Teck bottom line reflects opportunities of the ’80’s

The turbulent economic times of the 1980s may have undermined the constitution of some Canadian major mining companies, but this wasn’t the case for Teck (TSE) which instead experienced a pivotal decade of growth and prosperity. Several timely opportunities came forward in the 1980s that went on to become production cornerstones for the company. Among the more significant of these today are half-interests in two of the three Hemlo gold mines in northwestern Ontario.

Although still often thought of as a base metal company, Teck’s Hemlo interests enabled it to grow rapidly into a major gold producer. Copper and zinc were the more important metals produced at the start of the decade, but by 1989 the yellow metal accounted for 47% of Teck’s revenue and 46% of its earnings.

The company acquired its 50% interest in the David Bell mine as a result of a 1981 joint venture with a predecessor company to Corona (TSE). Teck operates that mine, and also the Williams mine which was awarded equally to Teck and Corona in 1989 after they won a protracted lawsuit against former owner, LAC Minerals.

Teck hasn’t released its 1990 operating results yet, but they are expected to reflect some major productivity improvements and cost control measures at both Hemlo operations, particularly the Williams mine.

“That’s where a lot of my personal emphasis has been over the last year,” said Michael Lipkewich, Teck’s vice-president of mining.

Results are available, however, for the first nine months of 1990. During this period, the David Bell and Williams mines produced a total of 674,300 oz. gold, a 12% increase over the first nine months of the previous year.

And Teck’s 50% share of operating profit from the two mines was a healthy $91 million for the 9-month period, compared with $77 million a year earlier.

The David Bell mine is currently Canada’s lowest-cost gold producer with an average cost of about US$89 per oz. for 1990 (to Sept. 30). The average production cost at the Williams mine — Canada’s largest gold producer — was US$170 per oz. for the same period. David Bell is currently processing about 1,370 tons per day, while Williams’ throughput is about 6,600 tons per day.

In addition to production from the David Bell and Williams mines, Teck and Corona also share 50% of the net profits generated from a quarter claim which is being mined and processed by Hemlo Gold (TSE).

In 1989, output from the quarter claim was a record 81,719 oz., a 21% increase from 1988. Reserves are sufficient for about 10 years of production.

At the end of 1989, reserves at David Bell were estimated to be 7.8 million tons of 0.39 oz. gold per ton, while minable reserves at Williams were estimated to be 36.2 million tons averaging 0.17 oz. gold. Updated figures reflecting reserves at the end of 1990 are expected to be released soon for both mines.

Teck’s exposure to gold isn’t confined to its Hemlo interests. Some gold (14,592 oz. in 1989) is produced at the Afton copper mine near Kamloops, B.C., which is 73% owned by Teck. And the company also operates a seasonal placer gold mine in the Yukon, one of the few majors to do so.

Outside of its direct operations, Teck has exposure to gold from associated company investments. It holds about a 36.4% interest in Golden Knight Resources (TSE), which is viewed as an “independent gold production, exploration and development vehicle.”

Golden Knight’s 40% owned Casa Berardi Est mine was placed into production at a capital cost of $74 million in 1988 by senior partner Inco (TSE). It produced 53,557 oz. gold in 1989. In that same year, Inco and Golden Knight began building a second mine, the $30-million Casa Berardi Ouest, to feed the same mill and boost total production from these operations to 95,000 oz. gold a year.

Outside of precious metals, Teck operates the Niobec underground mine in Quebec which produces niobium, a rare metal used primarily as an alloying agent in steels. It also has interests in oil and gas, and in coal, as well as significant direct and indirect exposure to base metals.

If Hemlo was the golden opportunity of the decade, Teck’s 1986 initiative to lead a consortium to acquire control of Cominco (TSE) was its counterpart on the base metal front. Today Teck has a 21% (direct and indirect) interest in Cominco which is held about 42.5% by the consortium.

The acquisition gave Teck greater exposure to base metals, particularly zinc and copper. Today, for example, Teck has a total equity interest of 24% (direct and indirect through Cominco) in the huge Highland Valley copper mine near Kamloops, B.C. It is the second largest producing copper mine in the world, in terms of tons milled, and the seventh largest in copper production.

Teck also has exposure to Cominco’s operations, including its 50% owned Red Dog mine in Alaska which was officially opened in the summer of 1990. Before production began, reserves were reported as an impressive 85 million tons grading 17.1% zinc, 5% lead and 2.4 oz. silver.

Besides its zinc and lead smelting facilities at Trail, B.C., Cominco operates the Sullivan mine near Kimberley, B.C., which is expected to turn out zinc and other metals for at least another 10 years. The base metal giant will also open a new gold mine this year, its 60% owned Snip mine in the Iskut River area of northwestern British Columbia. This underground mine is expected to turn out 93,000 oz. gold annually when up to full speed.

Teck closed its Newfoundland zinc mine, but it will have a continued direct interest in zinc production because of a fairly recent acquisition by Nunachiag (Teck 50%) of 49% of Pine Point Mines. A subsequent reorganization of that company into a joint venture with Cominco was completed in 1990, and Teck will now report direct operating results from its 11.2% interest in the Polaris lead-zinc mine (in addition to equity earnings from Cominco’s 77.5% interest).

The Polaris mine, on the Arctic Islands, produced 153,000 tons of zinc in concentrate in 1989.

Within the next several years, Teck and Cominco may well have further exposure to copper (and other metals) as a result of their 1989 move to acquire a collective equity interest in Aur Resources (TSE).

Today both majors have a 22% interest in Aur, which in turn has as its key asset a 55% interest in the rich Louvicourt deposit near Val d’Or, Que. The remaining interest is held by Louvem Mines (TSE), a junior in which Noranda (TSE) holds a sizable interest.

Aur is credited with the discovery of the deposit which currently is estimated to contain preliminary reserves of 37 million tons grading 3.6% copper, 1.59% zinc, 0.62 oz. silver and 0.026 oz. gold at a block cutoff grade of 1% copper.

At a 2% copper block cutoff grade, preliminary reserves stand at 29.3 million tons of 4.3% copper, 1.82% zinc, 0.74 oz. silver and 0.031 oz. gold. The deposit remains open to depth, and the potential for expanding reserves is believed to be excellent.

Referring to preliminary metallurgical work, the company said “excellent quality concentrates” can be produced with recoveries in the order of 95% for copper (which contains 84% of the gold) in a 26% copper concentrate and 82% for the zinc in a 54% zinc concentrate.

As operator, Aur is planning to complete underground exploration and development work this year aimed at bringing the deposit into production. Engineering work is under way, and the company foresees two shafts (a production shaftbringing the deposit into production. Engineering work is under way, and the company foresees two shafts (a production shaft and an exploration shaft) going down at the same time. Pilot holes for the two shafts are in progress, with a view to start the shaft collars in March.

“We don’t know yet what the whole project will cost but it will probably be somewhere between $150 and $250 million,” said Aur President James Gill.

A number of outside firms have been appointed to carry out conceptual mine and mill layouts and costing estimates, environmental studies, and other work that will be necessary before banks and other venues
can be approached for project financing.

Closer to home, Teck has a small interest in Redfern Resources (TSE) which owns 40% of the Tulsequah Chief massive sulphide project being explored by 60% owner, Cominco. Preliminary reserves at this former producer in northwestern British Columbia were last reported as 5.8 million tons of 1.6% copper, 1.3% lead, 7.03% zinc, 0.08 oz. gold and 2.93 oz. silver.