HudBay’s Balmat zinc operation goes bust

VANCOUVER–Less than two years after ramping the Balmat mine back up to full production, HudBay Minerals (HBM-T, HBMFF-O) is closing the New York state zinc mine and concentrator.

The company reopened the mine in May 2006 and achieved commercial production in January 2007. But now HudBay says lower zinc prices, continued high operating costs, and what it terms “general inflationary pressures” have rendered the project uneconomic. The feasibility study that directed the mine reopening assumed lower operating costs and higher levels of production than the mine was able to achieve.

During 2007, the Balmat mine produced 22,068 tonnes of zinc metal in concentrate. As of January 2008, Balmat hosted 1 million tonnes of proven reserves grading 9.5% zinc plus 890,000 tonnes in the probable category averaging 10.8% zinc. Inferred resources added 1.4 million tonnes grading 12.8% zinc.

The closure put roughly 200 employees out of work at the end of August, though a small group of workers will be retained to keep the facility on care and maintenance. Those employees who are left without work will receive transition support.

The company does not expect to incur significant costs associated with the Balmat closure. Moreover, HudBay says it plans to continue testing geophysical anomalies within its exploration permits in the region, as part of its 2008 exploration program.

As for the impact on HudBay’s zinc output, HudBay says 2008 production is now expected to be at the lower end of the 120,000-to 150,000- ton range previously announced.

On other fronts, HudBay is still keeping its head well above water.Net earnings for the second quarter came in at $33.2 million, considerably less than the $69.1 million in earnings the company reported for the same quarter last year but still enough to produce a profit of 26 per share. The lower earnings stem primarily from lower realized prices for zinc, higher prices for produced copper concentrates, planned lower sales of copper, and the year-over-year appreciation of the Canadian dollar compared with the U. S. dollar.

The major event in the quarter was HudBay’s acquisition of Skye Resources, owner of the Fenix nickel laterite project in Guatemala. Fenix hosts 41.1 million tonnes in reserves as well as a large resource base. The project could be moved to production in the near term and has a projected mine life of 30 years.

In addition, HudBay is advancing one of the largest exploration programs in Canada, with plans to spend roughly $43 million on exploration this year. The company spent $41 million on exploration in the country last year. In the first half of the year, HudBay has focused on properties in Manitoba’s Flin Flon greenstone belt. Specifically, its new Lalor Lake zinc discovery. The company currently has six drills turning at Lalor Lake; a resource estimate is expected shortly.