BASE METALS — Rio Algom forges ahead in copper quest

Once known principally for its production of uranium, Rio Algom (ROM-T) is steadily earning a reputation as a major producer of copper.

Last year, while addressing shareholders at the company’s annual meeting, Chairman Gordon Gray touted the emergence of a “new” Rio Algom, predicting that the company would triple its annual copper production to 900 million lbs. by 2002.

“Our goal was a billion pounds of copper per year, and we’ll be at the higher end of 300 million pounds this year,” says Gray. “There is a slight adjustment in Antamina, in that our interest will be 37.5%, rather than 50%, but essentially we are right on target.”

Rio holds varying interests in five copper projects in North and South America: the producing Cerro Colorado, Highland Valley Copper and Bajo de la Alumbrera mines and the advanced-stage Antamina and Spence projects. The company also holds a 100% interest in the advanced-stage Crandon zinc project in Wisconsin and a 25% royalty stake in the Polaris zinc mine in the Northwest Territories, though the latter is expected to be mined out during the first quarter of 2001.

In 1997, the company cranked out 249 million lbs. of the red metal at an average cash cost of US61 cents per lb. More than half of that amount came from the wholly owned Cerro Colorado mine in northern Chile, with the remainder coming by way of a 33.6% interest in the Highland Valley copper-molybdenum mine in southern British Columbia. This year’s production is expected to be higher, as a result of increased output at Cerro Colorado (where an expansion program aimed at increasing output to 220 million lbs.

by 2000 is nearly complete) and startup at the Alumbrera mine in northern Chile.

At full capacity, Alumbrera is designed to yield, on an annual basis, 400 million lbs. copper-in-concentrate and 640,000 oz. gold. The cash cost is estimated at US40 cents per lb. copper. Through its 25% stake in the project, Rio will net 100 million lbs. copper and 160,000 oz. gold annually.

The remaining share will be divided among Australian-based partners North Ltd., which holds a 25% interest, and M.I.M. Holdings, which holds 50%.

At the end of 1997, reserves at Alumbrera stood at 675 million tonnes averaging 0.53% copper and 0.66 gram gold per tonne.

Antamina, in neighboring Peru, is smaller than Alumbrera but is nonetheless expected to yield 600 million lbs. copper and 300 million lbs. zinc annually. A feasibility study estimates that the project’s cash costs, net of byproduct credits, will be US40 cents per lb. copper over a 20-year mine life. Development costs are projected at US$1.7 billion, plus US$400 million for financing costs, working capital and payments to the Peruvian government.

Proven and probable reserves minable by open-pit methods are pegged at 500 million tonnes grading 1.2% copper, 1% zinc, 12 grams silver and 0.03% molybdenum.

Rio currently holds a half-interest in Antamina, as does Inmet Mining (IMN-T), though the latter is selling its stake to Teck (TEK-T) and Noranda (NOR-T). A revision to the original restructuring deal is expected to close this month, pending the successful conclusion of negotiations, and will see Rio’s interest fall to 37.5%, leaving Noranda with 37.5% and Teck with 25%.

One of Rio’s long-term goals is to advance the wholly owned Spence deposit to production. Since discovering the deposit in late 1996, the company has completed 124,000 metres of drilling, of which 100,000 were drilled for definition purposes in 1997.

Measured and indicated resources minable by open-pit methods stand at 306 million tonnes grading 1.1% copper.

“We understand [Spence] quite well and have a lot of confidence in the resources published a year ago,” states Kelly O’Connor, Rio’s vice-president of exploration. “Some primary mineralization remains open at depth, but that’s for the future.”

The deposit is hosted by flat-lying rock strata overlain by gravel that, in places, reaches a thickness of tens of metres. Mineralization is associated with an upper oxide cap, followed by a zone of enriched copper sulphides that overlie the main sulphide resource.

Rio predicts Spence will add 300 million lbs. copper-in-concentrate to its annual aggregate production by 2002. The company also believes cash costs will fall below US50 cents per lb., due in part to the deposit’s simple geology and its low elevation (1.7 km above sea level).

A bulk-sampling program is under way as part of a prefeasibility study that is scheduled for completion by year-end. As the deposit is associated with oxide and primarily sulphide mineralization, both heap-leaching and conventional flotation processing methods will be used in the metallurgical tests.

Aside from increasing copper output, Rio is attempting to boost its annual production of zinc. As part of this goal, the major recently bought out Exxon Coal & Minerals, its joint-venture partner in the Crandon zinc project, which has the potential to produce 330 million lbs. zinc per year.

Proven resources are pegged at 55 million tonnes. Of this amount, 30 million tonnes average 9.4% zinc and 0.4% copper, whereas 25 million tonnes carry an estimated grade of 0.7% zinc and 1.8% copper.

Current efforts are focused on addressing long-standing environmental concerns raised by local communities. According to the company, those concerns principally involve: the maintenance of water levels in local lakes and streams; the treatment of water discharged from the mine site; and the long-term care of tailings.

Says Gray: “We are taking a different approach [than Exxon], using our experience at Elliot Lake, where we worked closely with First Nations bands and where we are in the process of putting 11 uranium mines to bed. If we’re successful, which we expect we will be, Crandon will be the most highly engineered mine ever built.”

A new engineering design is being drafted to decrease the flow of water in and out of the mine and treat surplus mine water in an on-site facility.

This proposal will also allow for the removal of sulphides from tailings, thus decreasing the possibility of acid-mine drainage.

Rio also plans to establish a long-term development program for local peoples to improve their standard of living beyond the life of the mine. The program will include funding for education, health care, upgrading agricultural practices and small-business support.

Gray says permits for Crandon could be in place as early as next year, paving the way for startup sometime in the following three years.