Mothballed Faro seen as victim of Murphy’s Law

The decison by Anvil Range Mining (ARO-T) to suspend mining at its Faro zinc-lead producer is attributable to a host of problems from which the Yukon operation has suffered in recent months.

The closure, which takes effect Dec. 20, resulted from what the company says was a combination of production problems, weak metal prices and a strengthening Canadian dollar.

Milling operations will continue to run during the first three months of 1997, processing low-grade, stockpiled ore at 50% of its normal capacity.

The closure is expected to affect 300 of the mine’s 450 employees.

During a conference call with investors and the mining community, President Kurt Forgaard painted a bleak picture of the Faro mine and attempted to justify the board’s action.

“We think it was the prudent thing to do,” he said. “We knew that if things didn’t improve on the mechanical side, we could very well have ended up bankrupt by January or February [of 1997].”

Forgaard said he started to become concerned in late September, when the mine began experiencing production problems related to equipment availability.

Stripping ratios — currently about 10-to-1 — suffered as a result, and Anvil is currently short in its production target by 2.5 million tonnes.

Also, milling problems resulted in throughput falling to 320,000 tonnes, compared with the 360,000 tonnes projected, and delays were reported in maintenance and repair schedules.

The grade of the ore fed to the mill also slipped, from 8% combined zinc-lead to 7.2% in October and 6.7% for the first three weeks of November.

The failure, in mid-November, of a $60,000 liner in the primary rod mill was the straw that broke the camel’s back, prompting Forgaard and the other directors to suspend mining.

“If we had had the throughput and the grades that were projected, we could have weathered the storm,” Forgaard said. “But with lower grades [than expected], mechanical problems resulting in low throughput, low lead prices and the strength of the Canadian dollar, we couldn’t continue.” He added: “At least by taking this action now, we decrease the risk [to investors] and increase our chances of resuming full operation in late March or April.”

Victor Wells, vice-president of finance, said that in order for operations to resume, prices for zinc and lead would have to be at least US50 cents and US35 cents per lb., respectively. At presstime, the prices for these metals on the London Metals Exchange were US48 cents and US32 cents per lb., respectively.

Faro’s current break-even cash operating cost is US52 cents per lb. zinc, compared with US22 cents per lb. for the third quarter ended July 31 and US25 cents per lb. for the first nine months of the previous fiscal year.

For the 9-month period, Faro cranked out 215 million lb. zinc and 162 million lb. lead, in addition to 3 million oz. silver and 15,691 oz. gold.

For the third quarter, the company earned $7.1 million (or 43 cents per share) on revenue of $54.9 million, whereas, for the 9-month period, earnings totalled $9.6 million (59 cents per share) on $152 million.

In September, strong earnings enabled Anvil to prepay a US$15-million bridge loan to its major shareholder, Hyundai Canada.

Anvil began milling operations at the Faro mine in August 1995, after acquiring the mine in late 1994 from the receiver of bankrupt Curragh for $28.3 million. Anvil returned the mine to production at a capital cost of $81.5 million.

Open-pit mining has been carried out from the Grum deposit, which, prior to startup, contained a proven and probable reserve of 24.8 million tonnes grading 4.54% zinc and 2.74% lead, plus 46 grams silver and 0.7 gram gold per tonne at a stripping ratio of 6.13-to-1.

A further proven and probable reserve of 1 million tonnes grading 4.4% zinc, 3.6% lead, 46.9 grams silver and 0.92 gram gold is outlined in the Vangorda pit, which is nearly depleted.

Underground reserves exist in the nearby Dy deposit, which contains an estimated 9.4 million tonnes grading 6.62% zinc, 5.5% lead, 80.3 grams silver and 0.82 gram gold.