HudBay adds Namew nickel to its metals inventory

Hudson Bay Mining & Smelting (TSE), the wholly owned subsidiary of New York-based Inspiration Resources (NYSE), is well known as Canada’s fourth largest producer of copper and zinc. In 1989, HudBay’s share of production from the Flin Flon, Snow Lake and Leaf Rapids operations in northern Manitoba was 126.5 million lb. copper and 165.7 million lb. zinc.

But the company is also a significant precious metals producer (as byproduct), and the introduction of the Namew Lake nickel mine in Manitoba should enable HudBay to produce around 10 million lb. nickel annually as well.

Last year HudBay reported net earnings of $46.3 million on revenues of $449.9 million, compared to earnings of $28.5 million on revenues of $409.4 million the previous year.

While spokesman Dale Powell refused to speculate on what the company’s earnings or production will be until 1990 figures are released this month, the average London Metal Exchange prices for zinc and nickel are down significantly from 1989 levels when they averaged US75 cents and US$6.04 per lb. respectively. In 1990, zinc averaged US67 cents and nickel US$3.88.

The average price of copper has also dropped to US$1.19 per lb. on the Commodity Exchange of New York from US$1.24 in 1989.

As all of HudBay’s common shares are held directly by Inspiration Resources, analysts tend to shy away from making earnings calculations for HudBay, reserving instead their judgment for the special exchangeable non-voting shares (exchangeable at the option of the holders for Inspiration Resources common shares on a 1-for-1 basis). Earnings per non-voting share are expected to be around 40 cents in 1990, the same as in 1989.

Also clouding the financial picture is the nickel output from the new Namew lake mine. A joint venture owned 60% by HudBay and 40% by Outokompu of Finland, the $70-million mine got off to a slow start because of lower than expected ore grades.

But the underground mining operation, having reached its full 2,100-ton-per-day production rate in the final quarter of 1989, is now living up to expectations. HudBay’s share of production should add up to six millon pounds annually during Namew Lake’s 4.5-year life span.

Copper production from a newly commissioned 2,100-ft. shaft at HudBay’s 44% owned Trout Lake, Man., copper-zinc mine did not live up to expectations recently due to ground problems in one of the major stopes. The other partners in the Trout Lake joint venture, which in 1989 accounted for 22% of HudBay’s copper concentrate and 41% of zinc, are Granges (TSE) with 44% and the government of Manitoba with 27%.

However, as reported (T.N.M., Nov. 12/90), a new high-grade zone was recently discovered 984 ft. below the current mine workings at a depth of 3,280 ft.

Assays from three holes drilled from the 1,840-ft. level intersected three separate lenses within the new zone. The first lens has a horizontal width of 18 ft. assaying 22.8% zinc, 8.07% copper, 0.18 oz. gold and 1.72 oz. silver per ton. The second zone is 20 ft. wide and assays 15.7% zinc, 3.36% copper, 0.022 oz. gold and 0.03 oz. silver. A third narrow lens has a width of around 10 ft. and assays 4.1% zinc, 4.65% copper, 0.018 oz. gold and 0.03 oz. silver.

While HudBay Chairman John Ellis says he is encouraged by the latest results, much more drilling is needed to establish a meaningful reserve estimate, he claims.

Reserves at Trout Lake now stand at 6.6 million tons of grade 5.5% zinc, 1.83% copper, 0.33 oz. silver and 0.043 oz. gold.

Meanwhile, HudBay’s wholly owned Chisel Lake Crown Pillar deposit at Snow Lake, which went into production in the first quarter of 1989, accounted for 26% of the company’s zinc concentrate requirements last year.

With reserves standing at 1.1 million tons, grading 8.5% zinc, 0.25% copper, 1.3% lead, 0.08 oz. gold and 1.6 oz. silver, the Crown Pillar contains sufficient ore to keep the mine running for five years.

Having acquired the Callinan zinc-copper mine from Manitoba Mineral Resources in 1989, HudBay was planning to mine 277,000 tons of ore in 1990 rising to 450,000 tons this year.

Reserves of 2.8 million tons grading 3.7% zinc, 1.43% copper, 0.049 oz. gold and 0.60 oz. silver are sufficient to keep the mine running for six years. But the company is optimistic about the chances of increasing known reserves.

To examine the potential of the 4,700-ton-per-day Ruttan mine “West Anomaly” at Leap Rapids, HudBay spent $5.3 million last year on exploration. Results have not been released yet, but in a recent interview published in the Canadian Mining Journal, mine superintendent Clark Bellingham predicted that half of the copper-zinc operation’s daily production could be drawn from the West anomaly by 1993 and 75% by 1996.

HudBay also operates a zinc oxide plant in Ontario and has a 37.5% stake in the 700-ton-per-day Tantalum Mining Corp. of Canada (Tanco) operation in southeastern Manitoba. Tantalum (an element used to make specialty aluminum alloys) and Spodumene (a silicate mineral containing tantalum) are the two main products of the operation.

Powell says HudBay is still talking with the Manitoba government over ways to raise $170 million to finance the future reduction of sulphur dioxide emissions at its Flin Flon metallurgical complex.

The conversion project, which includes a zinc pressure smelter, will take over two and a half years to complete and enable HudBay to meet the government’s deadline of a 25% reduction in emissions by 1994. The crux of the negotiations, which have gone on for two and a half years, is deciding how far the provincial government will go in helping HudBay to finance the project. In a telephone interview with The Northern Miner, Powell declined to say what the outcome of the talks will be.

But an analyst, who asked not to be identified, says the company is resigned to the fact that it will either have to find most of the money on its own or face having the facility shutdown.

In other news, unionized employees at the company’s Flin Flon and Snow Lake operations recently accepted a new 3-year wage deal that ensures a 18.6% salary increase during the period.

A special feature of the contract is a new profit-sharing concept that will eventually replace an old bonus scheme based on metal prices. Profit sharing will be introduced Oct. 1.