Producers are viewing today’s tough conditions as an incentive to explore the feasibility of introducing new operating systems
By Simon Walker, European Editor
Using a nautical metaphor, to say that mining and exploration in the Nordic countries is in the doldrums is perhaps as apt as it gets at the moment. Operating in respected, stable fiscal and legal environments comes at a price, which, in this case, relates to higher labor and social costs. Add on the challenge of maintaining operations in remote, sometimes sub-Arctic locations, and it becomes easy to see why industry participants are being cagy about spending.
Flash smelting at Harjavalta in Finland, where Boliden has adopted a new business model for nickel smelting.
Across the board, the message appears to be the same—costs must be trimmed wherever possible to keep existing mines viable. As for exploration, the junior sector still seems to be active in terms of project involvement, although the level of input has unquestionably fallen since the heady days of five years ago.
To put the situation into context, iron ore prices peaked at more than $187/metric ton (mt) in February 2011, since when price movements were inexorably downward—with a few brief exceptions—right through to December last year. For the Norwegian and Swedish iron-ore industry, the result was carnage, at least as far as the fleet of new startups that had set sail under such promising conditions only a few years ago was concerned. Even LKAB, with its much larger, long-established operations, is having to bite the financial bullet in order to keep treading water.
And as for the other main commodities upon which most of the Nordic mines are founded—copper, zinc, nickel and gold—the picture has been similar. However, the shake-up within the participating companies has been less severe, although some acquisition opportunities have emerged as players have sought to divest assets that they no longer see as being core to their businesses.
Looking back through the last six years of E&MJ reports on Nordic mining and exploration, it is interesting to see how the headlines have reflected the changing conditions within which mining and exploration has had to function:
2010 – The Buzz is Back
2011 – Growing Interest in Nordic Mineral Prospects
2012 – Nordic Mining: Balancing Economic Potential Against Cost
2013 – Nordic Mining and Exploration: Facing New Challenges
2014 – Feeling the Commodity Squeeze
2015 – Attractive Potential Awaits Renewed Evaluation
Right through the sequence, the message is clear. When commodity markets are strong, interest and investment in Nordic projects rise sharply. Come a downturn, and these same projects are right up there on the list for putting on the back burner, together with those in other higher-cost parts of the world. No matter that the jurisdictions are transparent and tenure secure—the fundamental fact of mining life is that many Nordic-country orebodies need strong market support in order to pay their way.
LKAB: Weathering the Storm
With a history going back to the 1880s, this is by no means the first time that LKAB has had to ride out choppy commodity seas. Already focused on supplying one specific product type—high-quality pellets—rather than trying to compete head-on with the bulk shipment exporters of Australia and Brazil—the company has been trimming its costs wherever possible, while maintaining its social and community responsibilities to its best capabilities.
LKAB reported shipments of 24.2 million mt of iron ore products in 2015, 1.8 million mt lower than the previous year. Net sales of SEK16.2 billion ($1.94 billion) compared with SEK20.6 billion in 2014, with the company taking a SEK7.1 billion impairment charge that pushed it to a net loss for the year of SEK5.7 billion.
“Although the underlying operating result is positive [at SEK1.5 billion], LKAB is reporting a loss for 2015—which underlines the importance of adapting our operations,” said the company’s president and CEO, Jan Moström. “The current market situation and the future prospects mean, however, that we must reduce annual costs further, and we are now planning new actions,” he added.
Surface subsidence resulting from underground mining will eventually require much of the Kiruna community to be relocated, at a possible total cost of $3-3.6 billion.
“There is only one way to go if we are to secure long-term sustainable mining operations in Malmfälten [northern Sweden’s iron-ore province],” Moström said. “We have to enhance productivity—in other words, produce more with fewer employees—and we have to cut costs by working smarter. Focusing on the core business, we are now increasing the momentum as we adapt LKAB to the realities of the market.”
According to LKAB, it is continuing with its strategy of maximizing pellet production, although the date for achieving its 37-million-mt/y target volume has been pushed back. In the meantime, the company is streamlining its structure by creating three operating divisions covering Kiruna, Malmberget and Svappavaara, and LKAB Minerals. It achieved a workforce reduction of 400 (out of around 4,500 at the start of 2015) earlier this year, with further job cuts to come, and has a target of SEK800 million in cost savings by the first quarter of 2017.
