t’s been a busy year for Trilogy Metals. The company is focused on exploring and developing its high-grade copper-zinc-lead-gold-silver-cobalt properties in the Ambler Mining District, but that’s not nearly all. Over the course of this year, Trilogy Metals completed the formation of its joint venture—Ambler Metals—with South32 Limited; filed the final EIS for the Ambler access road project; appointed Tony Giardini as its president and CEO; received the go-ahead to begin development of the Ambler access road; and put in place a new management team for Ambler Metals. All this while moving forward with development of the Arctic and Bornite deposits.
So it’s a small miracle that Giardini and Patrick Donnelly, vice president of corporate communications and development, had a spare second to sit down with Alaska Business to talk about mining in Alaska, Trilogy’s joint venture with South32, and the future of the Ambler Mining District.
[Editor’s Note: The following excerpts are from a video interview conducted earlier this year. They have been edited for style, length, and clarity. To watch this Q&A simply scroll down.]
Tony Giardini: The company’s history in Alaska dates back well before the formation of NOVAGOLD, which subsequently became Trilogy. The vision that Rick [Van Nieuwenhuyse] had was really to establish a mining district. He was very aware of the exploration upside—and considerable exploration upside—that existed in the district. And it was through his relentless pursuit of this that the company was able to initially get to those exploration areas in the Ambler district, but then also enter into an agreement with NANA that created an economic model that will benefit not just Trilogy shareholders but NANA and its shareholders and will lead to, not just one mine development, but a series of mine developments in the district.
AB: What exploration opportunities in Alaska is Trilogy Metals particularly excited about?
Giardini: Having been in the mining industry for about twenty-five years now, I’ve operated in a lot of different mining jurisdictions. And Alaska is right at the top in terms of tenure of security once you operate there, but also an appreciation of the benefits mining can have, not just for the stakeholders but for the communities and for the people residing in the state. We feel that being in Alaska is exceedingly important for us. And the key, of course, with the Ambler Mining District is about infrastructure… [the Record of Decision issued in July] puts us into the next phase working with AIDEA [Alaska Industrial Development and Export Authority] to see the development of that road. And what that does is open the district as a whole. What excites us is that it’s not just about Arctic or about Bornite, it’s about a series of other opportunities within the district that would allow us to continue mining for years to come.
The road that is being built is expected to have a life of fifty years, so we know that the economics of a road are effectively built on Arctic, Bornite, Sun, and Smucker coming into production. But we see more opportunity than that in terms of satellite deposits in the area.
And what excites us is the high, high grade nature of the deposits. The fact that it’s an area that’s typically been underexplored, that it is a combination of a variety of different metals, which actually is quite beneficial in terms of giving us opportunities to help fund the development of the area. Those are the key things that we’re excited about as we look at the district as a whole.
Giardini: A portion of [the district] is on NANA lands… a deal that was negotiated where effectively we created a joint venture with NANA. We’re very fortunate to have NANA as a partner and once we see the development of Arctic, NANA will make a decision as to whether they want to have a stake in the project directly or have a net profit interest to be equivalent to 15 percent. They have a long history of mining. Obviously, Red Dog [a zinc and lead mine owned by Teck Resources and operated on NANA lands] has been an incredible success with NANA working with Teck.
We’re very closely aligned with NANA and our expectation is that we’ll be working hand-in-glove with the community in terms of looking at development opportunities. And the focus is not just on the economic return that NANA will receive but obviously on the employment and procurement opportunities that will exist in the district. The first step will be getting Arctic up and running. We’re working very collaboratively with NANA and the community and their shareholders and will continue to do so as we transition into the joint venture.
Donnelly: If you look at the capital costs of the road, you’re looking at anywhere from $300 million to $400 million. The cost of the Arctic project is probably going to be close to $1 billion, and that’s going to create hundreds and hundreds of jobs. The nice thing is these aren’t jobs where you need an advanced degree. We need drivers, mechanics, people to build roads, that sort of thing. These are good, solid jobs that’re going to give a real boost to the state of Alaska and in particular in an area that needs jobs badly. In the end, it’s going to be thousands of jobs for people.
AB: Will you expand on your relationship with AIDEA a bit?
Giardini: We see AIDEA as one of the most critical partners and partnerships that we’ll have. AIDEA’s mandate is to foster economic development in Alaska and look for opportunities to help fund infrastructure that would lead to employment and jobs and creation of tax revenues, ultimately for the state, but also for the residents in Alaska and NANA’s shareholders. So the focus with AIDEA is really on, ‘How do we get this road constructed into the Ambler Mining District and do it in a way that the cost of that road can be effectively amortized over a reasonable time period?’
I previously mentioned that the expected life of a road is fifty years and the economic case for building the road isn’t just Arctic, it isn’t just about Bornite. It’s also about Sun and Smucker, which are four of the known deposits that are well advanced in the area. AIDEA is looking at putting that road in place and putting a toll structure in that would recover that cost over a reasonable timeframe. That’s factoring in that there’s not just going to be one mine, there’ll be four mines. On a standalone basis, Arctic has a twelve-year mine life as it’s contemplated and it wouldn’t be able to bear the economic costs of the road on its own. So, it’s going to need to factor in some of the other opportunities that already exist in the district.
