Articles tagged with: Mining

57. The Mining Bank or eBay for Mining Properties

I recently attended the Money Show here in Toronto to learn a bit more about current investing strategies, ETF’s, and see what’s up with the latest stock analysis software.   Along with speakers at the show, there was a trade show but only one mining company booth was present.  This definitely wasn’t the PDAC.  Interestingly there were about five marijuana company booths, so that seems to be where the promotion is today.
The lone mining company was Globex Mining, here is their website.  They referred to themselves as a “mining bank”, so this was something that peaked my interest.
Speaking with their president, Jack Stoch, he gave me an overview on their business model.  As I understood it, GLOBEX’s model is to acquire a lot of mineral properties, enhance their value by undertaking some limited geological work, and then option, JV, or sell the property while retaining a long term NSR royalty.
Mr. Stoch told me that Globex currently has over 140 land packages in their inventory.  Their properties may include resource estimates, mineralized drill intersections, mineral showings, untested geophysical targets, or combinations of these.   They are focusing their acquisitions on lower risk jurisdictions like Quebec, Ontario, Nova Scotia, New Brunswick, Tennessee, Nevada, Washington, and Germany.  They try to acquire historical mines that have old shafts and workings, following the adage the best place to find a new mine is next to an old mine.   They even have some industrial mineral properties in their portfolio.

Globex’s only NSR revenue producing property right now is a zinc project in Tennessee that can generate a seven-figure royalty each year, when that operation is up and running.  Unfortunately for Globex the zinc operation has not been in consistent operation over the last few years.
Overall I like the concept that Globex are promoting.  I like the idea of having a one-stop shop that collects and then options out exploration properties to junior mining companies that are looking for new projects to take on.  I also like the idea of trying to consolidate land packages in an area to minimize the patchwork of claims with different ownership that can hinder advanced development.   They hope that by putting time and effort into a suite of properties a few of them will pay off big.  If they can generate sufficient NSR revenue, the company may get to the self-sustaining stage.
The idea of companies involving themselves with a portfolio of early stage prospects isn’t new.  This has been being done by EMX Royalty Corp (formerly Eurasian Minerals) for mineral properties around the globe.    Abitibi Royalties is also doing something vaguely similar, whereby they would help fund prospectors in exchange for a long term royalty on a property.  There is a high risk to being successful but the cost of entry is relatively low.
It will be interesting to follow Globex over the longer term to see how many properties they can acquire and how many of these will pay off. Spending a bit of money on mapping and exploration on a property may pay off for them by increasing value in the eyes of potential partners.
Statistically mineral exploration is a high risk game but by limiting expenditures and diversifying the portfolio, some risk can be mitigated.  Diversification… that’s the same advice the ETF sales people were giving me.
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53. Ore Stockpiling – Why are we doing this again?

