Breakwater closes Estrades less than a year after startup

Citing weak metal prices, Breakwater Resources (TSE) suspended operations in early June at its 70% owned Estrades polymetallic mine in northwestern Quebec.

Golden Group Explorations (VSE) has an 18% carried interest in the mine, and Golden Hope Resources (VSE) has a 12% carried interest.

The temporary closure at Estrades comes on the heels of a closure last fall at Breakwater’s Caribou zinc-lead-silver mine near Bathurst, N.B.

Last year Breakwater took on $30-million worth of debt to reopen Caribou, a mine with a long history of metallurgical problems, only to close the operation several months later. The company was recently advised that its lenders may attempt to seek damages on the basis of an alleged default of the loan agreement, and Breakwater is now investigating the possible sale of the Caribou property.

Estrades, which was considered both structurally complex and metallurgically challenging, was brought into production last summer. The company now reports that the operation is very sensitive to metal prices “and is not generating satisfactory cash flows or earnings.”

Low metal prices, increased operating costs and excess dilution were cited as the main reasons why production and revenues did not meet ex- pectations at Estrades. The decision to suspend operations followed efforts to modify the mining methods by using cut-and-fill and shrinkage methods to decrease dilution and increase head grades.

In the 1991 first quarter, Estrades produced 55,430 tonnes at grades averaging 1.02% copper, 10.25% zinc, and 4.38 grams gold per tonne.

Breakwater was once a successful gold producer with a 49% interest in the Cannon gold mine operated by partner Asamera Minerals in the state of Washington. The mine, the key asset of the company, is still profitable, producing gold at an average cash cost of US$177.69 per oz.

But the company’s attempts to diversify into other metals, particularly zinc, have been largely ill-fated. The closure of the Caribou and Estrades mines leaves Breakwater with the El Mochito zinc-lead-silver-gold mine in Honduras, an operation which contributed a loss of $2.9 million to the total first-quarter loss of $5 million.

Breakwater’s 1988 acquisition of Noramco Mining was also ill-fated, and led to a whopping $61.3 million loss for nine months of that fiscal year. The takeover of Novamin in 1987 also produced writedowns, and Breakwater is now looking to market and sell a package of gold properties in the Rouyn-Malartic area of Quebec.

Breakwater has been relying on financial support from its largest shareholder, International Corona (TSE), and the company is now obligated to Corona for a total of $13.9 million. In early May, Brian Pewsey resigned as Breakwater’s president and chief executive officer.