Redstone hit by high costs, low pries

The future of the Redstone nickel mine, 22 km southeast of Timmins, Ont., has been placed in jeopardy by high operating costs and deteriorating conditio ns in the world nickel market.

Less than a year after it was opened by 51% owner Timmins Nickel (TSE), the $6-million mine is facing major production cutbacks and layoffs involving 46 of its 60 employees. BHP-Utah Mines holds the remaining 49% interest in the mine.

Currently operating with 20% of its original workforce, Redstone was recently placed on a care and maintenance status and faces an uncertain future. Ore reserves stand at 460,962 tons grading 2.55% nickel.

“It’s really painful for us,” said Steven McIntyre, president of Timmins Nickel. “Everyone at the mine has done a wonderful job, but we’re a junior company and we just can’t afford to bleed at a low nickel price.”

He said the company set a profit objective of $40 per ton and needs a nickel price of at least $3.50 to meet those criteria.

The price for nickel has recently dipped to below US$3 per lb., down sharply from a level of nearly $6 per lb. when the mine first started production last June.

The Redstone mine, originally slated to produce about five million pounds of nickel per year from ore grading 2.5% nickel, is now expected to produce less than 1.5 million lb. It could eventually be shut down completely if nickel prices don’t improve.

“We have three options at this point,” McIntyre told The Northern Miner. “We can continue production on a limited basis, make a full closure, or bring the mine back into full production if the nickel price improves.”

The company plans to continue production on a limited scale for 30 days, and then review the situation. McIntyre said the project’s operating committee has been satisfied with the mine’s performance up to now.

Timmins Nickel has a contract with Sherritt Gordon (TSE) for refining and purchase of its nickel concentrates. Based on a grade of 2.91% nickel and a recovery rate of 85%, the company initially projected it would realize the following amounts: Nickel PriceRealization (US$/lb.) ($/ton ore) 6.50 281 5.50 228 4.50 178 3.50 130 2.50 85

Operating costs were originally forecast to be around $87 per ton (including administration), but according to McIntyre, mining costs have recently been above $70 per ton, while custom milling costs were more than $35 per ton.

Redstone mine manager Don McKinnon said ore grades have been averaging about 2.38% nickel recently, while concentrate was grading 22% and recovery was up to 90%.

“You couldn’t ask for a better orebody,” he said. “Recoveries were excellent and production was going up, too.”

He said about 15 men are being kept at the site and mining will continue selectively on a week by week basis just to pay the costs.

“If nickel reaches $3.50, we could start up again,” he added.

Shares of Timmins Nickel have recently dropped in price to a low of 43 cents , down from an earlier high of $2.39. The company has working capital of nearly $1.3 million.