One challenge that LKAB is currently addressing is the widespread relocation of housing and community facilities in both Kiruna and Gällivare, now being undermined by the Malmberget workings. Much of the town is now scheduled for relocation by 2019, by which time nearly 1,750 households will have been compensated and moved to new homes. Municipal buildings will also be rebuilt elsewhere. The entire “urban transformation” program cost LKAB more than SEK1.5 billion last year.
To put the whole program into perspective, the company’s 2015 annual report explained that: “A total of about 5,000 housing units and 700,000 square meters of residential and commercial premises will be replaced. This means that in due course, almost 10,000 people, about one-quarter of the population of the Swedish ore fields, will need to move.”
And as for total costs, no precise figure can be placed on this, although recent estimates suggest somewhere between SEK25 billion and 30 billion for Kiruna and a further SEK10 billion for Gällivare.
New housing being built in Gällivare, as part of LKAB’s ‘urban transformation’ program.
Following Talvivaara Sotkamo’s descent into bankruptcy at the end of 2014, in August 2015 state-owned Terrafame bought the Sotkamo nickel-zinc mine assets from the company’s receivers. When initial plans for Terrafame to have only a minority holding in the new operation failed to come to fruition, the decision was taken to go ahead on a sole-owner basis. Within a month, mining and bioheap-leaching was under way once again, with the operation treating 4.1 million mt of ore by the year-end to produce 578 mt of nickel and 1,812 mt of zinc.
Restarting the mine was by no means straightforward, however. As Terrafame noted in its annual report, repairing defective welds on its conveyor system added €5.5 million to the costs of reopening, with the secondary stacking conveyor framework having collapsed shortly before the company took over. In addition, it found that the ore-pile reclaiming capacity was inadequate, and has since secured three Wirtgen surface miners to rectify the situation.
Terrafame noted that by the end of 2015, the heap-leaching results were “equal to or better than the mine’s best results in previous years.” Improvements to the bioleaching process included reducing the maximum ore particle size to 12.5 mm, as well as altering the drainage of the primary heaps and the location of aeration and irrigation pipes.
Water management has been a major historical challenge to the Sotkamo operation, with strict constraints on the levels of sulphate that can be discharged into the local waterways. In May, the mine’s key water-discharge permit was converted to a temporary basis that is valid until the end of 2018, with Terrafame pointing out that although this will not necessarily affect day-to-day operations, it does make it more difficult to attract the private-sector funding that is urgently needed.
In its first full year of operation, to September, Sotkamo mined and stacked nearly 12.5 million mt of ore. Terrafame is aiming to produce 11,500 mt of nickel and 24,500 mt of zinc this calendar year, with full capacity of 30,000 mt/y of nickel and 65,000 mt/y of zinc achieved from 2018. Critically, during its first year, the operation was able to draw down the surplus water on-site from 10 million m3 to 6 million m3, while the volume of pregnant leach solution stored in ponds had fallen from 840,000 m3 to a more manageable 360,000 m3.
However, the mine’s future depends on Terrafame being able to attract new private-sector funding, with the Finnish government having placed a deadline of the end of the year for it to do so. If it is unsuccessful, the company will have no option but to begin a carefully controlled shutdown process, at a cost of perhaps €300 million ($340 million). As its chairman, Lauri Ratia, noted in a recent operational update, “In the long run, Terrafame has good prerequisites for profitable operations, and this is supported by the results we have achieved during the first year. We will continue to work for the future success of the mine through all possible measures at our disposal.
“The process to secure private financing is ongoing,” Ratia confirmed.
Boliden Buys Kevitsa
Whether Boliden has been at all tempted by the thought of investing in Sotkamo is known only to the company’s board. However, its interest in nickel has been confirmed not only by the output of the first 17,000 mt of metal for its own account at Harjavalta in the second half of last year, but with its purchase from First Quantum Minerals of the Kevitsa mine in northern Finland.
The company announced a shift in its nickel-smelting strategy at the end of 2014, with the business model for Harjavalta—the largest nickel smelter in Europe—being changed from toll-smelting to handling bought-in concentrates. Recent throughput has been in the order of 250,000 mt/y of concentrates, and the output of around 25,000 mt/y of nickel matte.
Since the start of the new model in June 2015, Boliden has announced that it will build a new acid plant at Harjavalta at a cost of some €90 million. The aim is to reduce sulphur dioxide emissions by 20%-25% with better energy efficiency overall through greater heat recovery from cooling water.
