Aur considers Val d’Or smelter

While Noranda Inc.’s (TSE) Horne smelter is only 90 km by road from Val d’Or where Aur and Louvem are drilling the 25-million- ton massive sulphide deposit, Aur President Jim Gill is already entertaining thoughts of building a smelter at the discovery site.

At a recent luncheon meeting at McLean McCarthy in Toronto, Gill shared his thoughts with a group of 15 pension fund managers and institutional buyers. He told them that if the joint venture can get 50 million tons of proven ore, it will look at the costs and economics and see if it makes sense to build a smelter.

Based on drill results at the Louvicourt Twp. property which began as a 50/50 joint venture before ownership rights were disputed by Aur and Louvem, potential massive sulphide reserves stand at 18 million tons grading 2.8% copper and 2.8% zinc. According to Gill, that isn’t nearly enough to justify the cost of building an on site smelter.

Not included in those calculations, however, are two holes located down plunge and to the east of the drilling area which have added an additional 8.7 million tons to the Louvicourt reserve potential.

The next batch of holes to be released from the property are expected to give some indication of whether the joint venture could achieve the 50-million-ton target figure.

The decision on whether or not to build a smelter will come down to one simple question, says McNeil Mantha mining analyst Alex Doulis. “How big is the orebody?”

“If Louvicourt ends up at 70 million tons of proven ore, it is quite possible to put a smelter in there,” he said. He was referring to the fact that when Texas Gulf elected to build a flash smelter and zinc refinery at its Kidd Creek, Ont., mine, it had 75 million tons of copper/zinc reserves.

However, experts warn that smelters are extremely expensive. “When mine construction and contingency costs are taken into account, Aur and Louvem would be looking at $300-350 million for a smelter complex,” said Bert Wasmund, vice-president base metals at Toronto-based Hatch Associates Consulting Engineers.

“Someone would have to be very sure of their supply source before making such a decision,” said Wasmund who claims that a 15-year to 20-year ore supply would be a minimum requirement.

“They would have to be producing one million tons annually of economic ore to make it economically interesting,” he said.

Also to be considered are the carrying costs of a $300-million loan, the lengthy payback period, and the inevitable pollution that smelters usually produce.

By contrast, the average cost of building an 1.3-million-ton-per- year underground mine without a smelter is usually around $50 million.

Nevertheless, there are definite advantages to building a smelter, according to a Toronto mineral economist who declined to be identified. In most cases a company which sends out zinc or copper concentrates to be custom-smelted faces a treatment fee of around $250 per ton. Typically, those companies are paid for only 85-90% of the recovered metal and they are almost never reimbursed for other metals contained in the zinc concentrates.

While smelter owners also charge a fee for bringing concentrates into their complex, having ore custom smelted is still the least expensive route to go, according to the economist. “It seems incredible that someone would consider building a smelter that close to an established complex like the Horne,” he said. “With a work force of 500- 1,000, smelters can’t be stopped and started on a whim,” added Wasmund.

Because the cost of transporting ore to either Rouyn-Noranda or the Kidd Creek smelter near Timmins, Ont., would be so low, some observers say that Gill may be posturing when he talks about the possibility of building a smelter.

However, when he was asked about his recent speech to the institutional buyers, Gill replied: “We don’t have enough knowledge about the custom smelting business to be able to make a decision without the advice of a consultant. But if it makes economic sense, we will do it.”

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