Mid-stage copper and cobalt explorer Midnight Sun Mining has been working diligently on the Solwezi licences in the Zambian Copperbelt for the past eight years. Solwezi consists of two contiguous exploration licences covering over 506 km2 adjacent to the largest copper mining complex in Africa – First Quantum Minerals’ Kansanshi Mine. During this time, the TSXV-listed outfit has conducted geochemical and geophysical surveys along with air core (AC), reverse circulation (RC) and diamond drilling across the property, but the results from these campaigns have been inconclusive with regards to establishing a continuous mineralised system, due to the geological structures being largely undercover and thus, difficult to detect.
“We would get hit after hit and thought we had the structures figured out, then we’d get misses where we thought we’d get hits and vice versa,” says Midnight Sun’s president, CEO and lead director Al Fabbro. “A lot of the structural geology wasn’t evident to us, so we decided to fly a VTEM survey to try and see what was going on. It explained a lot of the reasons why we were getting misses and hits, but by the time we did that we were out of money and the stock was under 10 cents. We then had to make a decision whether to dilute the project or dilute the shareholdings.”
By this point, Midnight Sun had already received sustained interest from a larger player that had staked ground around the Solwezi licences and was keen to unearth the next Kansanshi, Lumwana or Sentinel-sized deposit to come out of the Zambian Copperbelt.
Enter Rio Tinto
So, when Fabbro and his executive team sat down with Rio Tinto at the 2019 PDAC event in Toronto, they were ready to listen to substantial offers after knocking back several deals tabled by the world’s second largest miner in years gone by.
A deal that Fabbro believed would be acceptable to Midnight Sun’s shareholders was hammered out at a final meeting in London in May of that year, after the mining giant revealed its belief that Midnight Sun had ‘three shots to host a Rio-sized deposit’ within the Solwezi licences.
The earn-in and joint venture deal was announced in April 2020, contingent upon Rio making sufficient expenditures before earning any interest in the project, with a US$700,000 upfront fee to be paid to Midnight Sun upon removal of conditions.
Rio would then spend $3 million on an initial work programme and make a further $300,000 payment before being able to continue with the agreement. The next three stages of the arrangement would see Rio committing $16 million, $14 million and $15 million in work expenditures, plus cash payments along the way; bringing the total investment to $51 million, which would earn the miner 75% of the project.
“They have to spend $21 million before earning any interest at all in the property. By that time, we’ll know if we have a Rio-sized deposit or not, feasibility work notwithstanding. The early money tells you if you’ve got something to chase,” Fabbro reckons.
“But so far, we’re really happy with the relationship and think that they’ve done enough structural geology to figure out what’s going on underneath this cover. We are hopeful that this programme will bear fruit.”
Kickstarting the campaign
In the 12 months since striking the deal, the COVID-19 pandemic has continued to rage on across the globe, impacting macro-fiscal and political policies in economies from Canada to Zambia. The health crisis also disrupted supply chains across Africa for a while, causing frustration amongst exploration and mining companies on the continent.
Midnight Sun and Rio’s Stage 1 exploration programme was further delayed by an extra-long rainy season in Zambia, but the $3.2 million campaign finally commenced in April 2021 – exactly one year after the deal was announced.
This initial work programme will run to late June with three rigs turning – one RC, one diamond and one AC – at three different prospects across the Solwezi licences. “The results of that work will dictate what transpires for the rest of the year.
“First and foremost, we want to see a major sized copper deposit which would be in excess of 10 billion contained pounds of copper,” Fabbro proclaims. “That would be something that Rio could build as a standalone.”
He describes three different styles of mineralisation across the Solwezi concessions. To the North, there was an initial understanding of a Kansanshi-like deposit at the 22 Zone. In spite of some significant high-grade drill results, that geology has proven to be even more complex than originally believed, and will require further modelling work before more drilling can be done.
