Curragh determined to survive

Curragh Resources (TSE) Chairman Clifford Frame says he will draw on a large measure of Celtic determination and 40 years in mining to pull the zinc-lead-coal company through the current economic downturn.

He said there is no truth to the rumor that Curragh is unable to pay its rent. He also claimed that analysts who doubt that the Stronsay project in British Columbia can be turned into a viable mine don’t know what they are talking about.

With the odds stacked against him, the 58-year-old mine builder is ready to sell all or part of the new Westray coal mine in Nova Scotia to boost his company’s working capital reserves and reduce debt.

Frame is also desperately trying to unravel an interlocking partnership with Spanish smelting company Asturiana de Zinc without going to court over what he called Asturiana’s failure to set up a joint metal marketing company. Negotiations are being held in the midst of an economic downturn that has pushed zinc prices below US55 cents per lb., the level at which Curragh can service about $300 million of debt without selling assets. Due to the recent cancellation of a $55-million debenture offering, development of new zinc-lead ore at Curragh’s Faro, Yukon, mine and Stronsay is now on hold. But even though negotiations with Asturiana are progressing at a painfully slow rate, the Curragh chairman was in a jovial mood when The Northern Miner talked to him at his Toronto executive office.

With the Asturiana deal seemingly on the rocks, Frame’s plan to turn Curragh into the world’s largest exporter of zinc concentrates has been delayed for the time being. But he said analysts who doubt that Curragh can survive the recession don’t know him well enough. While working under Stephen Roman, the late chairman of Denison Mines (TSE), Frame said he learned that there is no such thing as failure. “You just keep going at it.”

Production of lead-zinc concentrates at Faro and the new Sa Dena Hes mine at Watson Lake, Yukon, he said, is expected to rise to 650,000 tonnes this year from 480,000 tonnes in 1991, even though Faro’s output has been cut by 10%. Frame said he hopes the split with Asturiana can be achieved amicably and result in Curragh delivering about half of the 350,000 tonnes of concentrates it has contracted to send to the Spanish smelter this year.

After a final settlement, Curragh is expected to sell its 20% stake in Asturiana, which in turn may unload a 30% stake in Stronsay and the 1.6 million subordinated voting shares of Curragh, acquired for $41.4 million. Separation is a major blow to Frame because the partnership was originally set up to put Curragh among an elite group of integrated zinc producers, without building its own smelter, and provide secure markets for concentrates from Stronsay when it comes into production.

“I believe they felt they were giving up a degree of control over their product,” said Frame in reference to the failed marketing arrangement, which he regards as the most significant component of the deal. “Having agreed to do it, they then changed their minds,” he said.

With or without a partner, Frame said he would have to visualize zinc trading in the range of US60-65 cents per lb. before going ahead with development at the 250,000-tonne-per-year Stronsay project. As construction is expected to take 18-24 months, he hopes to hit the upper part of the economic cycle by having Stronsay in production by 1994.

Capital costs are pegged at $140 million and economic studies based partly on a 700-tonne bulk sample show that recoveries of almost 100% can be achieved in the high-grade areas. But construction is subject to permitting and British Columbia’s recently elected New Democratic Party government agreeing to honor a commitment by its predecessor to contribute $37 million toward mine infrastructure.

Due to the slow pace of negotiations with Asturiana and its controlling shareholder Banco Espanol de Credito, Frame said he couldn’t predict when Curragh would take a writedown on the Asturiana asset purchased two years ago for $119.6 million.

He also refused to name any of the 44 companies that have inquired about the Westray coal mine. While a shortlist of 12 has been selected from the original group, Frame says mine development is ahead of schedule at Westray and the operation should be capable of producing more than the 445,000 tonnes contracted for delivery to Nova Scotia Power this year.

Under a 5-year price contract established with the Nova Scotia government, Curragh is entitled to receive $57.50 per tonne for its Westray output until the contract is re-negotiated. Companies that import coal from the U.S. pay about $37.50 per tonne.

Proceeds from the sale will be used to boost Curragh’s working capital reserves which have dropped to $25 million from $90 million before the current recession began.