Acquires Nanasivik mine — Breakwater to revive Caribou

A foray into zinc during the late 1980s almost led to the demise of Breakwater Resources (BWR-T). Having learned from that experience, the restructured company plans to get back in the base metal game by buying into an existing operation and reviving another from its past.

Breakwater has acquired all the shares of Nanasivik Mines, a company whose namesake mine, situated in Canada’s High Arctic, is an important producer of zinc and lead.

Meanwhile, a financing structure is in place that will enable the company to bring its Caribou-Restigouche lead-zinc-silver mine into production.

The Caribou mine is 50 km west of Bathurst, N.B., and 30 km east of the Restigouche deposit. Based on a feasibility study, annual production in the initial years of operation is expected to be 150 million lb. zinc, 78 million lb. lead and 2.2 million oz. silver., at a cash operating cost of US36 cents per lb. of payable zinc. Reserves are expected to sustain the mine for 10 years.

Caribou is a former producer, well-known for complex metallurgy that caused problems for several previous operators. This list includes Breakwater, which brought the mine into production in 1990, only to close it seven months later because of poor recoveries and high costs.

This time around, Breakwater has expanded the grinding and flotation circuits. And by using high-density conditioning and finer grinding, combined with an improved reagent scheme, the company expects to be able to generate revenues of $63.05 per ton. If realized, that figure would represent a 180% increase over 1990 results.

Financing in place

Breakwater is covering the $54.4-million capital cost of the mine with a financing package consisting of equal parts equity and debt totalling $60 million. Gordon Capital has agreed to act as lead underwriter for up to $30 million in equity financing for Breakwater.

Newco A.G. of Zug, Switzerland, has agreed to market the production from the Caribou mine and provide $6.8 million of debt financing for the project, as well as working capital financing on concentrate inventories produced at Caribou. Conditional approval for leased equipment financing of $7.5 million has been received from PFC Group, a major U.S. leasing company.

Each of the above financings is contingent on completing financing of the overall capital cost financing required for the project. Dundee Bancorp is releasing the security for Breakwater’s $6-million convertible debenture and investing a large portion of that debenture in Breakwater.

This action will facilitate the completion of Breakwater’s mine financing, and Breakwater, in return, will issue to Dundee 1 million shares.

For Nanasivik, Breakwater will pay $30 million in cash, an $8-million, two-year promissory note, 2.5 million Breakwater shares and warrants to purchase 500,000 shares at $3 per share for two years from the date of closing.

The assets of Nanasivik include working capital of $38.6 million (as of March 31, 1996), and the Nanasivik mine at the northern tip of Baffin Island in the Northwest Territories.

The Nanasivik mine has been in production since 1976. In 1995, the mill treated 750,215 tonnes of ore averaging 6.9% zinc and produced 89,973 tonnes of zinc concentrate containing 108 million lb. of zinc metal.

Eighty per cent of the concentrate is sold under long-term contract to two European smelters.

Exploration continues

Mineable reserves as of January 1 were 4.38 million tonnes grading 7.8% zinc and 0.4% lead, considered to be sufficient for approximately 6 years of operation at the current production rate. Exploration potential exists on site and farther afield.

Breakwater is also producing 78 million lb. zinc, 7 million lb. lead and 1 million oz. silver annually from its El Mochito mine in Honduras.

When the Caribou, Restigouche, Nanasivik and El Mochito operations are in full swing, Breakwater expects to produce 330 million lb. zinc, 85 million lb. lead and 3.5 million oz. silver annually.