Welsh mining’s comeback

Materials World magazine
20 Dec 2018

Welsh minerals has a glittering revival. Michael Schwartz takes a look.

All too often – and all too sadly – coverage of mining in Wales looks back to the now-vanished coal and iron-ore operations. On the rare occasions when it has considered gold, it tends to tell a stop-go history of well-meaning investors who arrive to exploit the country’s gold reserves only to fail, almost leaving with their tails between their legs.

So, what is the reality today? Has there been any recent interest in mining Wales’ mineral resources? And is help available?

Minerals planning at national level

The short and long-term exploitation of minerals in Wales and the safeguarding of the latter are dealt with in a series of planning-policy documents from the Welsh government, prepared under the title Planning Policy Wales. Chapter 14, in particular, looks at minerals – and Wales boasts a comprehensive range of resources.

For example, such is the range of variants within oil and gas that a distinction between conventional and unconventional is made. Conventional refers to relatively permeated materials where oil and gas can flow relatively freely towards the production well, while unconventional oil and gas resources are those trapped within rocks where extraction is more difficult. In fact, unconventional gas is not as yet a contributor to UK energy capacity – the technology employed is currently being used to determine the quantity of any available resources.

Shale has been a well-publicised resource in recent years. Here, the gas is either held in fractures and pore spaces or is adsorbed into organic material, such as the remains of plants and/or animals. Usually, water is pumped into the resource, creating narrow fractures and providing paths for the gas to flow through into the production well. Small particles, mainly sand, are pumped into the fractures to keep them open.

Further to this, friction reducers can be mixed with the water. This is where Natural Resources Wales, the largest Welsh government sponsored organisation, comes in – any such substance must meet with that body’s approval.    

Parys Mountain

One company that has received substantial support from the partially devolved Welsh Assembly Government (WAG) is Anglesey Mining plc, of which the Chief Executive Officer is Bill Hooley. He outlined the situation to Materials World, saying, ‘Within Wales overall, reviews are now carried out by the partially devolved WAG – the central Government Welsh Office has little input. The WAG has continued to be very supportive of our project, particularly on a job creation basis, and will assist us to the fullest extent possible by available funding’.

Anglesey Mining’s Parys Mountain site hosts one
of the key developments currently unfolding in the Welsh mining industry. It has a zinc-copper-lead resource of 2.1 million tonnes (Mt) at 6.9% combined base metals indicated, and 4.1Mt at 5.0% combined inferred. Parys Mountain has planning permission and a time framework of two years from financing
to production.

At this point it should be mentioned that Parys Mountain has witnessed substantial mining in the past. As the largest copper mine in Europe in around 1780, the presence of copper is well attested.

Anglesey Mining’s short-term steps will include:

  • An environmental impact assessment
  • Recruitment of key corporate staff
  • Discussions with potential providers of project finance, including investment funds, metal traders, smelters and banks
  • Conversion of the company’s present scoping study to a definitive feasibility study (DFS).

Regarding the DFS, Hooley comments, ‘We completed a scoping study in 2017 that we regarded as very positive. That study indicated a number of additional items of work that would be required to move forward to a feasibility study. We have accepted those recommendations and we have announced a detailed optimisation study that will be carried out by a company based in Ireland. We expect this new work to be completed certainly no later than mid-2019, at which time, subject to financing, we would hope to commission the feasibility study.’

Anglesey Mining’s finances are now sufficient to guide the project towards normal corporate actions, as well as limited site operations. However, additional funding is required to complete the development targets. If this funding were obtained, it would be possible for construction to commence, with initial production targeted for the first half of 2020.

The actual mining envisaged via the scoping study would be 1,000t/d, to produce an average annual output of 12,500t of zinc concentrate at 57% zinc, 6,400t of lead concentrate at 52% lead and 3,500t of copper concentrate at 25% copper over an initial mine life of eight years. Overall net smelter return for the three concentrates, including some additional silver and gold, is expected to total more than US$270m at the forecast metal prices used for the project base case.

Financial aspects

In financial terms, the base case yields a pre-tax net present value of US$33.2m at a conservative 10% discount rate, using metal prices of US$1.25/lb zinc, US$1.00/lb lead, US$2.50/lb copper, US$17.50/oz silver and US$1,275/oz gold. With an estimated pre-production capital cost of US$53m, this results in an indicated internal rate of return of 28.3%.

One important factor is that the scoping study was based on just the 2.1Mt of indicated resources reported by the Micon International consultancy in 2012 – the 4.1Mt inferred resources were not included in the study. A high proportion of the inferred resources will be converted to indicate probable reserves once underground exploration drilling occurs. These would significantly increase the projected life of the mine, perhaps doubling it to 15–18 years.

