Honduran Mine Boosts Earnings for American Pacific

Even though gold projects continue to dominate the mining scene, they are no longer the only game in town as evidenced by base metal producers waving healthy financial statements from operations once either unprofitable or shut down. An example is American Pacific Mining (VSE), which last year acquired the El Mochito mine in Honduras after evaluating a number of base metal situations then being liquidated at discounts to their long-term economic value.

Purchased from an Amax Inc. subsidiary for $12 million(US) ($6.5 million cash and the balance over three years), the underground operation had reportedly been losing about $7 million a year before its closure in April, 1987, partly due to onerous taxes, high royalty payments and power costs, and a larger than necessary work force.

Following successful negotiations with the Honduran government to reduce these impediments to profit, American Pacific re- opened the mine in late October, 1987, with a work force about half that previously employed. Proven reserves at the time of purchase were 5.61 million tons grading on average 8% zinc, 4% lead, 2.5 oz silver and 0.67% copper. (Gold and cadmium values are also present.) By the end of 1987, and helped along by rising metal prices, operations at the mine became financially self-sufficient.

For the first six months of this fiscal year, the company reported earnings of $4,111,535(Can) or 35 per share from a cash flow of $8,121,951 (or 84 a share) generated by the 313,250 tons of ore that were milled during the period. The company is now producing at the rate of 2,000 tons per day.

While present reserves will allow for about an 8-year mine life, exploration is continuing, including drilling an area 2,000 ft out from the main orebody where significant mineralization was recently intersected over substantial widths. (N.M., Aug 15/88).

“Our objective is to increase reserves to allow twice the mining rate in order to lower costs, and to increase grade as well,” said Harold Shipes, president. Currently, total costs are running in the range of $28-$31(US) per ton. In an effort to lower them further, the company is under way with a $2.2 million decline sinking program to undercut the main orebody and allow a conveyor to bring ore up several levels.

Closer to home, American Pacific is continuing work on its BS&K project located about 45 miles west of Tuscon, Ariz. The project was acquired earlier this year for $2.8 million(US) and is estimated to contain 15 million tons of oxide and sulphide copper ore grading 0.48%. The company said metallurgical tests established that the copper is recoverable by heap leaching, followed by solvent extraction/electrowinning and by conventional flotation techniques.

Development work is continuing and the company estimates the project can be brought on stream for about $7 million(US), with $3.5 million of that for the solvent extraction/electrowinning plant and $1.2 million for the leach pad preparation. At maximum production, American Pacific expects it could turn out about 58,000 lbs of copper a day. The property also has a high grade zinc mine closed during the sixties that produced ore grading 22% zinc over its life.

Although the company terminated an agreement to earn into a base metals situation in Ireland, it mounted an aggressive exploration effort for gold and base metals (under the name of Annapurna Pty) in Papua New Guinea where Shipes and several directors have had previous work experience, principally at the Ok Tedi gold project.

“The claims in New Guinea are really beginning to shape up,” said Shipes, who adds that several prospecting licenses have now been received, and a joint venture entered into with City Resources (TSE) on the Strickland claims which host the alluvial system that drains both the Porgera gold deposit and Mt. Kari discovery.

“We have identified Paleozoic channels that extend for several miles and we a re now doing work to try to define the depth, extent and grade of the gravels, ” Shipes said, adding that extensive sampling showed gold in every pan. “The alluvials fit our short-term development plans as they are inexpensive to get going, but we are also looking at low tonnage, high grade zinc and copper situations, and further down the road, large tonnage projects.”

While Shipes admits exploration in Papua New Guinea can be a very costly proposition, he said the company’s claims are either coastal claims or are located along the central highway.

The company believes that a number of mining projects will soon exist in the area and eventually warrant the vertical integration of the metals industry through the construction of a copper and iron pyrite smelter. (Conventional on- site treatment of many of epithermal gold/pyrite ores are often prohibitively expensive due to their complex metallurgy.) The company has had discussions with government to undertake a detailed feasibility study to build a smelter in order to “capture” the shipping, smelting and refining charges that are now paid abroad.

Shipes said the company is also evaluating five base metal projects in the southwestern United States, which are all high grade, medium tonnage situations requiring low capital investment.