Operations improve at Red Dog

An ore deposit measuring 85 million tons grading 17.1% zinc, 5% lead and 2.4 oz. silver per ton with a stripping ratio of less than 1-to-1 is enough to excite even the most pessimistic of miners.

Those statistics represent the initial reserve at the Red Dog mine in Alaska, so expectations prior to startup in late 1989 were naturally running high. One analyst’s report estimated that the mine would spin off more than $150 million in operating cash flow per year at US50 cents zinc, US28 cents lead and US$5.70 silver.

Based on a 2.1-million-ton-per-year, open-pit operation, the metal content of concentrates was to have exceeded 700 million lb. of zinc, 180 million lb. of lead and almost 4 million oz. silver.

However, for Cominco (TSE), which owns rights to the property under a lease agreement with NANA (a native-owned corporation), those projections have yet to be realized.

The Red Dog suffered an operating loss of $83 million in 1993 and $26 million in 1992.

But on a brighter note, the $7-million loss experienced in 1994 marked a significant improvement over previous years. And last year’s output of 656 million lb. zinc and 65 million lb. lead showed a clear advance over the 518 million lb. zinc and 69 million lb. lead cranked out in 1993.

Mill throughput totalled 2.3 million tons grading 18.8% zinc and 5.7% lead in 1994, compared with 1.9 million tons grading 18.4% zinc and 5.7% lead in the previous year.

NANA receives US$1 million per year in advanced royalties towards a 4.5% net profits interest, which increases to 25% after payback. The interest increases a further 5% every five years until it reaches 50%.

Cominco’s problems at Red Dog can be traced to the milling side where the fine-grained, hard nature of the ore caused operating and recovery problems.

The mill underwent a major upgrading in 1993 and 1994, including the installation of two ball mills, a tower mill and a new power plant. The cost: US$21 million.

The Red Dog generated positive cash flow in the second half of 1994, although specific figures have yet to be released.

Operating improvements continued into the first quarter of this year, with Cominco reporting a 9% increase in zinc concentrate production to 158,800 tons, compared with the fourth quarter of 1994. The increase in lead concentrates was even more dramatic, with production totalling 24,900 tons, a rise of 18% from the previous quarter and a whopping 600% increase over the first quarter of 1994. Concentrate grades have not been released, but these are expected to compare well with the 55% range reported in 1994 for both zinc and lead.

Operating profits attributable to Red Dog during the first quarter were not disclosed, but cash flow from all operations during the period is known to have totalled $71.1 million.