Steel — and Snow — In The Air

michwis

“We have been blessed with good weather” in the Upper Peninsula, Lundin Mining CEO Paul Conibear told a small group of analysts on the 3rd Quarter earnings call last week; “I think Indian Summer has arrived.”

We’re well, well advanced on concrete. Lots of steel in the air. The warehouse facilities we have are chockablock full of equipment that’s been delivered, just waiting for the concrete to cure to start placing.

Conibear says he was in the UP with the Lundin Board of Directors and an entourage of analysts and investment bankers at around the same time I was, but they probably didn’t venture far from Marquette. There, it still felt like October. Mornings were cold and damp. Days were mostly sunny.

In the Keweenaw, hail and snow and rain would fall, and then the sun would burst through the clouds and the sky would clear — all in the space of an hour or two. Before I reached Bessemer, big flakes of snow were falling steadily, and it had started to blow. I asked the woman wearing a Packers jacket behind the counter at the gas station if she thought it would stick. “Already is,” she said.

Lundin needs to keep moving ahead. Though it boasts of having “no high risk, major capital projects,” it’s clear that when it comes to Eagle Mine, high-powered analysts like Pierre Vaillancourt of Macquarie Securities are looking for “any opportunities to decrease the capital intensity a little bit.” Conibear had to admit there wasn’t much room to maneuver:

We’ve inherited a project [from Rio Tinto] that was 50% constructed and designed and 99% complete and permitted, and the clear instructions to the team is you don’t touch anything on the project that has any risk of requiring permit complexity. So yes, the bus [sic, not the train] has already left the station on being able to change any physical aspect in any significant way. You know if we were given a blank sheet of paper would it be designed differently or would it have a different flow sheet or something? Probably, but that’s years ago.

I can’t help but wonder how deep these misgivings about the design of the Eagle project run, especially given the flaws mine engineer Jack Parker and others have pointed to, and if Conibear and his engineering crew are pushing ahead with Rio Tinto’s design and flow sheet despite serious flaws. It’s hard to tell just from these remarks.

In any case, they’re “going as fast as possible” at Eagle. By pushing the schedule, Lundin Mining hopes “to get some capital cost improvement”: “the sooner we bring it in for sure the less overhead there is.”

Delays – and, I imagine, any protracted controversy over the Eagle haul route — will be costly. On site, big ore bins need to be installed before winter. The mechanical electrical piping contractor is already at work. Lundin has “modified the contracting strategy” around the Eagle project to take advantage of “a very competitive contracting marketplace” in the UP, and now “there’s quite a buzz going on” at both the mine and the mill sites. Progress underground is ahead of work on the mill. Conibear seems confident Lundin can commission the mine before the end of Q2 2014, and have the mill running and first ore shipped by the end of next year.

And yet, despite even the best-laid plans, winter is on its way. I saw the first signs of its approach around Lake Gogebic. The next day, in Minnesota, when I cut west on Route 1 from the Palisade Head, the big pines on either side of the road were dusted with snow. It all looked so gentle and dreamlike and the places I drove through had dreamy, faraway names: Finland. The Baptism River. This could not have been the harbinger of the “severe winter” Conibear talked about on his earnings call. It presented itself with quiet grace, like a spell to lull the world into long, deep sleep.

Nature can be the miner’s undoing: “all it takes is one mother nature event to throw you out,” Conibear explained. Whatever cost efficiencies Lundin achieves by speeding up the schedule or managing contracts at Eagle may be foiled by storms or snows or other forces beyond its control. In Andalusia, where Lundin has the Aguablanca mine, “it rains like hell starting about this time of year.” In 2010, it rained so hard that a collapse – a slope failure — shut down Aguablanca until August of 2012.

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