCK.A and TCK.B, and Western Forest Products TSX:WEF. Alberta-headquartered Encana made the list due to its heavy B.C. expenditures.

Again, this approach gives illustrative examples that might otherwise be overlooked, not a fully representative study. “The economic impact of the entire resource sector will be greater than the impacts described in this report,” Severinson writes.

Those seven companies alone poured $1.3 billion into Greater Vancouver last year. More than half, $732 million, went to the city of Vancouver itself, mostly to “professional service providers including lawyers, accountants, engineers, consultants and educators.” That’s in a city whose incumbent mayor opposes local pipeline expansion.

Next door, the municipality of Burnaby got $41.6 million from the seven companies. Burnaby’s entire city council sides with Vancouver’s mayor on pipeline expansion.

North Vancouver, a generally affluent mountainside suburb that sometimes approximates an urban ecotopia, got $162 million last year. Surrey, a ’burb that’s forecast to overtake Vancouver’s population, got $230 million. Richmond, where large new homes contrast with the remaining farmland, got $63 million.

As for Greater Vancouver’s Tri-Cities, Coquitlam got $13 million in 2013, Port Coquitlam got $19 million and even little Port Moody got $8 million.

Muir points to the “profound effect on the Vancouver economy” of an estimated 800 to 1,200 mining and mineral exploration companies headquartered in the city. “What we’ve got now is a real sense of what just seven companies can do in a year in terms of local impacts. What if next time we study 50 companies and look at their impact?”

With a $22.2-billion GDP contribution that took up nearly 12% of the provincial total, resources make up B.C.’s second-largest sector after real estate and leasing. 2010 numbers show about 184,000 jobs representing one-tenth of B.C.’s total jobs come from resources, the study points out. And that’s “only counting those jobs that are either directly within resource industries or that can be closely tied to outputs from those industries.”

We’ve got a high-tech economy because we’ve got a resource economy. And it’s also a green economy because these environmental technicians and people working to protect the environment and improve practices—guess what they’re doing? They’re doing resource jobs to protect the environment.—Stewart Muir, executive director
of Resource Works

So while people in Dawson Creek, Sudbury and Val-d’Or need no explanation, the value of resources can be lost on those living in bigger southern cities. Muir talks of “a divide between the real economy and what lots of people, for good reasons, wish the economy was. The economy we see people wishing for is high tech and green. It’s an economy that’s modern and a departure from the past. And for a lot of people, that’s an economy that’s post-resources.”

But, he says, of the FP 500’s top 50 companies, “15 of them are resource companies. And those 15 have 2013 revenues of almost $300 billion, which means they produce more revenue than all the finance, banking and insurance companies in the top 50.”

Nor does the resource economy fit another misconception.

“We see in British Columbia $250 million a year in R&D spending for mining and petroleum,” he says, citing a recent report from B.C. Stats. “That report is waved around by people who say we need this high-tech economy to replace the resource economy. But I look at the same data and say we’ve got a high-tech economy because we’ve got a resource economy. And it’s also a green economy because these environmental technicians and people working to protect the environment and improve practices—guess what they’re doing? They’re doing resource jobs to protect the environment.”

Muir portrays this high-tech, green resource economy as “a way of being a leader on the world stage. We can continue to export our regulatory know-how, our technical know-how, our strong ability to raise capital for mining projects, and develop not just our own resources but help other countries develop theirs responsibly. That’s modern Canada.”

What’s next for Resource Works? The group hopes to produce two to four papers per year, similar in substance to Community Impacts. A backgrounder on the B.C. government’s proposed LNG-backed Prosperity Fund will look at royalty schemes in Alaska, Alberta, Norway and Kuwait. Slated for December release is a detailed report resulting from eight discussion sessions involving 120 people with wide-ranging views on resources. The group also plans to present its findings to municipal council meetings across the province.

“Our most important issue is how the environment and the economy concerns the average person,” Muir says. “That’s where we have this great disconnect today and that’s where the work is needed.”

Not surprisingly, the non-profit hopes for more support from industry. “Our movement is directed at people who aren’t in the resource industries but we do need people who already get it, who already see the linkages that validate our work.”

Download Community Impacts: Exploring the Natural Resource Sector’s Economic Impact on B.C., Its Regions and Urban Centres.

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