Great Lakes gears up for production

It has been three long years since Great Lakes Minerals first listed on the Toronto Stock Exchange and embarked on a quest to join the select group of Canadian juniors that can boast an operating cash flow.

A difficult financing environment, permitting headaches and, most recently, a sharp decline in copper prices have all conspired to delay that goal. But three new developments are paving the way for a 1993 start-up on Great Lake’s small copper project on the Keweenaw Peninsula in northern Michigan. Metall Mining (TSE) has agreed to mill, smelt and refine ore from the 543-S deposit at its Copper Range complex about 60 miles to the southwest. And to get the financing ball rolling, Noramco (TSE) will subscribe for a convertible 10% debenture of $500,000. Most importantly, after a 2-year struggle, the company has received a water discharge permit from the Michigan Department of Natural Resources. The permit allows Great Lakes to begin construction at the 543-S project and to discharge its mine waters on surface. The 543-S deposit and four other nearby prospects were explored by Homestake Mining (TSE) and Inco (TSE) in the mid-1970s but were abandoned during a slump in copper prices.

Great Lakes took an interest in 1990 and has since confirmed a minable reserve, at 543-S, of 1.3 million tons grading 4% copper. The junior has a 100% interest in five known deposits and right of refusal on 200,000 acres covering favorable stratigraphy along the copper-rich peninsula, on the southern coast of Lake Superior. Terry Podolsky, who was vice-president of exploration for Inco (TSE) when the nickel producer investigated the Michigan prospects, now sits on the junior’s board of directors.

Once 543-S starts generating cash flow, the company plans to investigate other copper opportunities in the southwestern U.S. and Latin America. “The 543-S was always a means, not an end,” says Chairman John McBride. “It will allow us to pursue other projects aggressively.”

Although Great Lakes originally considered revamping the abandoned Centennial mill nearby, the Copper Range option will allow the company to take advantage of Metall’s economies of scale. Copper Range processes close to six million tons per year.

“We would have to have added a flotation circuit to the mill,” said McBride. “That would have been costly and created delays. Operating costs would have been about the same.”

At US$1 copper, Metall’s custom milling charge will be US$5.75 per ton; the charge will increase with the copper price. Great Lakes will pay at least US$6 per ton to have the ore trucked to the complex, but smelter charges will be subject to market conditions, McBride said.

“The company has access to a favorable smelting and refining contract and that takes a lot of risk out of the project,” says David Davidson, an analyst at Wood Gundy who recently issued an “accumulate” recommendation for Great Lakes. He believes the copper price, hovering at the US80 cents-per-lb. level at presstime, will rebound in the second half of 1993.

543-S is expected to enter production in late 1993 and employ 45 to 50 people from the local community. Dynatec Mining estimates the mine will generate an after-tax rate of return of 62% at US$1 copper and a cash operating cost of 73 cents per lb.

The Goldstream mine in British Columbia is the prototype for proposed mining techniques at 543-S. A 17-ft.-wide ramp will provide access to the shallowly dipping ore zone where longhole open-stoping will be used.

The deposit is expected to produce more than 20 million lb. copper in concentrate per year.

McBride says he has commitments for about half of the $5 million needed to develop the mine and is confident the rest will be secured this summer. Once financing for the project is in place, Great Lakes will begin work on two nearby prospects, St. Louis (a low-grade, bulk-tonnage depsoit hosting eight million tons grading 0.8% copper) and G-2 (a sulphide deposit similar to 543-S).

Noranda (TSE) and Wheaton River Minerals (TSE) have dropped options to explore surrounding ground.