In many of the past mining studies that I have worked, stockpiling strategies were discussed and eventually implemented. Sometimes study team members were surprised at the size of the stockpiles that were generated by the production plan. It became apparent that not all members of the team were clear on the purpose of the stockpiling strategy or else they had preconceived ideas on the rationale. To them stockpiling may have seemed to be a good idea until they saw it in action.
Mine Stockpile
In this blog I won’t go into all the costs and environmental issues associated with stockpile operation but will focus simply on the reasons for stockpiling and why stockpiles may get large or numerous .
In my experience there are four main reasons why stockpiling might be done at an operation. They are:
1. Campaigning: For metallurgical reasons, there may be certain ore type(s) that can cause process difficulties if mixed in with other ores. Therefore the problematic ore(s) might be stockpiled until sufficient inventory is built up until it makes sense to process that ore (i.e. campaign) through the mill. Such stockpiles will only grow as large as the operator allows them to, before processing the material and eliminating the stockpile. Be aware that if the mine operations are still delivering different ore types to the crusher area, then those ores may need to be stockpiled during the campaigning period.  More different ore types may mean more stockpiles.
2. Grade Maximization: This stockpiling approach is used in situations where the mine delivers more ore than is required by the plant, thereby allowing the best material to be processed directly and the lower grade material to be stockpiled for a future date. Possibly one or more low grade stockpiles may be used, for example a low grade and a medium-low grade stockpile. Such stockpiles may not be processed for years, possibly remaining in place until the mine is depleted or until the mined head grades are lower than those in the stockpile. Such stockpiles can grow to enormous size if accumulated over many years.
3. Surge Control: stockpiling may be used in cases where the mine may have a fluctuating ore delivery rate and on some days excess ore is produced while other days there is underproduction. The stockpile is simply used to make up the difference and provide a steady primary crusher feed rate. These stockpiles are also available as short term emergency feed if for some reason the mine is shut down (e.g. extreme weather). In general such stockpiles may be relatively small in size since they are mainly used for operational surge control.
4. Blending: blending stockpiles may be used where a processing plant needs a certain quality of feed material with respect to head grade or contaminant ratios (silica, iron, etc.). Blending stockpiles enables the operator to ensure the plant feed quality to be consistent and uniform. Such stockpiles may not be large individually; however there could be several of them depending on the orebody character.
There may be other stockpiling strategies beyond the four listed above but those four capture the bulk of the situations.
Using today’s automated production scheduling software, one can test multiple stockpiling strategies by applying different cutoff grades or using multiple grade stockpiles. The scheduling software will have algorithms to determine whether one should be adding to the stockpile or drawing from it. It will track the grades in the stockpile and sometimes be able to model stockpile balances assuming reclaim by average grade, or first in-first out (FIFO), or last in-first out (LIFO).
Stockpiling in most cases will provide some potential benefits to an operation and the project economics. Even if metallurgical blending or campaigning is not required, one should always test the production schedule and project economics with a few grade stockpiling scenarios. Unfortunately these are not simple to undertake when using a manual scheduling approach and so are another reason to move towards automated scheduling software. Also make sure everyone on the team understands the rationale for the stockpiling strategy and what the stockpiles might ultimately look like. They might be surprised.
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52. Mining Press Releases – Where to Get Them

There are numerous sources of mining information on the internet, encompassing topics such as technical articles, analyst opinions, and company press releases. It can be overwhelming sometimes. Now if your main interest is just seeing company news releases in a timely manner then what is the best way to do this?
One way is to go to the individual company website and sign-up one their email list. This approach generally works well but it forces you to sign up on a myriad of websites if you intend to follow a lot of companies. There are alternatives however.
One option is to sign-up for a free account with a newswire service where you can select the specific companies that you want to follow and then will get emailed news releases as soon as they are disseminated. The nice thing here is that you can select mining companies, non-mining public companies, as well as entire industries. Here are a few that I personally make use of.
Since different companies may use different news release distributors, the three websites that I track are:
Marketwire: There you can create a “Hot Off the Wire” account and then select your companies of interest. You can also select entire industries to add to your company list.
CNW Group Ltd.  Create an account there and search various companies to add to your “My Subscriptions” list.
Junior Mining News is another source to get general news updates via their daily newsletter, a screenshot is shown below. Their daily email gives a brief summary of events that happened recently and includes “Read More..” links if you want to read the entire press release. This website accesses some of the same news release distributors as mentioned above so there could be some repetition from time to time.

 

Junior Mining News screenshot

Using the services described above, it’s very easy to sign up for a lot of companies, too many companies in fact, and then get inundated with emails. We know that public companies need to keep the news flow active and some companies are very good at continually issuing news alerts. However by using the press release distribution websites you are consolidating your requests, thereby making it easier to control the amount of information you want to receive.
Feel free to share your method for tracking companies, whether using the same websites or something entirely different and better.
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50. Landslide Blog – If You Like Failures

For those of you with a geotechnical background or have a general interest in learning about rock slides and slope failures, there is an interesting website and blog for you to follow. The website is hosted by the American Geophysical Union the world’s largest organization of Earth and space scientists. The blogs on their site are written by AGU staff along with contributions from collaborators and guest bloggers. Their website screenshot is shown below.
Landslide Blog screenshot