The second style of mineralisation Fabbro refers to – at the Dumbwa target to the Southeast – has also been difficult to explain, with some analogies to Barrick Gold’s 276 million pounds per annum Lumwana mine 60 km away.
“We’re going to commit 2,000 metres of RC drilling at Dumbwa this campaign to try and explain that anomaly, because we’re getting over 0.7% copper in soils along a 14km strike, but our best drill holes are getting 0.5-0.6%. It [the strong soil anomaly] has baffled lots of companies before us and it’s baffled us. Rio think they’ve got an idea so they’re going to try that and we’ll wait and see.”
Then there is the Mitu target, a 17 km trend on the Western side of the Solwezi dome, which is where Midnight Sun has had its best success in terms of drill hits, notably an 11.6 metres hole grading 4.23% copper equivalent (Cu eq).
The drilling and other work to date at Mitu has focused on the initial M1 discovery area, which is showing potential for a near surface copper-cobalt deposit somewhere in the region of 15-20 million tonnes at 1-1.5% Cu eq. To put that in perspective, at current metals prices that would be roughly equivalent to a 750,000 – 1,500,000 ounce gold deposit.
“We could drill that off, but it’s not big enough for a Rio-sized target and we’re looking for something even more significant. But, Mitu offers five or six different target areas along that 17 km stretch, all of which could host deposits considerably larger than M1. In fact, that 4.23% hit falls outside of M1 and hasn’t been properly followed up. Rio’s got some ideas on a huge geophysical anomaly adjacent to it.”
Copper on a tear
In the past 12 months, the copper price has more than doubled on the way to $10,000 per tonne as global economic activity ramps up again following the COVID-19 crisis, and as supply/demand fundamentals strengthen, based on copper’s prominence in the green economy of the future.
These fundamentals are only serving to sweeten the position of a company like Midnight Sun, on the cusp of a meaningful discovery of copper and also cobalt; metals which will play a vital role in the transition towards a low carbon global economy.
“There’s nothing like a rising commodity price with a brand-new discovery,” Fabbro says. “If we’re fortunate to make a discovery, you get a perfect storm which is when take outs happen, and that’s why it would be significant to us.
“The reason we’re chasing copper and big deposits is because, historically speaking, you’re going to get three or four price cycles with a big copper mine, whereas in a gold mine you’d be fortunate to get one good cycle.”
On the flip side, many observers in the African mining sector are wary of a high commodity price environment due to the temptation amongst governments to take a larger slice of the pie, in terms of royalties and extra taxes on mineral producers.
Zambia is a prime example of this opportunistic form of resource nationalism, after the government hit the headlines in 2019 with a policy that would raise its sliding scale for royalties from 4% to 6%, while introducing a new 10% tax when the price of copper exceeds $7,500 per tonne.
However, the possibility of further fiscal alterations might simply be a small downside that comes with operating in one of Africa’s most attractive mining jurisdictions, according to Fabbro.
“I’d like to see them structure [any royalty/tax changes] so it’s not just a percentage of the price but a percentage of the increase of the price, so it can be a win-win royalty as opposed to just a punitive measure to the producers. I think for the most part, the Zambian government wants copper to work for everyone and are doing their best to make it work, but it’s a big political football.”
In a country where the mining sector may contribute as much as half of total GDP and directly employ over 73,000 people (according to a 2019 EITI report), government policies on copper – Zambia’s leading mineral export – are never too far from the top of the national agenda.
Having said that, the development over several decades of a sophisticated mining sector in Zambia has provided a wealth of in-country expertise that Midnight Sun has tapped into while building its team on the ground.
A Zambian team
“Our technical people are highly educated, motivated and feel very strongly that we’re sitting on a very large discovery. It’s also significant that a big company like Rio has committed large amounts of money to make that discovery before earning any interest.”
Stay close to Midnight Sun for updates in the second half of what could prove to be a transformative year for the mid-stage copper-cobalt explorer in Zambia.