Power Alternatives - Article by Charles Wyatt on Minesite.com

Poweralternatives: Mercator Gold Hopes To Use Solar Energy To Power Mining And Processing Work At Its Copper Flat Copper-Gold Project In New Mexico
By Charles Wyatt


For many a month now Mercator Gold has been wheeling and dealing its way back into contention after the dog days of 2008, and the company’s latest announcement reflects a useful bit of lateral thinking. It’s established a partnership with a company called Remote Energy Solutions to develop the Warm Springs solar power project, a project which lies very close to Mercator’s Copper Flat copper-gold-molybdenum silver project in New Mexico.

It would be easy enough to reconnect Copper Flat to the power grid, but New Mexico is an optimal location for solar power development, as far as the US is concerned. By getting involved in solar power, Mercator brings the authorities and public awareness increases to the benefit of the project when it is going through the permitting process. Copper Flat is a former producing mine which Mercator Gold has an option to purchase, although it is selling this option on to a Canadian listed company called THEMAC for paper, so it will retain an indirect interest.

Patrick Harford, managing director of Mercator, goes out of his way, however, to emphasise that the joint venture is not simply a tactical mining manoeuvre, it is very much a commercial venture. A lot of mines throughout the world are far from grid power and diesel is very expensive, in some cases accounting for up to 40 per cent of operational cash costs. Solar power has to be considered as an alternative and Mercator has the opportunity to demonstrate how it can be done. New Mexico has been designated as a hub for the US power grid, so it should not be difficult to obtain a power purchasing agreement by the end of this year. A power purchasing agreement is similar to an off-take agreement for metals or minerals, but it is an agreement with a utility, and lasts a lot longer. Payback time for the likely US$60 million to US$80 million of capital expenditure is probably around seven years, but thereafter there is another twenty years of tax efficient cash flow to look forward to, which would be worth a significant sum.

It looks a hefty sum for Mercator and Remote Energy Systems to raise, but there are a number of innovative potential financing mechanisms available which take advantage of available development incentives and tax schemes.

The joint venture company which will construct the proposed 20 MW solar power plant at Warm Springs is a subsidiary of Mercator Gold called Warm Springs Renewable Energy Corporation (WSREC). Remote Energy Solutions will be issued with a 10 per cent stake, rising to 30 per cent once certain funding considerations have been met and a power purchasing agreement is in place. It should be borne in mind, however, that the project could be a lot bigger if the 20 MW capacity of the solar power project is subsequently increased to 80 MW.

Anne Carpenter of Remote Energy Solutions, who will be chief operating officer of the joint venture, clearly thinks this is adequate and she has been around the renewable energy side of the mining business for some time – most recently at Goldcorp. She will co-ordinate the State and Federal permitting of the Warm Springs project, along with interconnection and transmission studies, stakeholder engagement, technology selection and financing. Her task may be made that much easier as President Obama is now clearly turning his attention to cleaner energy following the BP disaster in the Gulf of Mexico.

New Mexico should benefit significantly from this as it has already announced its intention of becoming a centre for renewable energy and related industries. Warm Springs should be offered grants, tax breaks and other incentives, and it should generate plenty of attention.

Construction will be undertaken by a company which already has experience in solar power plants. Both traditional flat plate photovoltaic power and newer concentrating solar technologies will be evaluated during the current permitting and feasibility process. What’s more, there could be an additional bonus. “In addition to electricity we are exploring the potential for the sale of Renewable Energy Certificates”, says Patrick Harford. Demand for these is expected to rise sharply in the States as utilities are increasingly required to generate a substantial proportion of the electricity they sell from renewable sources. If the utilities buy these REC’s it allows them to satisfy their obligations under Renewable Portfolio Standard regulations. It is a mad world in which companies pay each other to perform cartwheels, but don’t let’s go down that track. The nub of the matter is that Mercator Gold has lived successfully off its wits for some time and has now identified a new opportunity.

Renewable energy at Warm Springs is a long way from the company’s old Meekatharra project, but Mercator Gold is building an interesting portfolio to which a substantial interest in Canadian listed THEMAC Resources Group will be added shortly. In the background ACS Asia, the steel products business in which Mercator has a 70 per cent interest, should be churning out profits of around US$1 million this year, and it’s interesting to note that it has the capability of producing the steelwork used in solar power facilities. It has already quoted on a number of projects, but competition is keen as 20 per cent to 40 per cent of the cost of such facilities is accounted for by steelwork.

Mercator will have come full circle, however, if ACS Asia becomes an adjunct to Remote Energy Solutions as a fully capable developer of such systems.

In the meantime the next bit of news expected from the company concerns its uranium interests – more clean power. Mercator holds three million shares in Uranio, a listed Swiss uranium exploration and development company which holds a number of highly promising exploration stage uranium licences in the Central African Republic and Argentina. In the Central African Republic, Uranio has four licence areas located to the north and east of licences operated by AREVA of France, but for the immediate term it is Argentina which investors should be keeping their eyes on.

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