Izok Lake incentive — Metall acquiring control of Minnova

The opportunity to secure control of the Izok Lake base metal deposit in the Northwest Territories was one of the main incentives behind Metall Mining’s (TSE) offer to purchase a controlling interest in Minnova (TSE), said Metall President Klaus Zeitler.

“We have a lot of Arctic experience and we are very much convinced that Izok Lake will be one of the biggest (base metal) mines in Canada,” he told The Northern Miner.

Metall, a subsidiary of Metallgesellschaft of Germany, has agreed to pay $136.6 million, or slightly more than $18 per share, for a 50.4% stake in Minnova now owned by Kerr Addison Mines (TSE). Minnova’s assets include gold and base metal mines in Quebec, Ontario and British Columbia as well as cash and short-term securities of more than $133.5 million.

But as many of Minnova’s mines enter the final stage of their lives, it is the undeveloped Izok Lake, already a joint venture between Minnova and Metall, that will hold the key to Minnova’s future, Zeitler said. Lying 360 km north of Yellowknife, N.W.T., Izok Lake is a shallow deposit hosting preliminary reserves of 13.4 million tonnes grading 14.4% zinc, 3.2% copper, 1.3% lead and 74 grams silver per tonne.

Recent drilling on the property has established a new massive sulphide deposit, called Inukshuk, about 400 metres east of the main deposit. Minnova estimates preliminary reserves in the Inukshuk zone to be about two million tonnes averaging 8% zinc and 2% copper. The zone remains open at depth to the east.

When the Minnova purchase closes on Sept. 30, Metall’s interest in Izok Lake will jump from 40% to 70% direct and indirect.

Zeitler said the purchase will also give the international mining company better exposure to Canada, where most of its shareholders reside. “It would be good for the company and for our stock if we had more Canadian operations,” said Zeitler. “We will be where we want to be (in Canada) . . . among the majors.”

Metall holds interests in gold and base metal operations in the U.S., Australia, Namibia, Papua New Guinea, Germany, and — through Teck (TSE) and Cominco (TSE) — Canada. The company is also developing the Cayeli copper-zinc property in Turkey and the Bougrine lead-zinc deposit in Tunisia. Noting the company’s role in the development of the Nanisivik, Polaris and Red Dog mines, Zeitler said Metall has the capital and expertise needed to build an infrastructure — including a road and an ocean port — in the north. He said at least 23 isolated deposits in the Northwest Territories could become viable if access to a transport system is established. “We’re not only buying into a big mining project like Izok Lake, but into an ore province,” he said.

Other undeveloped base metal deposits lying between Yellowknife and Coppermine, N.W.T., include Hood River, another Metall-Minnova joint venture, the High Lake project held by Aber Resources (TSE) and Kennecott and the Ulu deposit of BHP Minerals Canada.

A consortium of business and government interests is in the midst of a study to determine the feasibility of establishing a shipping operation for the Coronation Gulf. Results are expected by year-end.

Zeitler estimates it would cost $300-350 million to develop the Izok Lake orebody, including construction of the necessary infrastructure. He does not foresee any change in management at Minnova arising from the purchase of the medium-sized exploration, development and mining company.

The Metall-Minnova marriage represents one of several assets sales, totalling some $2 billion, made by the Edper empire of Edward and Peter Bronfman in the past year. Many companies in the Edper group, including resource giant Noranda (TSE), have been forced to hold fire sales in order to maintain interest and dividend payments in the face of dwindling revenues. Kerr President Andre Fortier said his company, a 51% subsidiary of Noranda, would use part of the cash windfall stemming from the Minnova sale to pay off a $61-million debt. But he declined to speculate on what direction the 55-year old company — whose long-term strategy has been to retain mining as its core business — will take after losing its main mining asset. Kerr’s other assets, including a 9.5% interest in Canadian Electrolytic Zinc, a 30.2% interest in Anderson Exploration and a 3.9% interest in Noranda, are all for sale.

“This forces us to make a decision about the future of Kerr,” Fortier said. Potential scenarios suggested by analysts include payment of a special dividend, creation of a base metal spinoff from Noranda along the lines of Hemlo Gold Mines (TSE), or a merger with the parent company. Kerr purchased a 49.9% interest in Minnova from Falconbridge in 1986 for roughly $120 million.