How times have changed. Juniors devoted to gold find their shares at r ecord lows whereas the handful with good base metal plays are commanding the attention of what few junior mining investors remain.
Investors remain fickle, however, even with respect to base metals, demanding two things — reserves and grade. Pure grassroots exploration plays are still tough to sell even during a base metals bull market.
Also, investors have had to educate themselves. Compared with gold plays, base metals projects are markedly different, presenting a host of positive and negative variables not usually associated with gold exploration projects — variables which mining investors must learn to understand.
One of the positive features of base metals deposits, specifically volcanogenic massive sulphide deposits (VMS), is their general tendency to occur as continuous lenses. This is in contrast to typical quartz vein shear-hosted gold deposits found in the greenstone terranes of the Canadian Shield.
Many an investor has learned the hard way that continuity, grade and tonnage problems abound in such gold deposits as a result of their habit to “pinch and swell.”
The Aur Resources (TSE) copper- zinc massive sulphide find in Louvicourt Twp, Que., is an excellent example of a VMS deposit which is being delineated by drilling at a wide 200-ft spacing. Several exploration holes have stepped out even further.
Based on such widely spaced drilling, the company has outlined a drill-indicted reserve in excess of 18 million tons. Several analysts are confident that the drilling has defined reserves of about 40 million tons and more.
This continuity of sulphide mineralization, both massive and disseminated, between drill holes in a VMS deposit is in contrast to the erratic nature of gold mineralization which requires close-spaced drilling and detailed sampling before a reserve figure of any confidence can be calculated.
Investors are also confused by just what is supposed to be a good drill hole. Most know that 55 ft of 0.5 oz gold per ton is exceptional, but what about zinc, copper and nickel? At current commodity prices, values of 8%, 2.5% and 1.5% respectively would likely be economic grades. Zone widths should exceed 15 ft in order to enjoy the benefits of low-cost mechanized mining methods. VMS deposits also tend to carry precious metal values which provide an additional dollar credit per ton.
Unlike most gold deposits, base metal deposits are very sensitive to infrastructure. As a result, the Louvicourt Twp. deposit, being close to roads, power and a supply centre in Val d’Or, is superbly suited for mining. Falconbridge Ltd.’s Izok Lake zinc-copper deposit in the Northwest Territories sits undeveloped. Hosting reserves of 12 million tons grading 2.85% copper, 14.5% zinc, 1.2% lead and 1.85 oz silver per ton, Izok Lake would have been a mine if situated near Timmins. But 225 miles north of Yellowknife, N.W.T., the remote location precludes mining.
Costs exclusive to base metal mines include concentrate transportation, smelting, refining and metal handling and loss charges, in addition to normal mining, milling and general operating costs found at all mines.
Another factor critical to the success of a copper, nickel or zinc mine is the net smelter return generated by each ton of ore. This is the revenue after smelting, refining, handing and transportation charges — charges that are not applicable to gold operations. In base metals, these charges can be excessive, skimming up to 25% off the value of the produced mineral.
Also, capital costs in building base metals mines are, on average, much higher than those for gold mines. This is a result of base metals mining operations taking advantage of economies of scale which result in low operating costs per ton. Facilities between 2,000-3,000 tons per day can be expected to cost up to $100 million to construct.
However, operating costs per ton tend to be lower. At Trout Lake near Flin Flon, Man., for example, all-in mining and milling costs averaged less than $35 per ton in 1988. Typical costs at gold mines in Ontario, excluding Hemlo, average around $65 per ton.
Examples of large capital outlays can be found in British Columbia, where the immense porphyry copper-molybdenum mines of the Highland Valley were constructed at a capital cost in excess of $150 million. In Alaska, Cominco Ltd. is developing its Red Dog zinc mine at a capital outlay of more than $400 million. And Escondida, the world’s largest copper mine in Chile, is being developed in the Andes Mountains at a cost of more than $1 billion(US).
Although base metals plays have been overshadowed by the gold boom of the 1980s, they’ve come back into vogue following the commodities price boom which began in early 1988. The 2-year metals rally has triggered a renewed interest among explorers for copper, nickel and zinc.
The play which has garnered the most attention is Aur’s big find in Quebec. Shared with Louvem Mining (TSE), the discovery is already marred by a lawsuit between both companies.
Despite the courtroom hostilities, drilling continues to build reserves in what is fast-becoming the most important mineral discovery in Canada since Hemlo. Yet to be fully drilled off, the deposit has the potential for hosting in excess of 40 million tons. The find has excited investors to such an extent that Aur’s share price has vaulted to a high of $13 from $2.88 when the discovery was first announced last June.
Investors have also noticed VSM Exploration (ME) which has a 50% interest in the Grevet M deposit near Quevillon, Que. The partner is French mining company Serem- Quebec. Grevet M should pass the 5-million-ton mark this fall after the next phase of drilling is completed. Current reserves stand at 2.2 million tons grading 8.79% zinc and 0.45% copper with silver credits.
One of the few juniors to have the foresight to get into base metals early is Audrey Resources (TSE). Company founder and President Guy Hebert has built a much- admired company around the Mobrun copper-zinc deposit which had been lying dormant for years until he optioned it from Corporation Falconbridge Copper (now Minnova Inc.), way back in 1985. Today the site hosts a new mill and concentrator, a new discovery at depth and is producing copper, zinc, gold and silver.
In Saskatchewan, considerable attention has been focused on the Hanson Lake zinc-copper find. Controlled by Cameco, a government company and Trimin Resources (TSE), the deposit hosts 7.7 million tons grading 6.5% zinc, 1.1% copper, 1.0 oz silver and 0.02 oz gold per ton.
Remarkably continuous between drill sections, the big lens remains open at depth where drilling is expected to add tonnage. A measure of the growing investor interest in base metals, Trimin’s stock surged to $3.25 from $1.90 immediately after a plane load of mining analysts left the property on Sept 11. A mere two years ago, it’s likely that not one analyst would have even gone to the property.
In British Columbia, Geddes Resources (TSE) is completing a feasibility study on its large Windy Craggy copper deposit. Reserves total 118 million tons grading 1.8% copper. Several years ago, Windy Craggy had become a gold play after a big intersection of core assayed economic grades of gold. Once copper started its rally from the 60 cents range up to more than $1.30(US) per lb today and gold began to crumble to $360(US) per oz, Windy Craggy became a copper play once again.
Nickel plays are not as common as copper and zinc plays, but several have emerged. Near Timmins, Ont., Timmins Nickel (TSE) has opened the Redstone nickel mine. A small 5-million-lb-per-year producer, the mine processes high grade ore of 2.9% nickel. In Manitoba, Black Hawk Mining (TSE) continues to get encouraging results from drilling on the Minago nic
kel deposit. Like Redstone, the Minago is not new, having been discovered in the 1970s by other companies.
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