Higher prices for zinc a godsend for Mineral Resources

Citing the recent upswing in zinc prices, Nanisivik Mines President Graham Farquharson told shareholders recently that they are in a very advantageous position.

“The price of zinc is going through a period like we haven’t seen in many years,” he said. “And we’re keeping our fingers crossed that these tremendous prices will survive, at least until the end of this year.”

Farquharson was speaking at the annual meeting of Mineral Resources International (MRI), Nanisivik’s parent company. MRI owns a 2,000-tonne-per-day zinc/lead/ silver mine in the High Arctic on Baffin Island, N.W.T. (The mine was formerly owned by Nanisivik but was bought out completely by MRI in 1986. However, Nanisivik has retained operating control.)

At last year’s annual meeting, zinc was selling for $860(US) per tonne. It has since catapulted to the current $1,200 per tonne. Although this represents a large percentage increase, 40% in U.S. dollars, the actual increase is 30% in Canadian dollars (this is due to the strength of the Canadian dollar during the past year).

But Farquharson insisted that even a 30% increase is tremendous and long overdue.

“The great thing about this price increase is that there is nothing phoney about it. It’s based on good old supply and demand fundamentals, and the demand is definitely there. Every zinc smelter in the Western world — and in the east bloc as well — is going flat out to produce all the zinc it can. And the market is gobbling it up as fast as possible.”

The demand is fueled mainly by the use of zinc in galvanizing automobile parts. (Iron is coated with zinc in order to protect it from rust.)

Another factor in MRI’s favor, according to Farquharson, is that zinc remains a low-priced commodity in major consuming areas such as Europe and Japan. This is attributable to the large changes in foreign currency exchange relationships relative to the U.S. dollar that have occurred over the past year.

Over the past four years almost 2.8 million tonnes of ore have been mined from the Nanisivik mine, but during that period ore reserves have only decreased by 0.6 million tonnes, the company reports.

In 1987 about 680,000 tonnes grading 9.0% zinc were mined, almost identical to what was produced in 1986. Output of zinc concentrates was 103,400 tonnes and Nanisivik plans for production to remain close to this level in the long term.

Silver production, which for Nanisivik is associated with zinc concentrates, was 23,000 kg (715,000 oz), slightly less than the previous year. Lead concentrate tonnage also decreased in 1987 and is expected to be limited for the next few years while areas are mined that have zinc but no lead.

More than one-third of the ore mined is now coming from small deposits on the property discovered by exploration efforts over the past several years, the company reports. While some of those deposits are close to the periphery of the main orebody, others have required the driving of new declines.

Production is expected to increase slightly in 1988, Farquharson said.

“One of our strategies has been to mine some of the lower-grade material during times when prices are down and save some of the higher-grade material for the boom days.

“We are now in the boom days. Nineteen eighty-eight is a tremendous year for zinc prices, so we hope to open up the tap somewhat and produce a bit more of the metal. Our goal is to get five full shiploads of nothing but zinc concentrates out of Nanisivik this year.”

Ore reserves as of the end of 1987 and those of the previous year are shown in the accompanying table. (INSERT TABLE, 2 COLUMNS WIDE)

Operating costs increased at a slightly higher rate than inflation for the first time in 1987 as a result of mining in a larger number of working areas, MRI reports. Capital expenditures were $1.2 million, principally for replacement of mining equipment and a new tailings pumping system.

Net income for 1987 was $2.5 million versus $2.8 million in 1986. Earnings are expected to improve in 1988 with the current higher zinc price.

Conwest Exploration Co. (TSE) has been MRI’s major shareholder for several years. Recently it attained more than a 50% interest in the company.