In March, the company agreed to a price of $712 million for Kevitsa, which First Quantum brought on stream in 2012, and produced 17,000 mt of copper and 9,000 mt of nickel in 2015, plus gold and platinum group metals, from 6.7 million mt of ore. “This is an attractive opportunity to acquire a high-quality mine with excellent operational and geographical fit with Boliden,” said Boliden President and CEO Lennart Evrell. “Kevitsa is an early-stage mine that establishes a nickel feed base load for our Harjavalta smelter.
“Together with the Kokkola and Harjavalta smelters and the Kylylahti mine, the acquisition of Kevitsa will expand Boliden’s platform in Finland, an attractive geological region,” Evrell added.
The company acquired the Kylylahti underground copper-gold-zinc mine with its takeover of Kuhmo Nickel in October 2014. Also brought into production in 2012, Kylylahti lies within the historic Outokumpu mining district. Ore is trucked 43 km to the Luikonlahti processing plant, with copper-gold and zinc concentrates being smelted at Harjavalta and Kokkola, respectively.
Boliden reported revenues of SEK40.2 billion ($4.8 billion) and net profits of SEK2.6 billion for 2015. The company’s mines produced 299,000 mt of zinc, 85,000 mt of copper, 62,000 mt of lead, 158,200 oz of gold, 13.45 million oz of silver, and 33 mt of tellurium. Smelter output included 469,000 mt of zinc, 332,000 mt of copper, 566,100 oz of gold, and 21.36 million oz of silver, plus that inaugural 17,000 mt of nickel.
Permitting Greenland Projects
While exploration activity in Greenland has followed the general trend across the Nordic region, two projects in particular still have their applications for mining licenses under consideration by the authorities. In its midyear report, Ironbark Zinc noted that it has complied with all the requests made for the license application for its Citronen lead-zinc project in the far north. In addition, it is now exploring the Sortebjerg base metals prospect, near the old Blyklippen mine in eastern Greenland.
Elsewhere, Greenland Minerals and Energy appears to be in a better position with its Kvanefjeld rare-earths project now that the Danish and Greenland governments have passed legislation that will permit the export of uranium. Uranium would be a significant byproduct from rare-earth production at Kvanefjeld, for which a mining license is now under government consideration. The company reported that the project has a JORC-compliant resource of more than 1 billion mt containing 11.1 million mt of rare earth oxide, and some 270,000 mt of U3O8.
Greenland’s other major potential project, the Isua iron-ore mine, remains on hold while its new owner, the Chinese commodity company General Nice, awaits an upturn in the market and the resumed availability of financing. In Norway, meanwhile, new owner, the Tschudi Group has the Sydvaranger iron-ore mine on care-and-maintenance with the prospect of some limited production in order to keep the equipment in working order. “With the plant still being more or less intact, the chances of the mine reopening are significantly higher than if it had been dismantled and sold piece by piece,” company owner Felix Tschudi wrote in its most recent newsletter. “This paves the way for the reopening of the mine without excessive costs when the market turns.”
Mining in Russia’s Kola peninsula centers on the production of phosphate, iron ore and nickel, with all of the operating companies in the region having investment programs currently in place.
In April last year, EuroChem launched a new apatite-staffelite processing plant at its Kovdorskiy GOK operation. Designed to produce 948,000 mt/y of apatite concentrate and 130,000 mt/y of iron ore concentrate, the plant will raise Kovdorskiy’s annual in-concentate capacity to 2.5 million mt of apatite, 5.6 million mt of iron ore and 8,000 mt of baddeleyite. The company is also increasing capacity at its open pit.
Meanwhile, Russia’s largest apatite producer, PhosAgro, has a capacity of around 26 million mt/y of apatite-nepheline ore from its two underground mines and two open pits. Among its current development projects, its Njorkpakh open pit will add 1.9-2.2 million mt/y of ore capacity, while in August 2015, its operating subsidiary, Apatit JSC, commissioned the No. 2 Main Shaft at its Kirov mine.
Also last year, Apatit began a 10-year contract with Orica for the provision of blasthole drilling and blasting services for its mines. This has included the introduction of emulsion explosives underground, with Orica having opened a new plant at Apatit’s Vostochniy mine site to produce the material.
The Kola metals sector is also benefitting from investment, with Kola MMC—the operating division of Norilsk Nickel—continuing with its Metallurgical Production Facilities Revamping Program, aimed specifically at improving its environmental performance. As part of this, it has decommissioned its pelletizing and roasting sector, used since the 1960s, and moved to copper-nickel concentrate briquetting.
