Breakwater Bullish on Zinc Market

With a global shortage in zinc production, this summer is an ideal time for Breakwater Resources’ (BWR-T, BWLRF-O) Langlois mine, 213 km north of Val d’Or, Que., to restart commercial production.

Breakwater expects Langlois to produce about 54,000 tonnes of zinc annually over seven years, and hopes to increase the mine life to 15 years through exploration.

The price of zinc has more than doubled to about US$3,500 per tonne from roughly US$1,300 per tonne in 2005. The average price in 2006 was US$3,275 per tonne.

Langlois has proven and probable reserves of about 3.7 million tonnes grading 10.1% zinc, 0.8% copper, 49 grams silver per tonne and 0.1 gram gold. Measured and indicated resources are about 5.7 million tonnes grading 10.7% zinc, 0.8% copper, 51 grams silver and 0.1 gram gold.

Breakwater’s vice-president, commercial, Steve Hayes painted a bright picture of zinc’s future during a recent conference call.

“Constrained metal production combined with continued strong global consumption means the zinc metal market remains robust,” Hayes said. “Global metal inventories are critically low, with no relief in sight anticipated this year.”

According to the International Lead and Zinc Study Group, worldwide zinc consumption has been higher than production since 2004. In 2006, 10.7 million lbs. of zinc were produced while almost 11.1 million lbs. were consumed.

A report by analyst Huw Roberts of U.K.-based CHR Metals identified a possible supply gap for both zinc and lead that could begin in 2012. The report said that in 2007, surplus metal production will help rebuild inventories, but by 2008, there’s a risk that metal inventories will exceed market requirements.

Breakwater president and CEO George Pirie said he wants to capitalize on the strong market.

“Volatility and the market aside, we intend to stay our course of capitalizing on this environment to optimize our assets through the right investments,” Pirie said.

The company is on track with its production schedule for Langlois.

The mine has been in ramp-up mode since late 2006 and has produced about 8.9 million lbs. of zinc from more than 59,000 tonnes of ore.

In the same camp, a bulk sample was taken from the Grevet B deposit, 3 km southeast of Langlois, during the fourth quarter. Grevet ore will be processed at the Langlois mill later this year. The mill has a capacity of 2,500 tonnes per day, though the feasibility study used a value of 1,100 tonnes.

Breakwater currently has five diamond drills operating on the property — three for exploration and two focused on the upper portion of Zone 97 for definition drilling. The company plans to conduct 20,000 metres of underground diamond drilling this year and 18,000 metres of surface drilling.

During the fourth quarter of 2006, Breakwater drilled a total of 6,200 metres in 32 holes, all of which intersected semi- to massive sulphide zones. Breakwater is planning a ramp from the surface, which will be able to access these zones for mining and will eventually connect with the current underground workings at Langlois.

Breakwater also has a 50% joint venture with Metco Resources (MKO-V, MTKOF-O) for the Orphee deposit, located 6 km southeast from the Langlois mill. Metco is working on a prefeasibility study on Orphee, which could become a source of additional mill feed.

Breakwater’s 2006 profit was $156.5 million compared with $14 million in 2005. The company plans to spend $27 million on exploration in 2007, including $6.2 million at Langlois and $10.7 million on the El Toqui deposit in Chile. The company started ramp development to access the Concordia deposit, where production is expected to begin mid-year.

Overall, Breakwater milled 2 million tonnes of ore grading 6% zinc in 2006 compared with 2.5 million tonnes of 6.5% zinc processed in 2005. The closure of the Bouchard-Hbert and the Bougrine mines in 2005 accounted for 16% of the reduction with the balance related to lower zinc head grades at the Myra Falls project on Vancouver Island, in B.C., and the El Mochito project, in Honduras.