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Busting The Lithium Bubble Myth

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The Starbucks Mining Model

Starbucks has a great business model.

They've essentially created a chain of clearinghouses across the globe. Coffee is the anchor product. It brings a lot of people in the door everyday.

But the genius is what happens once those joe-seeking people are through the door. Starbucks shops are designed to sell this captive audience a whole range of other products. Pastries, sandwiches, organic juice, mugs, espresso machines, CDs, stuffed animals, fair-trade chocolate. Having all these extra products, anchored by coffee, supercharges Sbux's profits.

U.S. iron ore giant Cliffs Natural Resources is trying to do the same thing in the mining business.

The idea of multi-product mines is not new. Porphyry copper mines produce a lot of by-product gold, molybdenum, silver and even platinum group elements. VMS deposits produce a number of metals simultaneously.

One of the best examples of a "Starbucks mine" is Olympic Dam. The mine is one of the world's largest uranium producers. It's also one of the most low-grade.

The reason OD works is other metals. Gold, silver and copper credits help offset the production cost of uranium. Making it affordable to produce yellowcake, even at skinny grade.

The aforementioned Cliffs appears to have come up with a new riff on this theme. Iron-anchored deposits.

The major recently announced two deals to pursue iron oxide-copper-gold (IOCG) deposits in Latin America. Last week Cliffs unveiled an earn-in agreement on AIM-listed Mariana Resources' IOCG-prospective tenements in north-central Chile. This follows the announcement a few weeks back of a similar agreement with Canadian junior Riverside Resources to jointly explore for IOCGs in western Mexico.

This is a new tack for Cliffs (and largely a new direction for the iron ore industry as a whole). The company is currently a producer of traditional iron ore deposits. But the two recent deals are a sign the company believes the Starbucks model could work in iron. By-product credits from gold and copper (and perhaps other metals) could make IOCGs economic iron producers.

Expect this trend to continue in the minerals space. With good deposits of almost everything becoming more prized, companies are getting creative in finding ways to make money digging ore out of the ground.

By-product metal deposits are challenging in terms of metallurgy and engineering. Olympic Dam had to build its own dedicated smelter to handle uranium-charged copper production. But if the prize is big enough, this technical work can pay off.

I'm close to finishing my promised survey on new ideas in uranium exploration, and by-product production is one of the topics I'm going to be discussing a lot over the coming months.

Deposits like Palabora in South Africa produced uranium at concentrations as low as 25 ppm, partly because of credits from copper and phosphate. (Although Palabora's ability to produce ultra-lowgrade uranium was also dependent on a few crucial mineralogical factors. More on that soon, when I release my "New U Ideas" white paper.) Uranium production as a by-product from phosphate is also getting more attention in places like Morocco and Jordan.

The Starbucks mining model seems to be catching on. With the potential to re-shape the exploration and development business by creating new targets for a number of metals globally. Hopefully it will be the success that good coffee has been.

By. Dave Forest of Notela Resources




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