Landslide Blog web page screenshot

The independent bloggers have editorial freedom in the topics they choose to cover and their opinions are those of their authors and do not necessarily represent the views of the American Geophysical Union. This provides for some leeway on the discussions and the perspectives the writers wish to take.
One specific area they cover well in their Landslide Blog are the various occurrences of rock falls and landslides from any location around the globe. They will present commentary, images, and even videos of slope movements as they happen. Often they will provide some technical opinion on what possibly caused the failure event to occur. The Landslide Blog has a semi-regular email newsletter that will keep you updated on new stories as they happen.
Landslide
The following links are a few examples of the type of discussion that they have on the website.
Here is a description of a small water dam failure in Greece.
Here is some video of the Samarco tailings runout in Brazil.
Here is some video of boulders raining down on some buses along the Karakorum Highway in Pakistan.
From time to time the Landslide Blog will examine mine slopes, tailings dams, and waste dump failures, however much of their information relates to natural earth or rock slopes along roads or in towns and cities. Some of their videos are quite fascinating, illustrating the forces behind some of earth’s natural erosion processes. Check it out for yourself.
My bottom line on all of this is that the less the mining industry is mentioned in the Landslide Blog, the better it is for all of us.
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49. Remote Sensing of Ore Grades

The mining industry must continually find ways to improve and modernize. The most likely avenue for improvement will be using new technologies as they become available. One of the new players on the scene is a start-up company called “MineSense Technologies Ltd.”  They are a British Columbia company looking to improve ore extraction and recovery processes based on the sensing and sorting of low-grade ore (pre-concentration in other words). They hope their pre-concentration methods will improve mine economics by reducing the consumption of energy, water, and reagents.

Minesense

 It’s not entirely clear to me how developed their technology is, but MineSense is relying on a combination of ground-penetrating sensors with other sensor technology in order to measure and report the grade of ore in real time. Existing ore sorting technologies seem to focus on distinguishing mineralized material from gangue, but MineSense seems to be targeting using actual ore grades as the defining factor. They hope to be able to eventually integrate their technology into equipment such as shovels, scooptrams, conveyors, feeders, and transfer chutes.
More specifically their proprietary technology is based on High Frequency Electromagnetic Spectrometry and High Speed X-Ray Fluorescence sensors. Reportedly these can deliver better sensitivity and operate at high speeds. They plan to develop two distinct product lines; shovel-based systems; and conveyor belt-based systems.
Their ShovelSense system would be a real-time mineral telemetry and decision system and used for measurement of ore quality while material is being scooped into the dipper, then reporting the ore quality and type to the grade control/ore routing system, and then enabling real-time online ore/waste dispatch decisions. Additional features may include tramp metal and missing tooth detection.
Their belt conveyor systems (SortOre and BeltSense) will use high-speed multi-channel sensing to characterize conveyed ore and waste in real time, allowing grades and tonnages to be reported and allowing ore to be diverted to correct destinations based on the sensor responses. MineSense say that pilot units are operating at 20 tph and systems of up to 2000 tph are in the development stages. Ore sorting has been around for a long time, with companies like Tomra (www.tomra.com), but possibly the MineSense technical approach will be different.
My bottom line is that we should all keep an eye on the continued development of this technology, especially as MineSense completes larger field trials. Hopefully they will readily share the results with us since it will be critical for industry players to see more actual case study performance data on their website. I recognize that developing new technology will have its successes and failures. Setbacks should not necessarily be viewed as fatal flaws since it takes time to work out all the kinks. Hopefully after being able to fine tune their technology they can advance to their next stage which will be to convince the mining industry to adopt it.
P.S. Unfortunately it appears MineSense don’t have a newsletter sign-up form on their website to help us in following their progress.
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45. Do Any Junior Producers Model a Gold ETF?

I have often wondered if any of the junior gold producers has ever tried to model itself after a gold Exchange Traded Fund (“ETF”). This hybrid-model may be a way for companies to provide shareholders a way to partly leverage themselves to physical gold rather than leveraging solely to the performance of a mine. Let me explain further.
Consider two identical junior mining companies starting up a new mine. Each of their two projects is identical; 2 million gold ounces in the reserves with annual production of 200,000 ounces resulting in a 10 year mine life. On an annual basis, let’s assume their annual operating costs and debt repayments can be paid for by the revenue from selling 180,000 ounces of production. This would leave 20,000 gold ounces as “profit”. The question is what to do with those 20,000 ounces?

