Zinc price set to rebound says Nanisivik president

As 40% of the world’s zinc producers will have trouble meeting their cash costs at current prices, zinc won’t remain at recent levels for very long, said Graham Farquharson, President of Conwest Exploration’s (TSE) Nanisivik mine division.

When Conwest shareholders met at the resource company’s annual meeting in Toronto recently, zinc was trading at US$1,080 per tonne, down from US$1,200 in the first quarter of 1990 and US$2,000 in February, 1989.

But if the slump in commodity prices forces suppliers to reduce their production any further, prices will inevitably move upward, Farquharson says.

Although operating costs at the Nanisivik mine on Baffin Island are roughly US$900 per tonne, falling commodity prices reduced Conwest’s earnings to $7.8 million in 1990, from $10.3 million in the previous year.

Conwest also attributed its lower first-quarter earnings to falling zinc prices and concentrate production as well as reduced investment income. In the first three months of 1991, Conwest reported earnings of $1.4 million or seven cents a share, compared with $5.5 million or 42 cents a share in the same period last year.

Nanisivik, which contributed 50% of Conwest’s 1990 revenues of $103.1 million, has operated continuously since 1976 and Farquharson said it’s a safe bet that the mine will operate for another five years. At year-end, proven and probable reserves stood at 2.6 million tonnes grading 8.5% zinc, 0.3% lead and 40 grams silver per tonne, down from 2.9 million tonnes at the end of 1989.

Average mined zinc grades dropped in the first quarter to 7.1% from 8.1% in fiscal 1990 when 100,700 tonnes of zinc and 2,600 tonnes of lead concentrates were produced. First-quarter output also declined to 21,200 tonnes from 25,500 tonnes in the year-earlier period.

Farquharson attributed the drop in grade to his company’s attempt through “careful mine planning” to reserve the best material for when prices are higher. “When zinc prices are down, we turn the taps off and wait for the time when prices are on a roll,” he said.

While a ship is backing its way through the ice pack toward Baffin Island for the first time this year, Conwest has made it a priority to find a successor to Nanisivik as part of a 5-year business plan. The company is spending $3 this year to look for satellite deposits around the mine and to continue exploration in the western arctic on Victoria Island.

At Victoria, Nanisivik, through affiliates Aber Resources (TSE) and Highwood Resources (TSE), is earning a 50% stake in the copper exploration project held by Noranda Exploration.

With $1.5 million to be spent this year, the joint venture has already started airborne geophysics and an exploration team should be in the field next month, said Farquharson. “It’s elephant-size targets that we are looking for.”

Meanwhile, the Midway silver-lead-zinc project in British Columbia held by Nanisivik’s 49% owned Regional Resources (TSE) and private company Procan Exploration, continues to be what Farquharson describes as a “great tease.”

Although he was tremendously encouraged by surface drilling, a $6.5-million underground program, which targeted an area 250 metres below surface, has indicated mineralization sitting under shale.

As the shale rock is relatively incompetent, mining conditions would be difficult and a decision has yet to be announced on future exploration. “The project isn’t dead but we would need better than US$4 per oz. for silver and more exploration to increase the minable reserves base,” said Farquharson. On the day of the meeting, silver was trading at US$4.1 an oz.

When Regional Resources acquired the project from Canamax Resources (TSE) in 1989, preliminary reserves stood at 1.18 million tonnes grading 410 grams (11.6 oz.) silver, 7% lead and 9.6% zinc.