Breakwater closes Caribou mine cites zinc outlook, mill expenses

Bleak forecasts on the zinc price combined with production shortfalls have prompted Breakwater Resources (TSE) to suspend operations at its Caribou lead-zinc-silver mine near Bathurst, N.B. Last week, the company temporarily closed the El Mochito polymetallic mine in Honduras, citing mechanical difficulties.

News of the suspensions and a resulting undisclosed charge against 1990 profits has investors worried. Breakwater shares shed 18 cents over the week, to close at a 52-week low of 70 cents by presstime. Shares of Corona (TSE), which has a 27% stake in Breakwater, slipped 12 cents to $5.38 on the week.

To raise production at Caribou to acceptable levels, Breakwater would need to spend $15 million upgrading the mill, said President Brian Pewsey. In light of the mine’s $30-million non-recourse bank loan and a zinc price which is rapidly heading south, Breakwater “does not feel it prudent . . . to consider such an investment,” he said.

Under the terms of the loan, 80% of the mine’s available cash flow is committed to principal and interest payments until the debt is repaid. If cash flow is unavailable, repayment is deferred for up to six years.

With the September acquisition of Caribou’s owner — Bathurst Base Metals — Breakwater also took responsibility for a $15-million debt issued in the form of silver certificates.

Since Breakwater moved in on Caribou, mine production has increased from 600 to 3,000 tonnes per day and zinc recoveries have improved by 30%. But mill throughput lags behind — in order to accommodate the increased mine production, the mill’s flotation circuit and dewatering facility would require expansion. “The mill continues to pose a real constraint,” said Pewsey.

“The Caribou mine has a long history of metallurgical problems,” said Eric Zaunsherb, an analyst for Midland Walwyn. “They should have realized that before they went in there.”

Breakwater would consider reopening the mine if zinc prices improved and the mine’s debt could be renegotiated, said spokesman Michael Carr. Negotiations are proceeding between Breakwater and the two Australian banks that hold the $30-million debt.

Caribou employs about 215 full- time and 50 contract employees. Some of the mine’s senior staff may relocate to one of Breakwater’s other operations, Carr said.

A $200,000 exploration program slated for the ground surrounding Caribou will probably be shelved as well, according to Carr. “The chances of that (exploration) continuing are almost zero,” he said.

The Caribou deposit, contains preliminary reserves of 12 million tonnes grading 7.6% zinc, 3.6% lead and 104 grams silver per tonne.

Carr added that, despite depressed zinc prices, the Estrades zinc-gold mine in northwestern Quebec is operating at a profit. Breakwater has recently expanded production to 700 tonnes per day and recoveries have been higher than expected. At El Mochito, the company is considering increasing mill throughput to 2,000 tonnes per day from a current rate of 1,570 tonnes per day, once mechanical repairs have been made.