Gold Dore

Company A sells their entire gold production each year. At $1200/oz, the 20,000 oz gold “profit” would yield $24 million. Income taxes would be paid on this and the remaining cash can be spent or saved. Companies may decide to spend more on head offices costs by adding more people, or they may spend some on exploration, or they could spend on an acquisition to grow the company. There are plenty of ways to use this extra money but returning it to shareholders as a dividend isn’t typically one of them. Now let’s jump forward several years; 8 years for example. Company A may have been successful on grassroots exploration and added to reserves but historically exploration odds are working against them. If they actually saved a portion of the annual profit in the bank, say $10M of the $24M, after 8 years they may have $80M in cash reserves.
Company B only sells 180,000 ounces of gold each year and puts the remaining 20,000 ounces into inventory in a vault. Their annual profit-loss statement shows breakeven status since their gold sales only cover their financial commitments and nothing more. In this scenario, after 8 years Company B would have 160,000 gold ounces in their vault, valued at $192 million at $1200 gold price.
If you’re an investor looking at both these companies in the latter stages of their mine life, which one would you rather invest in? Company A has 400,000 ounces remaining in mineral reserves and say $80M cash in the bank. Company B also has 400,000 ounces of mineral reserves and $192 million worth of gold in the vault. If I’m a gold bull investor and foresee a $1700/oz gold price, then to me Company B might theoretically have $272M in the vault. If I’m a super gold bug, then their inventory could be worth a lot more..theoretically.
I assume that the enterprise value of Company A would be based on its remaining reserves at some $/oz factor plus its cash in the bank. Company B could be valued the same way plus its gold inventory. So for me Company B may be a much better investment than Company A in the latter stages of its mine life. In fact Company B could still persist as an entity after the mine has shutdown simply as a “fund” that holds physical gold. If I am a gold investor, then Company B as an investment asset might be of more interest to me.
My bottom line is that it appears that most of the time companies sell their entire annual gold production to try to show profit on the annual income statement. Possibly this is to put some cash in the bank and to show “earning per share” to the analysts. My question is why not inventory the extra gold and wait for prices to rise if the company doesn’t really need the money or doesn’t want to gamble it on exploration or acquisitions? This concept wouldn’t be a model for all junior miners but might be suitable for a few companies to target certain gold investors.  They could provide an alternative junior mining investment especially interesting in the final years of a mine life. Who wants to buy shares in a company who’s mine is nearly depleted?  I might if they hold a lot of gold.
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43. Mining Fads and the Herd Mentality

Have worked in the mining industry for over the last 30 years it is always interesting to see the herd mentality that exists and how we all can easily get caught up in fads.  All it takes is a short term spike in a commodity price or a big discovery somewhere and then off we go running in that direction.  It doesn’t matter the rationale driving the event, all we know is that we need to be there and our investors want to be there too.
Based on my experience, the fads that grab us can include specific commodities, locations, or technologies. The industry is very flexible in that regard. I’ll give a few examples below and you probably have more examples from your own experience.

Commodity Fads

It seems that as soon as there is a price spike or positive market narrative, any commodity can take a life of its own.  The following are a few examples and when you think about them ask how many actually came into production or successful production.
  • Potash – a few years ago potash prices spiked and potash properties were all the fad no matter where they were located around the globe, be it Canada, Russia, Ethiopia, Thailand, Brazil, etc.
  • Lithium / Graphite – as soon as green technology started to be promoted in the news, miners couldn’t run fast enough to pick up the lithium properties, same idea hold for the graphite and vanadium and rare earth categories.
  • Uranium – years ago uranium prices spiked and Ur properties were hot everywhere.
  • Nickel; a spike in nickel caused a surge in nickel properties being it sulphide nickel, laterite nickel, or other forms.
  • Iron Ore – in conjunction with the Chinese construction boom, iron ore properties were hot around the globe, in high cost or low cost jurisdictions, it didn’t matter where the property was.
  • Diamonds – in conjunction with the first diamond discoveries in Canada, quickly diamond properties because hot, whether in the Canada or around the globe.  If you couldn’t get a property in Canada’s boom area, anywhere else was fine.
  • China in general – whereby every base metal project was thought of as either a potential supplier to China or a potential acquisition for Chinese companies.  As long as it could meet Chinese investor interest it was good.

