Equity’s unbroken string of profits intact despite dwindling

With reserves at its open pit silver mine near Houston, B.C., expected to be depleted this summer, Equity Silver Mines (TSE) is left reviewing its future.

The mine originally opened in the third quarter of 1980 with minable reserves totaling 30.8 million tons grading 3.1 oz. silver and 0.028 oz. gold per ton, and 0.38% copper.

Despite a steady decline in the average price of silver from a peak of US$11.44 per oz. in 1983 to 1991’s average of US$4.01 per oz., on an operating basis the company didn’t have a single negative year. In 1991, Equity reported earnings of $3.6 million compared with earnings of $9.9 million in 1990.

The drop was primarily the result of lower silver grades and prices. The company milled 3.65 million tons of ore grading an average of 2.52 oz. silver per ton in 1991, compared with 3.47 million tons in 1990 at an average grade of 3.36 oz. silver.

The average price of silver based on London spot prices dropped to US$4.07 from US$4.88 per oz.

During 1992, mining in the Waterline pit is being accelerated for completion by mid-year, with additional mill feed to the beginning of the fourth quarter coming from the low-grade stockpiles.

Equity signed a milling agreement earlier this year with Timmins Nickel (TSE) and its partner Habsburg Resources (VSE) for ore from the companies’ Dome Mountain gold mine near Smithers, B.C. The ore purchase agreement, for about 5,500 tons per month, extends to September when a renewal of the contract will be reviewed.

Equity is also investigating the possibility of mining the underground extension of the Waterline deposit estimated to contain about 770,000 tons. Plans call for the company to drive a decline along the zone from the bottom of the Waterline pit to develop and mine an initial 275,000-ton first-phase portion grading about 5.55 oz. silver and 0.13 oz. gold. The grade is based on a 30% mining dilution which Brian Robertson, mine manager, said may be overly pessimistic.

The decline is expected to cost in the order of $1.2 million, which should be recovered through revenue from milling the development material. If the company proceeds with mining the entire 770,000 tons, the 10,000-ton-per-day Equity mill will be fed about 1,100 tons per day until perhaps mid-1994.

The company notes that ore purchases and underground mining activities will be continued as long as they are economic.

There is also a possibility ore will be purchased from the Eskay Creek joint venture and preliminary talks are expected to start shortly. Based on current information, however, Equity does not expect a long-term extension of activity at the site.

Equity is continuing its reclamation efforts at the mine; in 1991, about $2.1 million was spent on the re-sloping of a major portion of the waste dumps and the addition of a compacted till cover.

The company hopes the till will lower water filtration through the dumps, thereby reducing acid runoff.

Equity spent $945,000 on water treatment in 1991 and to date has deposited $32 million in a trust to cover long-term acid drainage treatment costs. A technical committee consisting of government and company representatives determined that a fund ranging between $22 and $32 million will be required to cover long-term treatment costs.

To date, efforts to change the tax status of funds set aside for reclamation have failed. Equity is attempting to have tax laws changed to allow companies to deduct funds set aside for future reclamation from taxable income. Income from security deposits is also taxable and company attempts to change the tax structure here have failed as well.

Equity finished the year with more than $32 million in working capital. The company noted in its recent annual report that it will retain funds to cover increases in the reclamation deposit as required under the terms of the reclamation permit.