Inmet suspends mining at Winston Lake — Reserves to be recalculated during 3-month review period

With zinc prices remaining low and a newly developed ore zone failing to live up to expectations, Inmet Mining (IMN-T) is suspending operations at its troubled Winston Lake zinc-copper mine on the northern shore of Lake Superior.

As a result, an estimated 162 employees will be laid off at the mine-and-mill complex, situated northwest of Schreiber, Ont., between Thunder Bay and Marathon, Ontario.

Opened in 1988 by Minnova (which subsequently merged with Inmet precursor Metall Mining), the small, high-grade mine had been approaching the end of its life, but Inmet was hoping to extend it another four years by developing the lower Pick Lake zone.

In the spring, this zone was estimated to contain reserves of 1.2 million tonnes grading nearly 16% zinc, and plans were drawn up to mine it at an annual rate of 270,000 tonnes and at a projected cash cost of US46 cents per lb. zinc.

Winston Lake’s milling operations, suspended in early November, were scheduled to resume once the lower Pick Lake zone finally reached full production, which, following numerous delays, was expected to be in the fourth quarter of 1998.

The plans started to unravel in the summer and fall, when Inmet received disappointing results from development work on three levels. Says Inmet’s president, William James: “On the 10 and 11 levels the drift ran out of ore sooner than we expected. Then, drilling under the 1135 level, the drill holes didn’t intersect ore — there was a thick intersection on the 1135 level, and then 25 metres underneath, there wasn’t anything there.”

In announcing the suspension, Inmet said reserves in the lower Pick Lake zone will likely be “substantially reduced” from previous estimates.

The development work revealed another problem: weak hangingwall rocks, caused by biotite-chlorite partings, which could result in significant dilution.

Following a 3-month review, Inmet will decide whether to close Winston Lake permanently or temporarily. During this time, reserves will be recalculated and Inmet will examine results from ongoing stope testwork and underground drilling.

Inmet is also reviewing Winston Lake’s carrying cost, which, at Sept. 30, was set at $26 million, including $12 million resulting from higher-than-anticipated, capitalized net operating losses.

For the nine months ended Sept. 30, 1998, Winston Lake produced 15,000 tonnes zinc, 1,100 tonnes copper and 1,100 oz. gold.

Meanwhile at Inmet’s 49%-owned Cayeli copper-zinc mine in northeastern Turkey, a 2-month strike by 276 workers has been resolved following an agreement that provides for a wage increase of 21% above inflation over two years.

James says production at Cayeli is back to its pre-strike level and that a new reserve estimate for the Far North zone will be released by year-end.

Things are not so rosy at Inmet’s other Turkish project, the Ovacik gold mine on the Aegean coast. A Turkish court has banned the use of cyanide at the site’s processing facility.

The Ovacik project is held by Eurogold, which is owned 33% by Inmet and 66% by Australian major Normandy Mining.

Although mine construction was completed at a cost of US$49 million last December, Turkish regulators have withheld approval to begin commercial production owing to local concerns over the health effects of cyanide use.

Peter Rozee, Inmet’s corporate secretary, says that while the court’s decision is final and cannot be appealed, “the decision is with respect to this specific administrative act that the ministry of the environment undertook, so Eurogold is going is to explore, with the ministry, other means of securing the necessary permissions for the mine to operate.”

Adds James: “These things are more political than legal. We’re going to investigate all possibilities; we have other options besides mercury amalgamation.” He notes that the Turkish government itself uses cyanide in processing silver at a mine near Istanbul.

Regarding the expansion of the wholly owned Troilus open-pit gold mine in northern Quebec, James says the completion date has been pushed back a month to the end of January. The $8-million expansion, which will allow throughput to rise to 15,000 from 11,000 tonnes per day, is aimed at boosting annual gold production to 150,000 oz. at a cash cost of US$240 per oz.

With respect to Inmet’s lawsuit against Prime Resources Group (PRU-T) and Homestake Mining (HM-N) subsidiary Homestake Canada over Troilus, James says “the lawyers are working on it,” but that no court date has been set. Inmet launched the suit in March after the two companies backed out of their proposed US$110-million acquisition of Troilus following a dispute over reserve estimates.

Inmet is nearing the end of an eventful year that saw some major changes for the company, including:

• the $39-million sale of Teck (TEK-T) shares;
• the $70-million (plus net profits interest) sale of its half-interest in the Antamina copper-zinc project to Noranda (NOR-T) and Teck;
• raising $156 million from the initial public offering of its stake in Norddeutsche Affinerie;
• a $367-million share buy-back program that successfully countered a hostile takeover bid by Zemex (ZMX-T);
• the $50-million sale of Austrian tungsten producer Wolfram Bergbau-und Hutton (WBH); and
• continued excitement over the Perama gold discovery in eastern Greece.

For the third quarter ended Sept. 30, Inmet posted net income of $47.7 million (or 54 cents per share), chiefly due to gains from asset sales and operating profits from Cayeli and Troilus, as well as from the Ok Tedi mine, in which Inmet has an 18% interest, and the Navachab Joint Venture mine, in which is has a 20% stake. Ok Tedi and Navachab are in Papua New Guinea and Namibia, respectively. By comparison, income in the third quarter of last year totalled $369,000 (a loss of 2 cents per share).