EXPLORATION AND DISCOVERY: NON-FERROUS METALS

ALUMINUM

By Patrick Chevalier

The international aluminum industry faced another difficult year in 1992. Western World demand for aluminum increased slightly over 1991. However, increased world production and a steady flow of exports from the Commonwealth of Independent States (CIS) resulted in further increases in inventories and weak prices. On the London Metal Exchange (LME), prices recovered somewhat from their record lows in 1991, but remained weak through 1992.

CANADIAN DEVELOPMENTS

Canadian aluminum smelter production capacity increased by 430,000 tonnes in 1992 to 2.269 million tonnes. Canadian production of primary aluminum in 1992 was 1.965 million tonnes compared to 1.822 million tonnes in 1991. Canadian exports of primary smelter products during the first nine months of 1992 were 1.17 million tonnes, compared with 1.11 million tonnes for the same period in 1991. Exports to the United States in the first nine months totalled 791,264 tonnes compared with 723,900 tonnes for the same period last year.

Alcan announced in September that it would restart idled primary aluminum capacity at three of its smelters in Quebec. Production had been temporarily reduced by 67,500 tonnes/year at Alcan’s Shawinigan, Isle-Maligne and Arvida smelters. Higher than average rainfall last summer has since replenished the reservoir capacity required by Alcan’s hydroelectric generating stations.

The new Aluminerie Lauralco smelter near Deschambault, Que., began operating in February and was officially inaugurated in September. The $1-billion plant is wholly owned by Alumax of the United States and was scheduled to reach full production capacity of 215,000 tonnes/year by the first quarter of 1993.

The new Aluminerie Alouette project located at Sept Iles, Que., began operations in June and was also officially inaugurated in September. The $1.4-billion smelter reached full production capacity of 215,000 tonnes/year in early December.

PRICES AND STOCKS

Prices on the LME averaged US57/lb. in 1992, compared with an average price of 59/lb. in 1991.

The International Primary Aluminum Institute (IPAI) reported that total Western World aluminum producer inventories (all forms) totalled 3.257 million tonnes in October, 1992, compared with 3.343 million tonnes in October 1991. The IPAI also reported that unwrought primary aluminum inventories had decreased to 1.642 million tonnes in October 1992 compared to 1.711 million tonnes in October 1991.

The slight reduction in producer stocks was more than offset by the large increase in LME stocks, which reached record levels by year end. Aluminum stocks increased to well over 1.5 million tonnes from about 900,000 tonnes at the beginning of 1991. In September, the LME started trading in its new aluminum alloy (secondary aluminum) contract.

OUTLOOK

New capacity coming on-stream in 1992 more than offset production cuts at higher-cost smelters worldwide in 1992. Western World smelter capacity reached 15.95 million tonnes by the end of 1992. In 1993, no new Canadian expansions have been announced and no final decision concerning a doubling of capacity at Alouette has been made.

Prices are expected to remain in the 50-55/lb. range for most of 1993. As the North American economy recovers from the recession and inventories are reduced, prices are expected to rise to about 60/lb. by year end. Exports from Russia at current levels, without corresponding cutbacks by Western producers, could still dampen any price recovery.

Strong growth in demand for primary aluminum of 3%-4% is forecast for the remainder of the 1990s. The transportation and packaging (in particular beverage cans) sectors are expected to lead the increase in demand for aluminum to 2000. As the demand for aluminum increases, prices are forecast to average between 70-80/lb. in constant 1992 dollars.

NICKEL

By Patrick Chevalier

Demand for nickel in the Western World declined by about 9% which, in combination with high production levels and increased exports from Russia, resulted in weaker prices. Spot nickel prices on the LME were trading at US$2.65/lb. at year end, compared with about $3.40 at the beginning of 1992. The average price on the LME was $3.18/lb. for the year compared with $3.70 in 1991. Production cuts announced in the third quarter by Inco and Falconbridge were a factor in stemming a downward price slide on world markets. Prices had reached $2.39/lb. on the LME in November.

