Breakwater positive on zinc market

With a global shortage in zinc production, Breakwater Resources (BWR-T) Langlois mine, 213 km north of Val dOr, Que., will be starting commercial production at a good time this summer.

Breakwater expects to produce about 54,000 tonnes of zinc per year over seven years from the Langlois mine with hopes of increasing the mine life to 15 years through exploration.

The price of zinc has increased to more than $3,500 per tonne from about US$1,300 per tonne in 2005. The average price for 2006 was US$3,275 per tonne.

Langlois has proven and probable reserves of about 3.7 million tonnes grading 10.1% zinc, 0.8% copper, 49 grams silver per tonne and 0.1 gram gold per tonne. Measured and indicated resources are about 5.7 million tonnes grading 10.7% zinc, 0.8% copper, 51 grams silver per tonne and 0.1 gram gold per tonne.

Breakwater vice president commercial Steve Hayes said the future in zinc looks positive.

Constrained metal production combined with continued strong global consumption means the zinc metal market remains robust, said Hayes during a teleconference on Feb. 23. Global metal inventories are critically low with no relief in sight anticipated this year.

According to the International Lead and Zinc Study Group, worldwide zinc consumption has been higher than production since 2004. In 2006, 10.7 million lbs. of zinc were produced while almost 11.1 million lbs. of zinc were consumed.

A report by analyst Huw Roberts of U.K.-based CHR Metals identified a possible supply gap for both zinc and lead that could begin in 2012. The report said that in 2007 surplus metal production will help rebuild inventories but by 2008 theres a risk that metal inventories will exceed market requirements.

Breakwater president and CEO George Pirie said he wants to capitalize on the strong market.

Volatility and the market aside, we intend to stay our course of capitalizing on this environment to optimize our assets through the right investments, Pirie said.

The company is staying on track with its production schedule for Langlois.

Langlois has been in ramp-up mode since late 2006 and produced about 8.9 million lbs. of zinc from more than 59,000 tonnes of ore.

In the same camp, a bulk sample was also taken from the Grevet B deposit during the fourth quarter. Grevet B is 3 km southeast of Langlois. Grevet ore will be processed at the Langlois mill later this year. The mill has a capacity of 2,500 tonnes per day though the feasibility study used a value of 1,100 tonnes.

Breakwater currently has five diamond drills operating on the property three for exploration and two focused on the upper portion of Zone 97 for definition drilling. The company plans to conduct 20,000 metres of underground diamond drilling this year and 18,000 metres on the surface.

During the fourth quarter of 2006, the company drilled 32 holes for a total of 6,200 metres, which all intersected semi to massive sulphide zones. Breakwater is planning a ramp from the surface, which will be able to access these zones for mining and will eventually connect with the current underground workings at Langlois.

Breakwater also has a 50% joint venture with Metco Resources (MKO-V, MTKOF-O) for the Orphe deposit, located 6 km southeast from the Langlois mill. Metco is working on a prefeasibility study on Orphe, which could become a source of additional mill feed.

Breakwaters 2006 profit was $156.5 million compared with $14 million in 2005. The company plans to spend $27 million on exploration in 2007, including $6.2 million at Langlois and $10.7 million on the El Toqui deposit in Chili. The company started ramp development to access El Toqui’s Concordia deposit, where production is also expected to begin in mid 2007.

Overall, Breakwater milled 2 million tonnes of ore grading 6% zinc in 2006 compared to 2.5 million tonnes of ore grading 6.5% zinc in 2005. The closure of the Bouchard-Hbert and the Bougrine mines in 2005 accounted for 16% of the reduction with the balance related to lower zinc head grades at the Myra Falls project on Vancouver Island in and El Mochito project in Honduras.