Rio Algom targeting base metals in new ore search

Toronto-based Rio Algom (TSE) is spending about $20 million this year as part of an aggressive exploration effort to locate new base metal and gold deposits in Canada, says Exploration Vice-President Kelly O’Connor. That’s roughly 30% more than the $15 million it spent in 1990, and underlines the company’s renewed commitment to North American exploration, O’Connor explained to itThe Northern Minerrm in an interview.

“We’d love to find the next Aur Resources-type massive sulphide deposit in Canada,” said O’Connor referring to the large base metal deposit discovered by Aur at Val d’Or, Que., in 1989.

O’Connor said Rio Algom is spending its entire 1991 exploration budget in North America, with those funds split roughly 80-20 between Canada and the U.S. He said the company currently has 30-40 active projects under way, and about $8 million of the budget remains to be allocated.

“Our main objective is to replace the lost income from our Elliot Lake uranium operations,” explained O’Connor, adding that new sources of mine revenue will have to be found by Rio Algom before the mid-1990s. The company shut down its Panel and Quirke uranium mines at Elliot Lake last year, and their contributions to its operating profit will fall significantly in 1992. Rio’s Stanleigh mine is still operating, but its future depends on supply contracts with Ontario Hydro.

In recent years, most of Rio Algom’s profit has come from mining uranium, copper, potash, coal and tin, as well as its metals distribution business.

But in the short term, one has to look beyond Canada — to Chile in fact — to find the company’s next big profit centre.

O’Connor said a positive production decision will likely be announced later this year for Rio Algom’s Cerro Colorado copper project in the mountains of Chile. When developed, the new Chilean mine would produce about 40,000 tonnes of copper per year using the low-cost electrowinning (SX-EW) process. If costs are around 40 cents per lb., the mine would make an operating profit of more than $50 million, assuming copper priced at $1 per lb.

However, in the longer term, analysts point to the fact that Rio Algom needs exploration successes or new acquisitions in North America to replace the lost revenue from its Elliot Lake uranium mines which were closed.

O’Connor said about two-thirds of this year’s exploration budget is slated for base metals, while about one-quarter is going to gold and roughly 5-10% for uranium, mostly in the U.S. He said the company is not currently exploring for uranium in Canada, but is focusing on low-cost reserves in the U.S. He said Rio’s North American exploration division is now fully staffed with about 20 geologists in Canada and another five working out of the Reno office in the U.S.

“We tend to be very selective about the exploration projects we take on,” said O’Connor. “By focusing on the larger, low-cost deposits, we don’t have to worry so much about what the metal prices will be in the future.” One of the company’s top priority base metal prospects in Canada is its Gullbridge property situated north of the former Buchans lead-zinc mine in central Newfoundland. O’Connor said extensive alteration on the Gullbridge property suggests the possibility for new sulphide deposits within close proximity to a past producer. Rio Algom has assembled a large land position in the area and has planned considerable drilling work to test the geology. The company is working on the Buchans-type geological model during its exploration effort.

Another high-priority project for gold is in northern Ontario on the company’s Abitibi forest lands project north of Timmins, Ont. Rio Algom is exploring an area equivalent to about 3,500 claims in that greenstone belt. Extensive grassroots exploration, including overburden drilling, has been under way for the past two years on the Abitibi project.

“We’re getting lots of encouragement, but we don’t have a deposit yet,” said O’Connor.

As well, the company has shed some of its former conservative image and has begun to sign joint venture agreements with junior companies. “We’re starting to enter deals with juniors quite aggressively across the country,” O’Connor said. A few examples of juniors working with Rio Algom include Digger Resources (VSE) in British Columbia, Laramide Resources (VSE) in northwestern Ontario and Societe d’Exploration Miniere Mazarin (ME) in northern Quebec.