Location Fads

We have all seen the staking rushes that occur when a world class prospect is discovered.  I’m sure we can all recall getting the large claim maps (as shown below) with their multicolored graphics showing the patchwork of acquisitions around a discovery. PDAC was great for distributing these and they were well done and interesting to study.
Mineral claim map example
Picking up properties in hot areas became the fad and share prices would move upwards regardless of whether there was any favorable geology on the property.  Who recalls the following?
  • Voisey Bay; with a mad staking rush around there, with nothing else really paying off in the long run.
  • Saskatchewan;  and the potash staking rush where almost every inch of the potash band was staked with only a couple of companies eventually moving forward and only one going into production.
  • Indonesia; during Bre-X people could get properties in Indonesia fast enough.
  • NWT;  where the diamond property staking rush was crazing in the mid 1990’s.

Technology Fads

Even mining or processing technology could get caught up in somewhat of a wave and become a fad for further study, a rationale often driven by suppliers or consultants.  Who can recall…
  • Paste Tailings; with numerous conferences and consultants promoting thickened or paste tailings technology as the panacea leading to numerous studies related to thickening, pumping, and disposal.
  • Block Caving; whereby in order to deliver high tonnages at low cost, bulk underground mining was being promoted.  Everyone wanted their underground project to be a low cost caving style operation.
  • High Pressure Grinding Rolls (HPGR); where process consultants would tout HPGR as the new replacement for conventional grinding mills.  I’m not sure this technology has taken the industry by storm as they were hoping.
  • IPCC; whereby inpit crushing and conveying was being promoted in many articles and global conferences as the solution to operating cost pressures.  I think implementation of IPCC technology isn’t as simple as envisioned.
  • Dot.com; in the early 2000’s many junior miners left exploration behind and transitioned to the dot.com boom, a fad with generally poor results.
  • Medical marijuana; seems to be the hopeful target for some junior miners today. Unfortunately there is only so much marijuana you can sell.
  • Pre-concentration; this seems to be a growing technology fad that may be gaining momentum, with a few consultants pushing for it to be studied more.  This isn’t new technology and will have its benefits but a big stumbling block is how many deposits are actually suitable for its application.
My bottom line is that over the years it has been interesting to watch the mining industry react to events.  Sometimes it seems like we’re passengers on a boat running from one side to other side and then back again.  Unfortunately that doesn’t necessarily make for smooth sailing and can result in upset stomachs.
What’s the next fad? I don’t know but if you could predict it we can probably make a lot of money.

 

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38. Claim Fees Paid for a Royalty Interest – Good Deal or Not?

I have read several articles about how the junior mining industry must innovate to stay relevant.    Innovation and changing with the times may be what is needed in this economic climate.
One company that is trying something new is Abitibi Royalties.  They are promoting a new way for them to acquire royalty interests in early stage properties by offering to fund the claim fees on behalf of the property owner in return for a royalty.
Their corporate website states that they will pay, for a specified period of time, the claim fees/taxes related to existing mineral properties or related to the staking of new mineral properties.   In return, Abitibi Royalties would be granted a net smelter royalty (“NSR”) on the property.  It may be a gamble for them but it’s not really that risky given that the low investment needed to pay claim fees, even if one considers having to make these payments over multiple years.
Abitibi are specifically targeting properties located near an operating mine located in the Americas. They are keeping jurisdiction risk to a minimum.   Abitibi state that their due diligence and decision-making process is fast, generally within 48 hours.  No waiting around here but likely this is possible due to the low investment required and often the lack of geological information to do actually do a due diligence on.
To give some recent examples, in a December 14, 2015 press release, Abitibi state that the intend to acquire a 2% NSR on two claims in Quebec and will pay approximately $11,700 and reimburse the claim owner approximately $13,750 in future exploration expenses. This cash will be used by the owner towards paying claim renewal fees and exploration work commitments due in 2016.   Upon completion of the transaction, these will be the ninth and tenth royalties acquired through the Abitibi Royalty Search.  For comparison, some of their other royalty acquisitions cost were in the range of $5,000 to $10,000 each (per year I assume).   I think that those NSR interests are being acquired quite cheaply.
The benefit to the property owner may be twofold; they may have no other funding options available and they are building a relationship with a group that will have an interest in helping the project move forward.  The downside is that they have now encumbered that property with a NSR royalty going forward.
The benefit to Abitibi Royalties is that they have acquired an early stage NSR royalty quite cheaply although there will be significant uncertainty about ever seeing any royalty payments from the project.   Abitibi may also have to continue to make ongoing payments to ensure the claims remain in good standing with the owner.
It’s good to see some degree of innovation at work here, although the method of promotion for the concept may be more innovative than the concept itself. Unfortunately these Abitibi cash injections investments are not enough to pay for much actual exploration on the property and this is where the further innovation is required, whether through crowd funding, private equity, or some other means.   I’m curious to see if other companies will follow the Abitibi royalty model but extend it to foreign and more risky properties.
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35. Constraints: Use Them to Your Advantage