Human drivers may become a thing of the past if field testing of driverless Volvo trucks at Boliden’s Kristineberg underground mine proves successful.
The Road to Innovation
In September, Boliden revealed that Volvo is now field testing a driverless truck at its Kristineberg underground mine. “We have a technology that allows our employees to stay at a safe distance, which provides a better working environment,” explained Peter Burman, responsible for Boliden’s mine automation program. The company added that Volvo had evaluated a number of potential test sites worldwide before selecting Kristineberg.
Initially trialing one truck at the mine, Volvo intends to increase the fleet size to four over the next year. “Through our cooperation with Boliden, the development of autonomous vehicles is entering an exciting new phase,” said Volvo Trucks President Claes Nilsson. “This is the first time ever that self-driving trucks are being tested in regular operations underground.”
The vehicles being used are series-built Volvo FMX trucks equipped with features such as radar/laser-based sensors used for monitoring the mine layout and to generate a map of the route that the truck has to traverse. The collected information is then used to regulate its steering, gear changes and speed, with the data being updated and optimized on each new trip. A key benefit will come after blasting, when the trucks can operate autonomously sooner than would normally be possible. Not only will this give higher production per shift, but fuel and maintenance costs will be reduced, Volvo believes.
In a presentation to this year’s Euro Mine Expo conference, held in Skellefteå in June, Burman listed the key drivers for innovation in Sweden as being high labor costs, strict environmental regulations and a low tolerance for work-related injuries. During 2016, he said, Volvo CE will start testing a remote-controlled wheel loader in Boliden’s Kankberg mine, which will also be the first mine in the world with a 5G network. And Scania is planning to test its first truck equipped with an autopilot at Renström, offering a comparison to Volvo Trucks’ field trial at Kristineberg.
Also from Boliden, Karl Eric Rånman offered the conference his view of the way toward operating mines on fossil-free energy. In the 1980s, he said, the concept of the electric mine came into vogue, where electric power would completely replace diesel. However, the subsequent introduction of ultra low-sulphur fuel, computer-controlled engines and the widespread use of exhaust-cleaning equipment meant that diesel was no longer perceived as being such a health hazard, and the electric mine idea received less attention.
There is the potential to replace diesel fuel used in open pits and underground with synthetic products derived from a variety of vegetable sources, Rånman explained, although for fire safety reasons some existing biofuels would not be permissible underground. Trolley-assist and in-pit crushing and conveying are other fuel-reducing options, while space heating in surface buildings can use heat recovery or wood pellet fuel instead of propane or oil.
“Can we achieve 100% fossil-fuel replacement in the next 25 years?” Rånman asked. Probably not, although 25%-50% replacement is possible. But it will take legislative and fiscal support to help it happen, he said.
Metals Technology Accelerates
And it is not just in the mining sector that innovation in new technologies is gaining pace. In April, Swedish steel-maker SSAB, LKAB and power company Vattenfall launched an initiative to develop a steel-production process that emits water rather than carbon dioxide. Existing steel-making technology using coke plants and blast furnaces means that SSAB is Sweden’s largest single source of CO2 emissions.
“With its specialized, innovative steel industry, access to fossil-free electricity and the highest-quality iron ore in Europe, Sweden is uniquely placed for such a project,” the companies said, with LKAB CEO Jan Moström adding, “LKAB makes iron ore products using processes that require less energy and result in fewer emissions than the majority of our competitors. This drive for carbon-dioxide-free iron-making will be a significant contribution to sustainability.”
To place the project into a timeline context, the three partners said its implementation will also require contributions from the state, research institutions and universities over the next 20-25 years.
New aluminum-production technology is also in focus, with Norway’s Hydro having announced in February an NOK4.3 billion ($520 million) investment in a new pilot plant at its Karmøy smelter. Outside oil and gas, this is the largest single investment in Norwegian mainland industry since the company expanded its Sunndal smelter in 2002-2004.
Designed with a capacity of around 75,000 mt/y, Hydro is aiming to use the project to industrialize what it believes is the world’s most climate- and energy-efficient aluminum electrolysis technology. The target is to reduce energy consumption by around 15% compared to the world average, with the lowest CO2 footprint in the world. First metal from the plant is planned for the second half of next year.
“The Karmøy technology pilot will play a key role in realizing this ambition, ensuring that the Norwegian technology cluster remains the global leader in sustainable aluminum production,” said Hydro President and CEO Svein Richard Brandtzæg.