True potential of Cominco’s Red Dog nears realization

It was enough to make even the most skeptical base metal investor salivate: an open-pit deposit containing 85 million tons grading 17.1% zinc, 5% lead and 2.4 oz. silver per ton at a strip ratio of less than 1-to-1.

Such was the original tonnage and grade for Alaska’s Red Dog project, owned by NANA Regional and under lease to Cominco (TSE).

(NANA is entitled to a 4.5% net profits interest cents NPI] in Red Dog until Cominco recovers its interest and capital expense. At that point, the NPI is set at 25% and increases by 5% every five years until NANA’s interest reaches 50%.)

The mine officially began producing in 1990 and, at 2.1 million tons per year, was expected to produce concentrates containing more than 700 million lb. zinc, 180 million lb. lead and almost 4 million oz. silver. Shortly after startup, Robert Stone, Cominco’s vice-president of finance at the time, said Red Dog had the potential to be Cominco’s most profitable mine. That may still be true, but, to date, the deposit’s complex metallurgy has made it tough to realize the benefits of such a rich grade.

Recovery problems have plagued the operation since day one and forced the company to limit throughput to 1.6 million tons in both 1991 and 1992. Production in 1991 totaled 471 million lb. zinc and 102 million lb. lead, while 1992 output totaled 482 million lb. zinc and only 58 million lb. lead. Poor recoveries, combined with a drop in the price of lead and zinc, resulted in a $23-million operating loss in 1992 compared with a $3-million operating profit in 1991. Overall zinc recoveries increased to the 75% range in 1992 from around 65% the year before, while overall lead recoveries dropped to the 30% from the 50% level.

Red Dog’s difficulties have been restricted to the milling side, with the mining operation posing few problems.

Ralph Hargrave, president of Cominco Alaska, noted that reserves and grades are at least as good as predicted by the feasibility study. At the end of 1992, measured and indicated reserves were estimated at 64.2 million tons grading 18.4% zinc, 5.5% lead and 2.7 oz. silver.

The problems begin after ore trucks dump their loads at the mill. Red Dog ore is complicated, ranging from soft to hard and coarse to fine, with each type reacting differently during milling, depending on the measure of hydrogen ion concentration (pH).

Fortunately, a better understanding of the various types of ore at Red Dog, and of their milling and flotation characteristics, has gradually led to improvements in recovery. This was achieved, in part, through fine-tuning of ore-blending operations. The company now blends ore into two basic feed types, based primarily on pH factors.

Cominco has also altered milling operations, concentrating chiefly on beneficiation, with the installation of two ball mills in 1993. Further plans include the installation of another tower mill and an additional diesel generation unit.

Including the two ball mills, upgrades to the recovery circuit will cost about US$20 million.

Hargrave is confident the operation is turning around. The new ball mills boosted production last year, with throughput totaling almost 1.8 million tons grading 20.8% zinc, 5.9% lead and 3 oz. silver. Zinc concentrate production totaled 465,600 tons grading 54.8% zinc while lead concentrate production reached 48,700 tons grading 50.9% lead. Bulk concentrate dropped significantly, however, totaling 25,500 tons at 16% zinc and 39% lead. (Hargrave noted that bulk concentrate production does not pay for itself and, therefore, none will be produced in 1994.)

Cominco hopes to boost throughput to 2.4 million tons this year and Hargrave expects zinc-to-zinc recoveries to exceed 80% by year-end. Lead-to-lead recoveries are projected to be in the 50% range. (Zinc-to-zinc recovery in 1993 averaged about 74% while lead-to-lead came in at 23%.)

No financials have been released for 1993, although Hargrave conceded the mine lost money. He added that if zinc prices stay in the low US40 cents-per-lb. range, the mine will only break even on an earnings basis in 1994.

Whatever happens to the price of zinc, Cominco at least appears close to making Red Dog the low-cost producer it should be, considering its size and high grade.