20% of Inspiration’s revenues hinge on $130-m. Flin Flon

Ethical investment funds do not hold shares in New York-based Inspiration Resources (TSE), which this week traded in Toronto at about $8. The reason: an indirect connection to two South African mining giants — Anglo American Corp. and DeBeers Consolidated Mines. Minerals and Resources Corp. (better known as Minorco) owns 57% of Inspiration and the two South African companies together own 60% of Inspiration.

On paper, Hudson Bay Mining & Smelting, the 100%-held Canadian base metals mining subsidiary of Inspiration, looks good — in the short-term at least. Taking the long- term view, though, it’s metallurgical complex is so out-dated, funding its modernization is the key to the company’s long-term potential.

Last year HudBay generated 19.7% of the parent’s $1.3(US) billion in revenues. In 1987 it was, by far, the most profitable of Inspiration’s operating arms (which include agribusiness, gold and coal), generating $28.2 million in profits.

Now that Inspiration has sold off its U.S. copper-producing assets and HudBay plans to start up what looks like a very profitable nickel mine in 1989, HudBay could figure even more prominently on Inspiration’s bottom line in 1989.

Josephthal and Company, a New York-based brokerage firm, estimates net income of $66(US) million for Inspiration in 1988, compared to $24.8 million in 1987. They are even more bullish looking ahead to next year. Net income in 1989 could total $90.4 million, according to the company’s recommendation report.

Josephthal estimates the company will produce 100 million lbs of copper, 135 million lbs of zinc and 10.2 million lbs of nickel in 1989.

To put the importance of the Namew Lake nickel mine into perspective, HudBay’s 60% share in the mine could, in 1989, generate profits equal to or better than those generated by the company’s annual zinc production. Copper was the biggest revenue generator for HudBay in 1987 and will likely continue to be in 1989.

Continuing on the up side:

HudBay has parred almost $60 million in debt from it’s balance sheet in the past two years.

It has dramatically returned to a bottom line etched in black ink.

It has plenty of zinc/copper (and now nickel) reserves in the Flin Flon-Snow Lake Greenstone Belt in northern Manitoba and has the strong, experienced exploration team to keep them that way (N.M., Sept 26/88).

And no-nonsense, competent mine operators run the company’s six active mines which, in some cases, are the envy of the base metals mining world (the Trout Lake mine, for example, is perhaps the most productive cut-and-fill mine in the world and the Namew Lake mine is one of the highest grade nickel mines in the world at 2.44% nickel. It could also be one of the lowest-cost producers as well. One analyst — Ivan Obolensky senior vice president–research of Josephthal and Company of New York, estimates total costs will be about $1.45(US) a lb).

On the down side, there are serious hurdles for the company to overcome. Physically, the company’s aged metallurgical site in Flin Flon is so antiquated, it desperately needs modernization in order to continue to produce zinc and copper into the 1990s.

Constructed in the 1930s, the metallurgical site gives the impression that here is another shoddy American company. The extractive metallurgical technology used at the site is 60 years old. Precious little is computerized and few areas of the sprawling facility could be called cutting edge technology (with the exception of an Outokompu continuous copper casting machine, which is almost 10 years old).

The levels of dust and gas in the working environment in the smelter often reaches serious proportions.

The corporation’s public relations, even in the town where it should be well known, is unsophisticated at best. (The local radio announcer incorrectly identified the company’s entry in this summer’s Canada Day parade as a float from a pulp and paper company. Apparently, he had been misled by the prospector tagging a claim post on the float. Some local people also mistakingly believe that Granges Exploration is the most successful explorer in the area.)

In many ways Flin Flon is much like Sudbury, Ont. was 10 years ago — it was built at about the same time for the purpose of winning metals from the ground and today, the two cities sport look-alike smoke stacks — no longer symbols of progress, but more renowned for their acid rain-causing emissions.

But the city of Flin Flon is much smaller than Sudbury; is less diversified and shows fewer signs that the wealth that has come from the ground over the years was ever plowed back into the community. The company’s connection with two South African companies may have something to do with that.

To put the company back on the right track toward a more secure long-term future, HudBay has put together a comprehensive modernization plan that will cut sulphur dioxide emissions by 25%, significantly lower production costs by cutting fossil fuel consumption by 50% and reducing the workforce by about 200 people and improve significantly the in-plant working environment.

The project involves using a hydrometallurgical technique known as zinc pressure leaching, which was developed by Sherritt Gordon Research and a pyrometallurgical technique called bath copper smelting using continuous converters developed by Noranda Inc.

HudBay has done the preliminary engineering for the plan and has presented the results to both the federal and provincial governments.

But a recently announced policy of not giving grants to South African corporations, it is unknown whether the federal government will give HudBay the same kind of support that was given to Cominco Ltd. to modernize its smelter in Trail, B.C. and Noranda Inc. to up- date its Horne smelter in Rouyn- Noranda, Que.

So the company’s future is in its own hands.