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Petroleum News: Oil sands get mining sector attention

Teck Cominco already part of Fort Hills oil sands project; Newmont ready to capitalize on international interest by marketing oil sands leases; Kinross funding company to look for oil sands investments

Gary Park
For Petroleum News

When Teck Cominco, one of the world’s largest zinc producers, paid C$475 million last year to take a 15 percent stake in the Fort Hills oil sands project and started talking about evaluating other oil sands opportunities it was seen as the most significant entry by the mining industry into the world of bitumen recovery in Alberta.

There had been an earlier breakthrough when employees of BHP Billiton, after being laid off as part of a North American downsizing by the Australian mining giant, formed Western Oil Sands, which now has a 20 percent share of Shell Canada’s Athabasca project.

But Teck Cominco was the answer to a long search by Fort Hills’ partners Petro-Canada and UTS Energy to find someone with mining expertise.

Adding a mining partner to the mix was saluted by analysts as innovative and sensible and possibly the beginning of a new trend in the oil sands, where extracting raw bitumen had always been conducted in-house by the oil companies themselves.

Not that Teck was given bargain membership in Fort Hills. It is required to cover 34 percent of the project costs up to the C$2.5 billion market, then contribute 15 percent to cover its equity stake.

Although Suncor Energy and Syncrude Canada believe they have accumulated enough expertise not to need outside mining expertise, analysts have suggested companies such as France’s Total might be on the look-out for a suitable mining partner.

Newmont, Kinross express interest

So far, action on that front has been quiet, but two major mining companies — Newmont Mining and Kinross Gold — have recently expressed interest in oil sands investments, one as a possible seller and the other as a buyer.

Newmont, the world’s largest gold producer, said it is ready to capitalize on growing international interest in the oil sands by offering leases that were acquired in 1999 for US$1 million and could now fetch C$600 million.

In a notice of offering posted by Scotia Waterous, a unit of the Bank of Nova Scotia, Newmont said it is looking at options for its three BlackGold leases that cover almost 10,000 acres alongside properties held by EnCana, Devon Energy and Nexen.

The resources are too deep to be recovered through open pit mining and need in-situ technology, such as steam injection to melt the bitumen deposits, to be developed.

The assets are valued in the range of C$2 per barrel and are expected to attract offers from both established and emerging oil sands players.

Kinross funding start-up

Meanwhile, Kinross is funding the start-up of a new junior company to hunt for oil sands and uranium investments in Canada, the United States and Russia.

The as-yet-unnamed private company, to be based in Reno, Nev., and headed by former Kinross Chief Operating Officer Scott Caldwell, hopes to land stakes in early-stage energy projects, the company said.

Kinross plans to be the “primary investor” in the unit, but gave no indication how much it is prepared to contribute.

 

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