Regarding royalties and taxation, all UK minerals generally belong to the overlying landholder. Parys Mountain is no exception, even benefitting from Anglesey Mining holding the freehold to most areas hosting the resources. There are no royalties due to government agencies, except for the gold and silver which constitute Crown minerals, whereby a small royalty is payable on their sale.

Hooley adds, ‘As part of our agreement to purchase the freehold, we did agree a royalty arrangement with the previous owner on effectively a net profits interest. While this will not be de minimis, it is not a major component of our future costs. Mining projects in the UK are not treated differently to any other business and we will be required to cover those, such as VAT, local council charges and corporation tax, as they become due. There are no special provisions for advanced depreciation.’

And after the mining?

Anglesey must comply with normal environmental and social responsibility and regulations, which are no less stringent in the UK than in most other developed countries, and Hooley explains that Anglesey Mining will have to restore areas that it directly impacts. In the case of earlier mining, he said, ‘while we either own outright or lease much of the land that covers the legacy area, from approximately 1760–1900, we do not have any legal or social requirement to rehabilitate this area. Indeed, most of it is covered by various regulations including Sites of Special Scientific Interest and Ancient Monuments, and as such we are specifically restricted from what work we can do on those sites and certainly we cannot fundamentally change the nature of what is regarded as a major attraction’.

Confident intentions for Welsh gold

Alba Mineral Resources (Alba) is a diverse enterprise with operations including numerous minerals in Greenland, base metals in Ireland, and gold in Wales. Alba owns 90% of Gold Mines of Wales Limited (GMOW), the ultimate owner of the Clogau gold project situated within the Dolgellau gold belt. Clogau gold mine includes several highly prospective gold targets and former gold workings within a total option area of 106.94km².

The Dolgellau belt’s total production of 131,000oz of gold between the early 1800s and the late 1990s was by far the most productive anywhere in the UK, and of this 81,000oz has come from the historic Clogau-St David’s mine within Alba’s project area.

The Clogau area is considered under-explored, and it requires modern exploration techniques.

Alba is encouraged by the prospect of discovering unworked mines similar to those previously worked – gold extraction recommenced between 1992 and 1998, small-scale mining providing the gold for local jewellery, although mining ceased in 1998 due to high mining costs and diminishing quantities of gold being found.

In 2012, a report by Snowdon Mining Consultants for GMOW suggested that as much as 500,000oz of gold could be lying untouched around the mine, giving hope that gold may again be extracted from Clogau. Samples from a 200m-long area returned grades of 30.2–263g/t, suggesting that previously unrealised supplies of gold could exist. George Frangeskides, Alba Executive Chairman, told Materials World that historic production averaged 17g/t with grades reported to be up to 1,000g/t in some gold-rich pockets. Gold is a Crown mineral, with the Crown entitled to 4% royalties from Clogau.

Frangeskides commented on the support it has received for the Clogau development, saying, ‘Local stakeholders have been very supportive. We will be developing an engagement plan to ensure that all key stakeholders relevant to the projects, including government departments, are kept apprised of what we are doing as we move forward with the project’.

Clogau and the environment

‘The mine is already in place with significant underground development,’ Frangeskides continued. ‘The footprint of the mine is relatively small. In terms of exploration works, there is a requirement to restore any land affected by exploration works – drilling, sampling, the making of tracks to access exploration sites.

‘Water studies will form part of the environmental work we are doing as part of our application for planning permission to re-open the mine. Those studies, and the mine plan that we are developing, will inform people of the measures that are needed to prevent water pollution.’

Where will the minerals be sold?

Hooley said on the destinations for Anglesey’s minerals, ‘It is our current plan that we will produce three base metal concentrates – copper, zinc and lead. In addition, we will produce some free gold. We would expect that all of these products will find a home in Europe, perhaps to Spain, down the Rhine or into the Baltic, but unlikely into the UK. It is possible that some concentrates could be marketed in East Asia but distance and shipping cost will likely limit this. Nevertheless, maybe some concentrate swaps may be put in place, if required.’

Frangeskides added, ‘Depending on the level of production, we expect that we will produce small gold bars or coins for sale. Also, we expect significant demand for Clogau gold from the jewellery sector, as available supplies of Clogau gold are very small and diminishing, hence the fact that Clogau gold fetches a significant premium over normal gold spot rates on the open market.’

Where Wales is concerned, past performance is indeed no indication of the future. The sad image of desolation no longer holds true as new enterprises are once again contributing to the country’s growing prosperity.