There was an announcement by AIDEA of an agreement in principle to look at some of the initial funding for the next phase of the road development, which is focused on engineering. There’s going to be some airborne surveys, et cetera, that are going to be run. And we’re looking at a very modest initial investment of about $1 million, of which the Ambler Metals would fund half and AIDEA would fund the other $500,000.
That is an agreement in principle that would look at a larger commitment down the road. AIDEA has about $35 million earmarked for engineering associated with the project, and they’re looking for some sharing of those engineering expenditures… which is at this point is going to be Ambler Metals. So we’re in the process of looking at this initial million dollar agreement as a small step toward deciding how we’re going to mobilize the $35 million from AIDEA and make contributions from the Ambler Metals-side, of which Trilogy is a part.
From engineering we would move into the actual construction of the road—a two-lane road of hard-packed gravel. It would be a private, industrial road. It would not be used for any other reason than getting access to the mining district. What neither AIDEA, nor ourselves, nor the community wants is that this becomes a road where you could have people go in either for recreation or for hunting and fishing. And that’s not what the intent is—this is really for industrial purposes only.
AB: You have mentioned Ambler Metals a couple of times; that’s the name of the joint venture between Trilogy Metals and South32, correct?
Giardini: The way South32 initially came into the project was through committing to spend $30 million and then they had an ability to spend $145 million to create the JV. They exercised that option in late 2019 and the JV was created in January of this year. The new subsidiary is called Ambler Metals and it’s owned jointly by South32 and by Trilogy. [Ambler Metals] will be on the ground focused on the development, focused on the relationship with AIDEA and NANA and others. And Trilogy, of course, and South32 will continue to be involved as shareholders of Ambler Metals and working with those same parties in terms of managing our stakeholder relations and outreach.
AB: It’s known that Arctic is one of the highest-grade copper deposits known in the world with an average grade of 5 percent copper equivalent. And the mine is expected to have a twelve-year mine life initially. Can you tell us about the proven and probable reserves for the different metals you’ll be mining for there and what that translates to in dollars?
Giardini: The deposit is extremely high grade—the copper equivalent is north of 5 percent. There are 43 million tonnes of resource… its primarily a copper mine, but it has zinc, lead, gold, and silver credits. The economics based on the pre-feasibility study that was done a few years ago, and this was a Trilogy study, indicate that it has a net present value of $1.4 billion on an after tax basis and internal rate of return of 33 percent.
When you measure that against other copper deposits out there, what you’ve got is a great mix. You’ve got a very profitable mine because of that high grade and you’ve got low capital intensity. That means that initially we’re looking at about $800 million of initial capital, and that includes “sustaining capital” or capital that is spent as the mine is in production.
When you look at the amount of capital that has to be deployed per tonne of production, Arctic is on the low end of that scale. And that’s an important consideration because that means the company and NANA, anyone who’s involved, will see the actual capital cost recovered quite quickly. And the cash flow that is generated will start to be returned to shareholders and the community. The economics are quite compelling.
Vice President of Corporate Communications and Development
Trilogy Metals
Giardini: Under the pre-feasibility study the power source was looking to be LNG… but there’s been a shift, and the consideration now is to look at diesel. Even though you expect LNG to be more cost-effective, just given what’s been happening to the energy sector, when you look at the all-in cost of LNG—delivery, availability, et cetera—it’s actually more expensive than where diesel is today. And we’re looking at daily throughput of 10,000 tonnes per day, so the footprint at that site will not be huge, but we will need ample power generation to run the mills and to support the camp effectively.
Donnelly: What’s great about Arctic is the environmental footprint is tiny. The area that could be disturbed is less than 150 acres. It’s a tiny postage stamp of land that’s going to be impacted by the mine. Sot it’s a win/win. It’s win/win for the environment. It’s a win/win for the people of the borough, and it’s a win/win for Trilogy metals. You know, globally, it’s getting more challenging to operate a mine. You deal with more political issues, nationalization, and instability. And we’re very, very fortunate that we’re in a great place like Alaska. And the people of Alaska understand resources, understand mining. We don’t take anything for granted about being in Alaska.
AB: This is a very exciting project and one we’ll be following closely here at the magazine. Any final thoughts?
Giardini: We think that the tone in Alaska is very positive with respect to the development of a project like Arctic. And just touching on what Pat said, the benefit of a project like Arctic is it’s a small footprint. There’s prospectivity associated with it in terms of it being able to grow over time. And it’s a high-grade deposit. And we have NANA as a partner, directly working with us to move this project forward and create economic opportunities and develop jobs in their community. There are a lot of win/wins associated with this. We’re going to use, for most part, infrastructure that already exists in the state. We’re going to be good stewards of the environment. We’re very mindful of the fact that the communities where we operate are concerned about subsistence living.
And, finally, we’ve talked a lot about Arctic and we’ve talked about the projects, but we haven’t really talked about the primary metal, which is copper. When you look at the demand-supply fundamentals associated with copper, the world’s going to need a lot more copper in the future. If you look at the electrification of the grid, if you look at infrastructure spending, if you look at electric vehicles—all of those things are going to require more copper. We’re seeing a dearth of quality copper projects, particularly in safe jurisdictions like Alaska. And we think that this this is a perfect type of development opportunity, not just for the state, but also in terms of a sustainable copper supply. 