HudBay re-opens Chisel North

Vancouver – With the price of zinc back above $1 per pound HudBay Minerals (HBM-T) is re-opening its Chisel North zinc mine and concentrator in Snow Lake, Manitoba, which it closed in January when zinc prices plummeted to below 50¢.

The company will immediately start ramping up operations, with full production levels expected before the middle of 2010. The Chisel North mine and concentrator produce roughly 30,000 tonnes of zinc concentrate each year, all of which is processed at HudBay’s Flin Flon concentrator.

To protect the re-opened operations against another serious drop in the price of zinc HudBay has hedged half of Chisel North’s zinc production at an average price of US$1.01 per lb. The company says this forward sale is “intended to ensure that Chisel North remains economic at lower zinc prices, while providing unfettered upside for the remaining 50% of its zinc production.”

With the Chisel North re-opening, HudBay is once again busy in northern Manitoba. The company is sticking to its plans to close the Flin Flon copper smelter by mid-2010, a decision driven in large part by rising costs stemming from stricter emissions regulations, but a new operation is also getting underway.

In early October HudBay announced plans to spend $85 million driving an exploration and development ramp from the underground workings at Chisel North to the Lalor deposit. The ramp will enable immediate production from the zinc-rich base metal zones at Lalor as well as underground exploration of the gold zones, which were discovered more recently and are more poorly delineated.

HudBay expects to spend 30 months driving the ramp before it reaches the base metal zones. Lalor is a multi-lens deposit; the five base metal lenses host 12.3 million indicated tonnes grading 8.7% zinc, 1.6 grams gold, 24.2 grams silver, and 0.66% copper as well as 5 million inferred tonnes averaging 9.39% zinc, 1.4 grams gold, 25.5 grams silver, and 0.57% copper.

More recently HudBay has also discovered gold-rich zones at Lalor, some of which additionally carry considerable copper. The company has not completed sufficient drilling within the gold zones to calculate a National Instrument 43-101-compliant resource but a compliant calculation of the zones’ potential resource produced an estimate of 10.6 to 12 million tonnes averaging 4.3 to 5.2 grams gold, 30 to 33 grams silver, 0.4 to 0.6% copper, and 0.3 to 0.4% zinc. The mineralization is hosted in five stacked lenses sitting 715 to 1,175 metres below surface, some in contact with the zinc-rich zones and others entirely separate, with east-west dimensions of 75 to 360 metres and north-south reach ranging from 150 to 850 metres. Average thickness is 4 to 12 metres.

The company wants to have the base-metal portion of the deposit in full production by 2014. The full production picture is still unclear, as HudBay has not yet completed an economic study on Lalor, but that should soon change. HudBay plans to complete a prefeasibility on Lalor by the end of the year and work through a feasibility study in 2010.

The company is aiming to produce some 1,200 tonnes of ore daily from Lalor, though final plans are subject to regulatory approval. Since development at Lalor is expected to take several years, re-opening Chisel North is actually an important component – the re-opened mine, combined with early production from Lalor, will help provide a continuous feed of domestic zinc concentrate to the Flin Flon facility until Lalor reaches full production.

When Lalor does start running at capacity, though the exact numbers are not settled HudBay says it expects the Lalor mine to keep the Flin Flon facility at full capacity and to double the company’s annual gold output. Conceptual plans for phases 2 and 3 – phase 1 consists of driving the ramp – include site preparation, sinking of a production shaft, refurbishing the 3,500-tonne-per-day base metals concentrator in Snow Lake, and construction of a gold-ore concentrator with a minimum capacity of 1,200 tonnes per day. HudBay says current cost estimates, which are only intended to indicate the order of magnitude of the expenditure, are $450 million, including the $85 million being spent on the ramp.

HudBay closed the last trading day of October down 59¢ at $14.01. The company has a 52-week trading range of $2.70 to $15.79 and has 154 million shares outstanding.