Nickel inventories on the LME increased to record levels during 1992. By year end, stocks on the LME surpassed 70,000 tonnes. Producer stocks also rose sharply.

CANADIAN DEVELOPMENTS

Canadian nickel mine production decreased slightly in 1992 to about 191,200 tonnes compared with 192,300 tonnes in 1991.

In October, Inco announced that it will reduce previously planned mine production by about 18,000 tonnes over the next 12 months. Finished nickel production in 1993 is expected to total about 172,000 tonnes. Inco also postponed the reopening of the Shebandowan mine near Thunder Bay, Ont. Operations at the Ontario and Manitoba Divisions ran at a reduced rate for three weeks during the Christmas period. In addition, the two divisions will shut for a four-week vacation period in 1993. Inco reduced its workforce by 4% by offering voluntary early retirement to 400 employees.

On a more positive note, Inco announced that ore grades are expected to continue to improve at its Canadian operations. Grades of ore mined rose to 1.53% Ni in 1992 from the originally forecast 1.43%. Improved grades and lower costs cut Inco’s unit production costs by 11% from the third quarter of 1991 to the same period in 1992.

In December, Falconbridge also announced plans to cut production in 1993. The two-week Christmas shutdown was extended through January, 1993, and mining will be suspended for 11 weeks in the summer. Together with shutdowns at the company’s Nikkelverk refinery in Norway, total refined production will be reduced by 18,700 tonnes in 1993. Falconbridge expects to reduce its Sudbury workforce by about 200 employees through voluntary early retirement.

TIMMINS

Timmins Nickel closed mining activities at its two operations in northeastern Ontario. The company placed the Langmuir No. 1 and Redstone mines on temporary care-and-maintenance. The closures were due to weak nickel prices.

Sherritt Gordon’s Fort Saskatchewan, Alta., refinery continued to operate at less than full capacity in 1992. However, the company posted a profit in the third quarter of 1992 compared with a slight loss in the same period last year. Lower nickel prices were partially offset by higher cobalt prices.

OUTLOOK

Stainless steel demand, accounting for more than 60% of nickel usage, declined in Europe and Japan. While a recovery in demand in these two important markets is not expected this year, demand in this sector in the United States is forecast to increase in 1993 as the economy recovers from the recession.

Prices are forecast to average about US$3.10/lb. in 1993. Western World economies are forecast to recover from the recession in the latter half of 1993; however, prices will remain depressed until supply is brought back in line with demand.

Russian exports are at record levels and are expected to remain high. Official exports in 1992 were estimated to have been about 100,000 tonnes. In addition, uncontrolled “back-door” exports, including high-grade “scrap”, are also reaching European markets and account for an additional 20,000-30,000 tonnes. In 1993, total Russian exports are expected to be similar.

Increased consumption for stainless steel and other applications is expected to result in higher nickel prices by 1994. In the longer term, as the Western World economies strengthen and stocks are reduced, prices are forecast to average between $3.75 and $4.75 in constant 1992 dollars.

GOLD

By Gilles Couturier

Canada’s gold production, which had increased rapidly during the 1980s, decreased to 157.6 tonnes in 1992 from a record 176.1 tonnes in 1991. By comparison, gold production was 30 tonne
s in 1980. In 1992, Canada was the fifth largest gold producer behind South Africa, the United States, Australia and Russia.

In 1992, the average price of gold was US$344/oz., the lowest level since 1985. Average prices for 1991 and 1990 were $362 and $384 respectively. Prices in 1992 traded within a relatively narrow range of $330-$359.

Average gold price decrease for Canadian producers was offset by a decline of the Canadian dollar from an average 87(US) in 1991 to 83 in 1992.

Demand from the jewellery sector grew by 4% in 1992 to reach 2,200 tonnes. The outlook for jewellery fabrication demand looks very favorable over the next few years, particularly from China, Thailand, and Taiwan. Demand from jewellery has been exceeding world production since 1988. In 1992, Western World production was estimated to be 1,800 tonnes.

