American Pacific reactivates mine

In the 1970s the Honduran government imposed an onerous tax burden on Rosario Resources (a subsidiary of Amax Inc.) which led to the closure of its El Mochito mine, a major lead-zinc- silver producer. But last year the government had a change of heart and a Vancouver-listed company, American Pacific Mining (formerly Westbridge Resources), reactivated the mine.

Several concentrate shipments have already been made and 95% of projected 1988 metal production has been sold on “favorable terms,” the company confirms. January mill throughput occasionally exceeded 2,000 tons per day, but the average rate was about 1,500 tons.

The underground mine has a theoretical hoisting capacity of 3,000 tons and two shafts, one into the main mine and the other into the higher-grade San Juan orebody, 3,000 ft to the west. The main mine is virtually depleted, but the San Juan and lower Todos Santos deposits have sufficient reserves to sustain a mining rate of 630,000 tons per annum for nine years, an independent consultant concludes.

The plant was carried on Amax’s books as a $65 million(us) asset and it was virtually a turnkey operation, American Pacific points out. Several companies competed for the mine last summer including Metallgesellschaft, but American successfully convinced Amax to sell it to them. It agreed to pay $12 million(us) of which $6.5 million was paid up front with the balance scheduled over five years at prime plus 1%. Some debentures were sold to European interests to finance the acquisition including a convertible issue.

Under Amax control, the mine was heavily staffed and, by Honduran standards, workers were extremely well paid; labor demands forced Amax to pay bonuses to every employee, often exceeding the basic wage by 10 times. The mine employed 1,200 people but American expects to hire back about 620, which appears to be the optimum number. About 550 people are employed at present, but this will increase when full production is achieved by April.

Production is forecast at 560,000 tons from the underground workings during 1988 or about 80,000 tons of zinc concentrate and 20,000 tons of lead concentrate. Head grades are averaging about 8.2% zinc, 3.4 oz silver and 3.2% lead, a company spokesman confirms. There is also about 0.6% copper and some gold in the ore, but they don’t get paid for these metals at present.

The mill is capable of producing a copper concentrate, but the equipment wasn’t hooked up and efforts are under way to tie this circuit into the operation.

American has the right to keep 60% of the dollars it earns from concentrate sales offshore, but 40% must be repatriated to the Honduras. The repatriated money is used to cover local costs, including labor, electricity and other supplies. The tax structure has been simplified, the company confirms, adding that there is now a 1%-1.5% royalty on net revenues and an income tax.

The company expects to mill more than 2,200 tons per day beginning in April or May, which was the highest throughput achieved in the past. Before the mine closed in 1987, Amax demanded that the government rescind the onerous taxes that had been imposed on the project, insisting also that electricity costs reflect competitive world prices. Amax was sustaining an annual loss of about $7 million(us) and threatened to close down the operation if its request was unheeded.

Import and export duties have since been removed (about $7 million per year), which has vastly improved the economics of the project, the company claims. American Pacific estimates net cash flow for 1988 at $13.5 million(us), which includes inventory reduction and local currency benefits from international debt swap arrangements made with authorities in Honduras.