Breakwater tables Langlois feasibility study (September 14, 2001)

An independent feasibility study, focusing on Zone 97 at Breakwater Resources‘ (BWR-T) Langlois zinc mine near Val d’Or, Que., suggests that about $16 million should be spent on the resumption of production.

The company says it will wait for zinc prices to improve and financing to be secured before it makes a decision on the reopening of the mine. Following a positive decision construction and development work would take about 18 months.

The study’s mine plan envisages a production rate of 450,000 tonnes per year over a seven-year period, based on minable reserves in the proven and probable category totalling 2.9 million tonnes grading 11.2% zinc, 0.7% copper, 0.1 gram gold and 52.9 grams silver per tonne.

Recovery rates are projected at 94.2% for zinc, 79.2% for copper and considerably less for gold and silver. Metal production for the seven years is expected to total 305,000 tonnes zinc, 16,000 tonnes copper, 1.8 million oz. silver and 2,000 oz. gold.

Resources in the measured and indicated resource category tally 4.9 million tonnes running 11% zinc, 0.7% copper, 0.1 gram gold and 53.1 grams silver. Another 1.5 million tonnes of 8.1% zinc, 0.5% copper, 0.1 gram gold and 37.1 grams silver lie in the inferred category.

Life-of-mine capital costs are pegged at $33.1 million, most of which is related to the underground mine. Total operating costs over the life of the mine are estimated at $57.56 per tonne milled.

Based on the assumed metal prices of US50 per lb. for zinc, US80 per lb. for copper, US$5 per oz. for silver and US$300 per oz. for gold, the project’s total net pretax cash flow is estimated at $60.9 million. The internal rate of return is 24% and the net present value (at an 8% discount) is $26.4 million.

Breakwater says the project’s economics are sensitive to changes in the price of zinc, which is currently hovering around a 14-year low of US36.4 per lb. A 10% change in the price causes a change of $28.5 million in the project’s net pretax cash flow.

The feasibility plan focuses on the mining of high-grade ore. It could be expanded to include the lower-grade material if metal prices increase sufficiently.

Under the new plan, the average zinc head grade is pegged at 11.17%. This is significantly higher than the head grades achieved during the last four years of production (6.4%-7.9%). The increase is thanks to:

• The inclusion of high-grade material in Zone 79;
• The use of a higher cutoff grade; and
• Planned mining of the higher-grade shaft pillar, which was previously regarded as sterilized.

The study’s operating plan includes improvements to ensure reliability of production and control costs, including:

• No ore passes are planned for Zone 97 due to their unreliable nature — instead a fleet of new 20-tonne trucks will haul ore from stoping areas to the shaft area;
• Pre-development will take place in several sublevels in Zone 97 to ensure production of higher-grade ore continuously when mine operations resume; and
• Mining will be conducted by overhand benching with a reduced stoping height to control dilution in Zone 97.

Breakwater acquired Langlois and Bouchard-Hbert from struggling Cambior (CBJ-T) in March 2000 for US$48 million. This was US$120 million less than the book value of the mines.

Operations at Langlois were suspended in November 2000 due to operational problems, high treatment charges and low zinc prices.

Prior to its closure, the mine produced 14,519 tonnes zinc-in-concentrate at a cost of US52 per lb. zinc.

In other news, Breakwater’s creditors have granted the company a one-month extension to the end of October to raise US$16 million. Raising the funds was a condition of a deal earlier this summer when Breakwater’s creditors agreed to release US$1.5 million in credit to the company for every US1 rise in the price of zinc. The reverse holds true and the credit line decreases if the price falls.

So far, Breakwater has raised US$6 million through deferred delivery contracts with one of its customers. The remainder is to come from a rights offering of 23.1 million shares priced at 50 apiece.