CANADIAN DEVELOPMENTS

There were 50 primary gold mines in Canada at the end of 1992 and these accounted for 88% of the gold produced. Eleven mines closed during the year, while only three opened. Total employment in gold mines decreased from 11,800 in 1990 to 10,500 in 1991.

In British Columbia, the Dome mine of Timmins Nickel near Smithers opened in 1992 with an estimated production of 30 kg/month.

Production at the Lawyers mine of Cheni Gold Mines stopped in the summer of 1992 due to exhaustion of reserves.

At the Eskay Creek project, Placer Dome converted its 44% indirect interest in Stikine Resources to a 22% joint venture interest. Homestake Mining, through its takeover of International Corona, has become the majority partner and the mine operator.

A preliminary study, based on a 450-tonne/day operation, estimated that the capital cost at Eskay Creek would be US$210 million at a production rate of 8.0 tonnes/year of gold. A $10-million feasibility study was completed in 1992, and production could start by the end of 1995. The deposit contains an estimated 1.0 million tonnes of ore grading 26.4 grams/tonne Au and 998.4 grams/tonne Ag.

Placer Dome announced that due to the low price of gold, it will not proceed with development of the Mt. Milligan copper-gold property, located near Prince George, B.C.

In the Northwest Territories a bitter labor dispute started at the Giant mine of Royal Oak in May, 1992. In September, an explosion at the mine killed nine workers. The Royal Canadian Mounted Police is investigating the explosion as a multiple homicide. A mediation team was appointed by the Minister of Labor in September; however, both the management and union representatives failed to agree on a number of issues including the dismissal of 45 employees.

In Saskatchewan, Claude Resources started production at the Seabee gold mine. However, cost overruns and start-up delays substantially increased the costs at the $23-million project. The 400-tonne/day operation is targeted to produce 1.8 tonnes/year of gold. Proven and probable reserves are estimated at 1.0 million tonnes grading 13.7 grams/tonne Au.

Ontario’s production totalled 74 tonnes, a decrease of more than 4% from 1991. Production at the three mines in the Hemlo area account for more than 50% of the province’s output.

Falconbridge Gold announced in October that the Bell Creek mine near Timmins would be reopened.

The Cheminis gold mine of Northfield Minerals (78.5%) and Towerland Properties (21.5%) and the Magino mine of Muscocho were shut down due to low gold prices.

Quebec’s gold production decreased to 44.5 tonnes from 51.9 tonnes in 1991. The decline was caused by the closure of seven mines and by production decreases at several operations. No new mines were brought into production.

The Sleeping Giant mine of Aurizon Mines, which closed in 1991 because of low gold prices, is expected to reopen in January, 1993. Cambior will be operator. Cambior has been undertaking a three-year, $12-million exploration program to delineate new reserves. Cambior has earned a 50% interest in the property.

The Casa Berardi Est mine of TVX Gold and Golden Knight Resources had to be partially shut down following an inflow of overburden material into the mine. Full production is expected to resume in early 1993.

The Simkar mine, which opened in late 1991, was shut down due to low gold prices. The mine is jointly owned by Explorations Ronrico and Mines d’Or Louvicourt.

A total of six mines closed due to exhaustion of reserves: the Lake Shortt mine of Minnova, the Camflo mine of American Barrick, the Kierans and Norlartic mines of Aur Resources and the Malartic Hygrade mine of Republic Goldfields. In addition, Westminer Canada announced in November that its Chibougamau operation would be put on care-and-maintenance until Jan. 31, 1993, while it searches for a new partner.

The Murray Brook mine of NovaGold in New Brunswick ran out of gold reserves in the summer of 1992. NovaGold will mine the copper ore at the Murray Brook mine.

In Newfoundland, the Hope Brook mine, which was closed by a subsidiary of BP Resources Canada during the summer of 1991, was reopened by Royal Oak in July, 1992. The Hope Brook mine is expected to produce about 3.0 tonnes/year of gold.

