Gibraltar survived downturns to profit when copper is up

British Columbia’s Cariboo region is a land of old mountains, weathered down to undulating hills. Near the top of one of them is the Gibraltar mine, as steady a copper producer as the famous rock that bears its name. A huge deposit of hundreds of millions of tons of ore, it may be the lowest-grade copper mine operating in North America at about 0.3% copper per ton.

During price peaks, such as in 1989, Gibraltar has been one of the most profitable mines in the Placer Dome group. When prices have been low, it has survived tenaciously.

While the presence of copper had been known since 1917, it was only in 1969 that exploration by Placer geologists revealed four separate orebodies around a barren core thought to be the vent of an ancient volcano. Three of the orebodies collectively held the necessary volume of ore to justify mining.

Gibraltar was a complex property for a developer: even with a mining plan aimed at accommodating the low mineral grade, it was still economic only if the orebodies could be combined. The various claim- holders agreed to “com-mingle” or sell their properties, creating a mineral reserve of 358 million tons, estimated to contain more than two and a half billion pounds of copper. While this was not the largest copper orebody in the world, it was exceptional.

In timber and cattle country, a number of factors supported mine development: rail, road and air transportation were all close; hydroelectric and natural gas lines ran within a few miles of the property; water was plentiful and a skilled workforce lived in the region.

When a feasibility study looked beyond immediate cost and demand cycles, there was a good possibility the copper market might recover at about the time the mine went into production. A small amount of molybdenum in the ore could be produced at low cost.

To top it off, customers in Japan had been found who were willing to purchase the mine’s entire output for the first 10 years. The contract helped assure suppliers and banks that the mine was viable and few difficulties were encountered in arranging a development loan of $74 million.

Yet there were risks. Copper was selling at only 47 cents per lb. while the mine’s average grade of 0.3% copper per ton of ore meant it was about the lowest-grade mill operation on the continent. Many knowledgeable people doubted it would make money.

The risks assessed, the directors decided. The development was approved in November, 1970, and in March, 1972, the mine began producing copper concentrate. Its final development cost was $64 million, $10 million below budget.

Within a few weeks its 500- person workforce was producing copper at the rate of 120 million pounds per year. A fleet of 31 hundred-ton ore trucks operated around the clock to move a daily volume of 80,000 tons of ore and waste.

Within a year plans were under way to increase that volume to 120,000 tons per day which meant that Gibraltar had become one of the largest mines, in terms of material handled on a daily basis, in North America.

Fortune smiled and the price of copper moved up from the 40 cents per lb. range to about 80 cents per lb. in 1973 and 93 cents the following year, enabling the mine to repay its entire $64 million bank debt in less than two years after its first day of production. That turned out to be the key to the mine’s long-term survival.

A downturn in the copper price in 1975, while not unexpected, was accompanied by a new provincial government mineral royalty which greatly depressed earnings.

Losses piled up in 1975, 1977 and 1978 but the sun came out when the measure was lifted, and healthy profits were generated in 1979 and 1980. Then came the recession of the early 1980s. Gibraltar, despite its marginal ore grade, was able to keep operating while other copper mines in British Columbia and elsewhere were closing.

The mine benefited from stockpiled low-grade ore, so that although no new ore was produced in the early part of the recession, the mill maintained the annual output of copper for some months. It was hoped this would allow the mine to hold on until the price recovered, but no one expected the recovery to take the better part of five years.

Gibraltar’s management eagerly sought economies and embarked on a series of innovative moves which, while not eliminating the losses, held them to a level that extended the grace period. Many ideas for lowering costs were implemented. An in-pit crusher and a second-hand, 2-mile-long conveyor to carry ore to the plant helped to reduce haulage costs. The work force was reduced by about half.

An important innovation resulted from the discovery that certain microbes which assist mild acids to leach copper from the host rock could survive at the northern latitude and high altitude of Gibraltar. This led to construction of a system for leaching low-grade ore dumps from which Gibraltar now reaps about 10 million lb. of pure metallic copper each year.

Gibraltar has also been a good performer environmentally. It operates a closed-perimeter drainage system that collects and safely disposes of waste runoff from mine workings and rock dumps so there are no discharges to surrounding lands and waters. Gibraltar conducts research into land reclamation and acid rock drainage to prepare for eventual mine closure. Reclamation research investigates the establishment of sport-fish in man-made waterbodies and the growing of cereal grain crops on tailings material.

Restructured as a highly efficient 70,000-ton-per-day operation, Gibraltar was well-positioned to take advantage of the copper price recovery of the late 1980s. In 1989 Gibraltar posted its best earnings in 10 years and paid the highest dividends in its history. Shareholders received nearly $3 per share on a stock trading at around $9 a share.

The story of the Gibraltar mine was featured in a recent edition of Prospect, a quarterly publication of the Placer Dome group.