First Metals sets fall production goal for Fabie Bay

First Metals (FMA-T) is nearing the finish line in its race to bring the past-producing Fabie Bay open pit and underground copper mines in Quebec’s Noranda camp back into production.

Surging copper prices over the last five years put the 90%-developed Fabie back into the game.

“We’re racing to capture a cycle in a buoyant copper market,” says First Metals chairman, Jay Jaski, who hopes to be shipping ore by October.

Noranda mined and milled 103,000 tons grading 2.64% copper from the mines in the 1970s — about one-third from the underground and two-thirds from the open pit.

Since acquiring Fabie in April 2006, First Metals has upgraded historical exploration work into an inferred resource of 672,000 tonnes grading 2.74% copper, or 41 million lbs. copper, 36 million lbs. of which have been deemed recoverable.

But it’s not only Fabie that First Metals is interested in. Fabie will provide the company with the financial means to bring the Magusi River zinc-copper deposit into production.

Located just over a kilometre from Fabie, the Magusi deposit has been the subject of numerous prefeasibilty studies between the 1970s and 1990s.

“The key is to ensure we can go seamlessly from Fabie to Magusi,” says First Metals president Rick Williams.

Together, the deposits total 113 million lbs. copper, 198.1 million lbs. zinc, nearly 81,000 oz gold and 2.2 million oz. silver. The resources are expected to last for 4.5 years at an average production rate of 1,500 tonnes per day, with Magusi expected to come on line in 2009, depending on mill availability.

So far, the company has drilled 6,000 metres to upgrade resources at Magusi, which is open at depth. Magnetic and electromagnetic surveys have also been flown over the deposit.

As it stands, the zinc-rich lens has an inferred resource of 1.2 million tonnes grading 0.4% copper, 7.1% zinc, 1.89 grams gold per tonne and 29 grams silver.

Meanwhile, Magusi’s copper-rich lens has an inferred resource of 839,000 tonnes grading 3.3% copper, 0.3% zinc, 0.22 gram gold per tonne and 39.1 grams silver per tonne.

The idea is to fund Magusi development with cash from Fabie Bay, and then use the same equipment and crew for both deposits.

In late summer, the company identified potential adit locations to access the deposit and prepared some preliminary mine designs and block models.

Both properties were acquired from Globex Mining Enterprises (GMX-T) for a total of $1 million, plus a 10% net profit interest and 2% net metal royalty. When First Metals reaches commercial production Globex will receive shares equal to 10% of the total issued capital of First Metals.

The company was incorporated in February 2006 and listed on the Toronto Stock exchange the following September with the sole mandate of bringing the two projects into production in a short time.First Metal’s been busy since acquiring the properties, which now total nearly 24 sq. km of land with exploration potential.

Infrastructure was good to start with, though the company did upgrade and widen the main access road and also commissioned Quebec Hydro to construct a 31-km power line to both properties. First Metals has also assembled a mining office on site at Fabie.

The underground mine, which is accessible via ramp, was dewatered, revealing that the infrastructure inside was in good condition.

The pit was also dewatered and 80,000 tonnes of ore has been drilled off and is ready for shipping.While the dynamite is ready to be lit in the open pit, what the company needs is the nod from Xstrata Copper that the Horne Mill is ready for ore.

First Metals is waiting on a $5-million mill refurbishment to be completed, which was part of the agreement made with Xstrata Copper, the mill’s owner.

As soon as it gets the go-ahead, First Metals will start operations with a 50,000-tonne bulk sample from the open pit, followed up by mining the underground portion of Fabie.

To fund Fabie development, the company received a three-year term loan for $20 million through Jennings Capital on the condition that it closed a financing, which in turn allowed it to custom mill ore at the Horne Mill.

The company has raised a total of $13.3 million through private placements and has spent about $15.3 million to date, much of it on equipment, with about $16 million cash on hand.

“For any mining company, I don’t like debt, but this is different,” Jaski says. “We’re on the cusp of delivering cash flow so you can’t really look at that debt as intrinsic.”

Jaski says that eventually First Metals will be measured on cash flow per share, and that while the debt the company took on was “expensive debt,” it’s better than diluting the share price.

The company has a 52-week rolling high of $1.76 per share and a low of 61 with a quoted market value of about $31 million and 33.5 million shares outstanding.

Williams has assembled what he thinks is a strong team of exploration, development and mining personnel, which he attributes to the region.

The mine manager, Sylvain Lessard, is preceded by four generations of miners in his family while much of the crew is at least second or third generation.

“We’re not teaching people from scratch,” Williams says. “Even though we’ve only been in operation for one year it’s not a novice team.”

Williams says the company kept a relatively low profile in the early days until it had crossed a number of hurdles.

“We decided telling the story … was a tough sell,” Williams says. “Our focus was production – what do we do to get to the finish line.”

The financing, the loan and the mill agreement signaled that the finish line was in sight.

“The marketplace was prepared to lend us the money because they expect to get it back,” Williams says.