- Thursday, January 12, 2006

Chilean mining company Minera Santa Bárbara is on the verge of reviving its La Japonesa iron ore mine in the country's north. The project was originally brought on stream in 1955 and has lay dormant for some 28 years.

The company is now aiming to ramp up production to 1.5Mt/y and plans to sell the iron to China. BNamericas spoke with Santa Bárbara chairman Leonardo Farkas, the third generation owner of the family company, about La Japonesa and its related projects.

BNamericas: You recently received approval of the environmental impact study for La Japonesa. What stage is the project at now?

Farkas: We had two environmental impact studies [EIS] approved. One was for exploration and the other for beginning work, and now we are asking for a bigger one, for a much more complete area. We have been cleared to produce 1.5Mt/y, and we are increasing that to 3Mt because we have other small mines in the same sector that we are incorporating.

For the startup of La Japonesa, we have done a bidding process with 27 national and international companies, and the winner was Besalco Maquinarias, which is going to be the operator of the Japonesa project.

Although a small mine, it is a tremendous mining operation because, as it is low-grade ore with secondary-type iron, we are going to be moving 1,600t of ore an hour. It is a tremendous project because a lot of it is selected magnetically. It is a dry concentration plant, without chemicals. It uses dry concentration to clean the iron - which is mixed with sand, clay - to reduce impurities.

Since it is fairly fine material, there is not much need for primary or secondary crushing, but there is a need for third and fourth-stage crushing. And we are all ready. A load of equipment arrived in Chile last week: high-speed drums, magnetic drums, crushers.

We plan to put the plant into operation in April.

BNamericas: Have you made decisions regarding what port to use?

Farkas: We have signed a final contract with the port of Caldera, which is a fruit port that works three months of the year, and the rest of the year we will use it to export iron. We've spent a year in the negotiation process, but now everything is 100% signed and sealed and next week we are beginning with the environmental permit - we are working on the final details now for the port.

We plan to have the first ship ready for May or June, at the latest July of this year. We are in final negotiations with Puerto Barquito, which is Codelco's, in the Cha�aral zone. Those months when there is fruit in the port at Caldera, we would send minerals there - which is 60km farther - to not have them sitting stockpiled in the port.

We wanted to ship from Huasco. That is the logical choice because we are 50km away, but we had some political problems and the Huasco people closed the door on us, and we will have to go through Caldera, which is 230km away.

We are spending almost an extra US$10mn a year. It is possible with the high iron prices, but it is not the kind of money we thought we would need. Our idea was to move ahead with our second, third and fourth projects with the money we earned. So now we will have to raise more capital. We are going out through Caldera anyway, but with lower profits, logically.

We have requested maritime concessions in two other places to build our own ports. One site, Punta Alcalde, is 14km south of Huasco, and the other is farther north. Because we believe in the long term we will need to have bigger ports. Iron needs "cape-sized ships" with a capacity of 150,000-200,000t, and in Chile there are very few ports like that. [Chilean iron mining company] CMP has two.

At [Caldera] we will have to use more ships because they are smaller, 50,000t ships. For iron, that is not all that big. We are talking with a Chilean company called Ultramar. They have quite a few ships that bring coal to Chile and return empty to the Orient. So, we are trying to use the same ships, even if they arrive at other ports.

The average to start will be 100,000t, or two ships, per month. We want to produce 1.2M-1.5Mt in the first year.

BNamericas: What other projects are you working on?

Farkas: We have other projects in the Copiap� and Cha�aral zone - which I do not want to announce yet because we are almost finished with the final negotiations - which could increase [production] by another 1Mt starting 10 months from today. We are almost finished with the tests and permits. We have a pilot plant.

And we have more than 35,000ha for exploration. We have 10 geologists working up north.

I have bought about 27 small mines. They do not even have the money for licenses, so we pay for everything for them, and if the mine turns out to be good and some day we exploit it, we will give them a dollar royalty.

BNamericas: And with those you plan to increase production to 3Mt/y?

Farkas: No, without those, because we have our own mines and reserves.

BNamericas: What kind of investments are you looking at?

Farkas: On the La Japonesa project, we've spent US$10mn or US$11mn, but the project required US$45mn. Other funds are put in by the contractor, the buyer - we divide up the investments. Besalco is going to invest more than US$20mn.

Things have gone well for us with Japonesa. It's the beginning of Santa B�rbara. We have increased our reserves, but Japonesa alone has a life of at least 10 years, and we are even bringing technology from other countries, doing experiments in our pilot plants, which have given us pretty amazing results.

In the long run we will be able to also sell the technology we have created for reducing some impurities. I do not want to talk about it, because we are patenting it in several countries, but it has been very good. We have done many tests and we have a "secret formula" we are going to test with iron from Brazil, Australia and India, and if they turn out well we could sell the technology.

BNamericas: In what form are you going to export the iron?

Farkas: We are going to export iron concentrates with a grain size less than 6mm, or 1/4 inch. We have a lot of these fine concentrates that are naturally that size, and a lot that we have to crush down to the fine size. Our process does not use water. It is a dry magnetic process.

[The mine] is like a football field. It is flat, so you extract [the ore], put it on a truck and send it to the plant. It is not necessary to dynamite it; it is not an open pit mine.

BNamericas: So you extract loose material?

Farkas: Exactly. It's like sand mixed with big and small rocks, sand-like iron and sand-like clay, and then you separate it. It is like putting a magnet to it, but what the magnet picks up also has brown in it, because it is earth and iron. You blow on it, and the sand blows away and what is left is black. We are going to do just that on an industrial scale.

So you put it in the plant, you crush it, you take out the rock that is not iron. We already know that all the big rocks don't have iron, or they have so little it is not worth the trouble. In the past, they put all of it into the plant, so they did not achieve as pure a quality. We have achieved quality levels no one in Chile has been able to produce.

So we are going to produce an exportable product without having to go to pellets, sponge iron or sinter fit, with very low phosphorus and the lowest sulfur levels in Chile: 0.012. So, we can mix - we take this ore from La Japonesa, which is so good, and we can mix it with other ore. And that is why we have been studying these technologies.

BNamericas: Tell me about the contract you have signed to sell to China.

Farkas: Cometals, a subdivision of [US metals supply company] CMC, is in direct contact with five or 10 steel companies. One million tonnes is very little, so in the meantime we are going to sell our minerals to three steelmakers in equal parts. We do not want to sell it to 10 or 20 small ones, we prefer three big companies and as we increase [our production] we can sell them more.

But people from these companies have come to Chile. They have done tests in the last two years, had meetings with us, done analyses in their own laboratories. They are in direct contact.

Cometals could just buy the iron from us and sell it to China. But as our families have done business in the past, we set up a joint venture in which they are part owners and they get the best possible price for us. They have a flat fee and are part of the joint venture, which helps us much more because the company is not just a buyer.

AboutLeonardo Farkas

Leonardo Farkas has more than 20 years of experience in the mining, transport, trading, international distribution and hotel sectors. He is the majority shareholder of Minera Santa Bárbara.