I recently read a business book called “A Beautiful Constraint: How to Transform Your Limitations into Advantages, and Why It’s Everyone’s Business” by Adam Morgan and Mark Barden. It describes how to use constraints, like lack of time, money, resources, attention, know-how, and use them to help transform your company for the better.

Beautiful Constraint Book Cover

The book discusses how to shift away from the typical “victim” role by understanding how our routines control things, asking the right questions, and focusing on “how” and not “if”.   For an example, one of the recommendations discussed in the book is that in your group sessions no one on your team is allowed to utter the words “we can’t because…” but must replace those words with “we can if…”.   This forces the generation of ideas and promotes a positive attitude rather than a victim attitude.
The book describes how many innovations were created due to constraints and those innovations would never have been created without having those constraints to direct the thinking.  To force innovation in your organization you can create constraints for your team, even if they are just artificial constraints, to help foster innovation and push for “outside the box” thinking.  The tougher the constraint, the greater the challenge for your team but then possibly the greater the final outcome.
The term Theory of Constraints may be common to some.  However this concept is different than what is being discussed in this book.  The TOC essentially relies on managing the constraint or eliminating it, and then address the next constraint in sequence.   The authors here propose to exploit the constraint or leverage it to create a new possibility, hence the title “beautiful constraint”.
As we all know the mining industry as a whole has more than enough constraints placed upon it right now, be it lack of funding, lack of skilled talent, environmental pressures, supply-demand issues, social issues, security issues, etc.    Each operation or mining project may have additional constraints above and beyond those of the general industry, so one does not need really to create artificial constraints for your team.  The mining industry almost has no option but to try to use these constraints in a constructive manner and not let them pull the industry down or simply try to wait and they will go away.  When people say “mining is cyclical and it will all turn around soon” is an example of waiting for the constraint to go away.  Well how long do you wait before taking your own action?
My bottom line is that the book was enlightening, although maybe telling us what we already know subconsciously but don’t acknowledge openly.  Don’t wait, start innovating, and don’t be afraid of grand innovations.  The book should be required reading for all those working in the mining industry today.
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34. On-Line Technical Report Library

Recently on LinkedIn I noticed a discussion from a member of an Australian/New Zealand consulting group about developing an on-line community for undertaking free peer reviews of new resource estimates and technical reports.   The objective was to help the mining industry improve on their standards, consistency, and quality of resource estimates and the supporting technical reports.
RSC are steadily compiling a Dropbox library of technical reports that can be accessed via a searchable map on their web site at this link.  The map functionality is quite unique and interesting.  Check it out – there are many global projects already listed on the map.
The proposed peer review concept is not described on the web site but was part of a LinkedIn discussion, which now seems to be deleted from LinkedIn. The goal is (or was) to develop a team of pre-approved volunteer mineral consultants that would review the various technical reports for accuracy and compliancy.  The list of comments would then be complied and would generate a ranking to be provided back to the original author and/or the mining company.   The hope is that such on-going peer reviews would help improve the quality of technical work.
Via LinkedIn, they were seeking out volunteer reviewers and had numerous people interested already.  My understanding is that they were planning to start a trial run of the system within the next few weeks, however seeing the article gone from LinkedIn, the idea may have been put aside.  Nevertheless the searchable map is still there and it is an interesting way to see what project developments are occurring in the mining industry.
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