OUTLOOK

The current widespread economic slowdown, low inflation rates, high real interest rates, and the relative world political stability should encourage gold prices to remain near current levels. In 1993, the average gold price could be around US$350/oz. In the medium-term, the combined effect of increased demand for gold products along with the peaking of world gold production should result in some strengthening in the price. For the rest of the decade we forecast a gold price between $330 and $390 in constant 1992 dollars.

Canadian gold production is expected to decline further to around 150 tonnes over the next two to three years, assuming prices remain close to current levels.

COPPER

By Geoff Bokovay

Copper prices remained quite strong in 1992, despite some build-up of inventories. While the scale of the economic recovery in the major industrialized economies was less than anticipated, the market continued to be buoyed by the expectation that demand will strengthen significantly in the coming year. Copper prices were also supported by major buying activity on the part of the People’s Republic of China and by a favorable outlook for continued growth of demand in that country. In addition, copper prices continued to benefit from the threat of serious supply disruptions in a number of major copper producing areas.

Western World copper consumption in 1992 was about 9.0 million tonnes, the same as that recorded in 1991. Prices averaged US$1.04/lb. in 1992, compared with $1.06 the previous year.

CANADIAN DEVELOPMENTS

Copper shipments (recoverable copper) from Canadian mines in 1992 declined to approximately 745,000 tonnes ($2.06 billion) from 780,000 tonnes ($2.11 billion) in 1991. At the same time, refined copper production increased to 545,000 tonnes from 538,000 tonnes.

The British Columbia Mine Development Review Process for the Windy Craggy project of Geddes Resources was suspended in mid-1992 pending the completion of a land and water-use study for the Tatshenshini-Alsek region in the northwestern corner of the province. The study, which is being conducted by the provincial Commission on Resources and Environment, is expected to be completed in the second half of 1993.

At a planned mining rate of 30,000 tonnes/day, the Windy Craggy mine should have an average annual output of 140,000 tonnes of contained copper during the first 14 years of opera~tion.

Noranda Minerals ceased operations at its Bell copper mine and mill at Granisle, B.C., in June, 1992, due to depleted ore reserves.

On Oct. 6, 1992, British Columbia issued a Mine Development Certificate to Imperial Metals for the company’s Mount Polley copper-gold project in the Williams Lake area. While Imperial must still obtain project financing, the certificate eliminates some of the potential risks involved with the development. The planned annual output from the Mount Polley mine is expected to be about 13,500 tonnes of contained copper in concentrate and 68,000
oz. of gold. Capital costs are estimated at $130 million.

In Manitoba, Hudson Bay Mining & Smelting announced it would delay the construction of a new copper smelter in Flin Flon due to higher-than-expected environmental costs for its smelter modernization projects. With the closure of the Rod mine in 1991, the Spruce Point mine in 1992, and the expected closure of the Stall Lake and Chisel Lake mines in 1993, the company reported that it was increasing its efforts to secure a major source of copper concentrate supply.

During 1992, development work began on the Louvicourt deposit near Val d’Or, Que. The operation, which will begin production in 1995, is expected to cost $350 million. When completed, Louvicourt will produce an average of about 50,000 tonnes/year of contained copper and 20,000 tonnes/year of zinc.

At the end of November, Westminer Canada closed its two copper-gold mines in the Chibougamau area due to high operating costs.

OUTLOOK

With indications that the recovery in North America is progressing very slowly and that other major economies are continuing to experience problems, further easing of copper prices is likely in the first half of 1993.

While copper consumption is expected to experience strong growth by the second half of 1993, prices in the medium term are likely to be adversely affected by increases in mine production capacity. After 1995, prices are expected to strengthen because of a forecast slowdown in the growth of world copper supply, accompanied by very strong demand growth. From a range of US85-95/lb. in 1993 (constant 1992 dollars), copper prices should rise on average to a range of 95-115/lb. in 2000.

For the remainder of the 1990s, copper consumption is expected to grow at an annual average rate of between 2.0% and 2.5%.

