Minnova to increase stake in Audrey’s Mobrun to 50%

Toronto-based Minnova has held a 30% net profits interest at Mobrun since it allowed Audrey to earn a 70% interest in late 1985. Metallurgical problems in the property’s main lens had persuaded Minnova to find a joint venture partner rather than risk its own money on exploration.

Having determined that the property could support a 3,000-ton-per- day operation, Minnova has now agreed to spend $10 million to earn a 50% stake in Mobrun’s new 1100 lens while giving up its 30% interest in four other lenses that are known to be on the Mobrun property.

All of that money will be spent on the exploration and underground development (including a new shaft) needed to bring the 1100 into production.

Regarded as one of the largest massive sulphide discoveries ever to be reported in Quebec. the 1100 is thought to contain about 15 million tons of material. But its location 240 m southeast of the mine workings means that it won’t fit into the Mobrun production picture until 1992 when ore from the other known lenses is exhausted.

When production at Mobrun resumes again later this month after work on a new 1,100-ton-per-day milling facility is completed, operating costs should be around $35 per ton. But economies of scale could bring those costs down by at least $5 per ton at a higher mining rate, according to Audrey President Guy Hebert.

For that and other reasons, the Minnova deal looks attractive to Toronto-based Northgate Exploration (TSE) which holds a 32% stake in Audrey. “We have been kept fully informed and we are fully in favor of the agreement,” said Northgate President John Kearney. As an affiliate of Noranda Inc. (TSE), Minnova, like Northgate, is connected indirectly to a huge business empire controlled by the Bronfman family of Montreal.

Much will depend on the success of exploration on the new 1100 lens which was considered big enough last August to justify a 1- year production halt while Audrey spent $21 million to build the new mill.

Before production was halted last August, Mobrun ore was custom milled at Minnova’s 1,500-ton-per- day Norbec mill. As the 1100 lens is expected to sustain a mining operation well into the next century, it could also serve to fill vacant capacity at Norbec when Minnova’s new Ansil copper mine winds down in 1993.

However, the cost of exploring and developing the 1100 structure over the next four years is estimated to be a minimum of $20 million. That’s why Hebert agreed to negotiate after he was approached at the Ansil mine opening by Dave Watkins, Minnova’s senior vice-president of explorations.

In addition to putting up $10 million towards the cost of developing the 1100 lens, Minnova will acquire about 1.2 million Audrey shares, representing an 8% interest, for $5 million. Minnova will also deal to Audrey a 50% stake in a group of seven claims which are thought to contain an extension of the 1100. Located east of Mobrun, that property is held 25% by Asarco Exploration Ltd.

In return, Audrey automatically becomes 100% owner of about 1.1 million tons of proven ore contained in four lenses including the Main, 850, 870, 930 lens. That ore is sufficient to support a 1,100-ton- per-day operation (based on current metal prices) until the 1100 comes on stream.

Audrey will also assume full ownership rights to existing surface and underground installations including the Mobrun mill, which is scheduled to be operating at full speed by the end of September. It has an in-built capacity to handle an additional 500 tons per day when the first ore is extracted from the 1100 lens.

“In this type of market, this agreement takes a lot of pressure off us,” said Hebert, who has persuaded Minnova to allow Audrey to continue as project operator.

However, a joint committee is being set up to evaluate the possibility of turning Mobrun into a 3,000-tonnes-per-day operation. If the partners decide to go ahead, a new 3,000-ft shaft would be required and 50% of the 1100 ore would be shipped to Minnova’s Norbec mill in Rouyn-Noranda.

“Nothing is guaranteed but the 1100 is a big orebody and the chances (of it supporting an expanded operation) look good,” Hebert told The Northern Miner. As reported (N.M., Jun 26/89), a hole drilled to determine the lens’ upper limits intersected 323.5 ft of massive sulphides averaging 1.35% copper, 6.39% zinc, 0.04 oz gold and 1.09 oz silver per ton.

Proven and probable reserves in the 1100 now stand at 6.6 million tons grading 0.66% copper, 5.84% zinc, 0.05 oz gold and 1.27 oz silver per ton.

According to Hebert, the agreement also guarantees the success of a public offering designed to raise about $20 million for development of the 1100 lens. However, if Minnova elects not to spend the full $10 million it has the right to revert to a 30% carried interest.

From now until mid-1990, Watkins said he would be drilling and underground bulk sampling to determine if the 1100 is strongly zoned and if the metals are evenly distributed throughout the massive sulphides. “Good widths and good mining conditions are needed to sustain an operation of that scale (3,000 tons per day),” he said.

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