Imperial hopes to stave off closure of Mount Polley mine

Buckling under the strain of low metal prices, Imperial Metals (IMP-T) is seeking concessions from all stakeholders in order to improve the financial conditions of its two new mines in the central part of British Columbia.

Imperial owns a 55% interest in the Mount Polley gold-copper mine, 60 km northeast of Williams Lake, and a 60% interest in the Huckleberry copper mine, 123 km southwest of Houston. In response to low metal prices, Imperial announced in April that it was prepared to suspend operations temporarily at Mount Polley unless steps were taken to lower operating costs.

At the recent annual meeting, President Pierre Lebel told shareholders: “This downturn in metal prices hits us at a time when both principal and interest on outstanding loans are at their highest levels. A great deal of thought has gone into whether we should keep these mines open or not during this period of low metal prices. For Mount Polley, the case for shutdown is more compelling because the higher-value ore is at the front end, whereas Huckleberry is more typical, with a steady but very shallow decline in grade over the life of the mine.”

Mount Polley and Huckleberry each employ about 170 people.

Working with the Job Protection Commission of British Columbia, Imperial has drawn up economic plans for the two mines that should enable the company to lower costs while continuing mining, Lebel said.

“These economic plans contemplate a mix of recoverable and non-recoverable savings aggregating to approximately $6 million per year for each mine over a 2-year period.”

The plan for Mount Polley is being circulated to all stakeholders for their approval. Imperial is seeking a 50% reduction in power costs from B.C.

Hydro, a more favorable smelter arrangement, a 10% hold-back on wages from unionized employees, a 3-to-8% reduction on supplier costs, and concessions on property taxes and other government charges.

Imperial is also looking to restructure a US$39.5-million construction loan from Sumitomo Metal Industries, which owns the 45% balance of Mount Polley.

The economic plan for Huckleberry is expected to be submitted in the next few weeks. Lebel says much of the plan parallels that of Mount Polley, with power being the key issue.

Built at a cost of $115 million, the Mount Polley open-pit mine entered commercial production last summer. During its first five months of operation (Aug. 1-Dec. 31, 1997), 2.2 million tonnes averaging 0.366 gram gold per tonne and 0.266% copper were milled at an average daily rate of 14,443 tonnes, resulting in 12,823 tonnes of concentrate containing 17,866 oz. gold and 7.9 million lbs. copper. Recoveries averaged 67.72% for gold and 61.75% for copper.

Copper-in-concentrate averaged a grade of 27.98%; gold-in-concentrate, 43.33 grams per tonne.

Initially, miners focused on the northern end of Cariboo pit, a less oxidized area that provides better copper recovery but, at the same time, contains less gold. In light of falling metal prices, the company altered the mine plan to focus primarily on high-value ore. By February 1998, material was being mined from strongly oxidized, high-gold portions in the southern end of the pit.

.SLow oxidation

For the first three months of 1998, Mount Polley produced 17,552 oz. gold and 4.1 million lbs. copper from 1.2 million tonnes of ore grading 0.69 gram gold and 0.353% copper, milled at an average daily throughput rate of 13,225 tonnes. Recoveries averaged 67.68% for gold and 45.13% for copper, while the concentrate grade averaged 29.11% and 87.09 grams.

Given that the targeted recovery rate for gold was 82%, the

lower-than-projected recoveries have been cause for concern. A research report from ScotiaMcLeod states: “One positive aspect of the operation to date is that the levels of oxidation are less than anticipated [high oxidation levels result in low copper recoveries]; however, recoveries are complicated by the fact that there are many different styles of mineralization with individual metallurgical characteristics. The company currently has several consultants working on recovery-related issues.” Lebel told shareholders that gold recoveries were averaging 77% in May — with copper recoveries averaging about 65%, more than two times better than budgeted for the month. The higher-than-expected copper recoveries were a result of the ore being less oxidized than anticipated. Daily mill throughput has risen steadily since February, averaging 16,400 tonnes in May. Lebel expects this trend to continue as the grinding plant is further improved.