Canadian copper mine production is expected to decline in the medium term as additions to copper capacity will be less than the loss due to mine closures. The overall decline of Canadian mine output could be reversed by the late 1990s if a small number of deposits, particularly in British Columbia, come on-stream. The B.C. deposits that could be brought on stream in the 1990s includes Windy Craggy, Mount Polley, Mt. Milligan, Fish Lake, Kemess, and Telsequah Chief. Elsewhere in Canada, promising projects include Williams Creek in the Yukon and Izok Lake in the Northwest Territories.

ZINC & LEAD

By Philip Wright (zinc) & John Keating

Western World demand for zinc and lead in 1992 declined by 1% from 1991 levels as the world recession continued. Mine and metal production for both metals were slightly lower than in 1991. London Metal Exchange (LME) stock levels of both commodities continued to climb in 1992 to record levels by year end of 487,600 tonnes for zinc and 227,200 tonnes for lead.

Canadian zinc and lead mine production rose in 1992 by 13% and 18%, respectively, from the 1991 totals of 1.157 million tonnes zinc and 278,000 tonnes lead. Labor disputes in 1991 had adversely affected production.

Canadian zinc metal production in 1992 was 670,000 tonnes, slightly higher than in 1991, as no major production problems were encountered at the country’s four zinc refineries. Lead metal output from secondary and primary smelters increased to 250,000 tonnes, up 17% from 1991.

CANADIAN DEVELOPMENTS

Mine closures in 1992 consisted of Minnova’s Samatosum polymetallic mine near Barriere, B.C.; Hudson Bay’s Spruce Point copper-zinc mine near Snow Lake, Man.; and Audrey Resources’ Mobrun copper-zinc mine near Rouyn-Noranda, Que. No new lead-zinc mines were opened.

Cominco announced a restructuring of its Trail, B.C., metallurgical operations in order to reduce costs by $50 million. The company also announced that it would advance to mid-1995, the implementation of a land-based disposal system for slag from its lead smelter.

Curragh began stripping its Grum lead-zinc orebody near Faro, Y.T. Reserves at the Vangorda and Faro mines will be exhausted by early 1993 and mining will shift to the Grum orebody. Curragh closed its Sa Dena Hes mine near Watson Lake on Dec. 2 and its Faro operations on Dec. 19, 1992. Both operations were scheduled to re-open in early February, 1993.

Work continued on the modernization of Hudson Bay’s Flin Flon smelting complex and the new zinc pressure-leach plant should be operational in the second quarter of 1993. Development work also continued on Aur Resources-Louvem’s Louvicourt copper-zinc massive sulphide deposit near Val d’Or, Que. The 5,000-tonne/day mine is expected to come on-stream in late 1994.

PRICES AND OUTLOOK

Zinc prices in 1992 remained strong throughout much of the year despite continued weak demand and rising stock levels. Speculative trading on the LME during this period added volatility to zinc prices. In October, prices began to fall in response to poor market conditions and a decreased threat of strikes at Canadian smelters. The average zinc price for 1992 was 56/lb. compared with 51 in 1991.

The outlook for zinc in 1993 calls for increased consumption, especially in the galvanizing sector, as a modest world economic recovery takes place. A small surplus of refined metal over consumption, combined with significant exports by Eastern Bloc countries, will likely lead to a substantial surplus of zinc metal in 1993. The zinc price is forecast to weaken further before recovering late in 1993 and to average 53/lb for the year.

Lead inventories rose in 1992 as demand weakened, and exports increased from China and the Commonwealth of Independent States (CIS). Lead prices continued to slide, with the exception of speculative support in the third quarter, to a six-year low of 20.2/lb. in November. The average price was 24.5/lb. in 1992, essentially unchanged from 1991.

In the short- to medium-term, a supply surplus is forecast as additional mine and smelter capacity comes on-stream in the Asia-Pacific region and exports increase from the CIS. As inventories rise, the price in 1993 is expected to decline to the 17-24/lb. range.