ScotiaMcLeod’s research report states that in March, the mine produced 9,000 oz. gold and 1.4 million lbs. copper, rising to 11,400 oz. gold and 2 million lb. copper in April.

According to Lebel, the cash cost of gold production at Mount Polley is averaging US$225 per oz., using copper as a credit at current prices.

The feasibility study projects that, on an annual basis, Mount Polley will produce 71,440 oz. gold and 29.4 million lbs. copper averaged over a 12-year mine life at a cash cost of US$266 per oz., with copper as a credit. During the first four years of operation, the mine was expected to produce 100,000 oz. gold and 24 million lbs. copper annually at a cash cost of US$181 per oz.

The study assumed a gold price of US$380 per oz., a copper price of US$1 per lb. and a Canadian dollar worth US70 cents. For 1998, Mount Polley is scheduled to produce 86,000 oz. gold and 24.8 million lbs. copper.

.S82.3 million tonnes

Minable reserves prior to startup were estimated at 82.3 million tonnes grading 0.417 gram gold and 0.3% copper at an overall stripping ratio of 1.12-to-1. This is equivalent to 1.1 million contained ounces of gold and 544 million lbs. copper. Life-of-mine recovery rates were projected to average 82.1% for gold and 68.4% for copper.

Effective March 1, 1998, Imperial acquired a 60% interest in the newly built Huckleberry copper mine through a merger with Princeton Mining. A consortium of Japanese companies, led by Mitsubishi Materials, Marubeni, Dowa Mining and Furukawa, owns the remaining 40% share of the mine.

Huckleberry is an open-pit mine that was built at a cost of $142 million. It achieved commercial production in October 1997. Minable reserves are calculated using a 0.3% copper cutoff at 90.4 million tonnes grading 0.513% copper and 0.014% molybdenum, plus 0.062 gram gold and 2.81 grams silver, equivalent to a contained 1 billion lbs. copper, 27 million lbs. moly, 180,000 oz. gold and 8.2 million oz. silver. The stripping ratio is 1-to-1.

The mine produces a copper concentrate containing byproducts of gold and silver, plus a moly concentrate. Annual output over a 16-year mine life is projected at 63.3 million lbs. copper, 1.2 million lbs. moly, 5,800 oz. gold and 302,000 oz. silver. Cash costs, net of byproduct credits, are projected to be US65 cents per lb. copper. Feasibility studies predicted recoveries of 92-95% for copper, 67% for moly, 45% for gold and 54% for silver.

For the period Sept. 22-Dec. 31, 1997, a total of 1.2 million tonnes of ore grading 0.652% copper was milled at an average daily throughput rate of 12,372 tonnes, producing 23,965 tonnes of concentrate containing 13.9 million lbs. copper. Copper recoveries averaged 77.4%, while the concentrate grade was 26.3% copper.

.SMechanical changes

In January and early February, several mechanical and operational changes were made to the grinding and flotation circuits. As a result, mill throughput has exceeded the feasibility study design rate of 16,440 tonnes per day. In March, it averaged 20,174 tonnes per day.

For the first three months of 1998, Huckleberry produced 30,279 tonnes of concentrate containing 17 million lbs. copper as a result of processing of 1.3 million tonnes of ore grading 0.666% copper at a daily rate of 14,818 tonnes. Copper recoveries rose to 87.04% and currently are sitting at 90%.

The concentrate grade averaged 25.53% copper during the quarter. The cash cost of producing copper is said by Lebel to be US60 cents per lb. at present.

The moly circuit was commissioned in
December, though no production statistics have been released.

For the year ended Dec. 31, 1997, Imperial incurred a loss of $9.6 million (or 16 cents per share) on operating revenue of $10.5 million. Mineral revenues accounted for $9.2 million. Imperial’s 55% share of the Mount Polley mine was hit with a loss of $4.5 million. Cash flow applied to operations was $5.3 million.

During the first quarter of 1998, Imperial posted a loss of $2.4 million (4 cents per share) on revenue of $13.2 million, compared with income of $2.2 million on $466,000 in the corresponding quarter of 1997. Cash flow applied to operations was $443,000 in the recent quarter.