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Geological difficulty forces HudBay to mine lower-grade Reed ore

Reed, Manitoba

Reed, Manitoba

Photo by Hudbay Minerals

24th September 2014

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Difficult geology slowed ramp development at 70/30 joint venture (JV) partners HudBay Minerals and VMS Ventures’ Reed copper mine, in Northern Manitoba, in Canada, forcing operator HudBay’s engineers to alter the mine plan.

Following ribbon-cutting ceremonies last week at HudBay’s Lalor and Reed mines, both located in the Flin Flon greenstone belt, VMS president and CEO John Roozendaal told Mining Weekly Online that he expected there to be some differences between what the original mine plan was and what HudBay found underground, and how the partners managed to mine it.

“The biggest difference is that we have mined more material from the 30-lens, which was lower in copper and higher in zinc, which will affect our copper output in the early stages of the mine. This was owing to a slow-down in building the ramp.

“To achieve full production on time, the engineers rejigged the mine plan to allow us to take more material from further up,” he stated in an interview.

That said, he stressed that this did not mean that the material was not down there, only that getting into higher-grade material would take place later than expected.

During the ribbon-cutting ceremony last week, Manitoba’s Mineral Resources Minister Dave Chomiak noted that the Reed mine had an estimated $800-million in copper reserves, which would significantly contribute to the local economy.

HudBay spokesperson Scott Brubacher confirmed that ground conditions were different than expected. "Because of the nature of the rock we started closer to surface than planned. The benefit was that, as a result, we were able to extract zinc that we had not anticipated, so it was a bonus," he said.

The change in mine plan was not expected to impact on the mine's output guidance, Brubacher added.

CASH FLOW

Roozendaal noted, however, that there were currently several factors working in the partners’ favour.

Despite the Reed mine plan being based on a copper price of $3.40/lb and the current price for the red metal hovering at about $3.10/lb, the weaker Canadian dollar had offset the low prices, while higher zinc output and higher zinc prices were expected to make up for lower copper output.

“Cash flow from the project is a bit of a moving target,” Roozendaal pointed out, explaining that this was owing to the mine having only declared commercial production late in the first quarter and because there was at least a 100-day line from when ore was mined to receiving a return on it.

“We are literally just starting to get some information, although we are monitoring the mine output as it gets measured. I am waiting on HudBay to release their quarterly update – hopefully in the next few days – that would provide more clarity. While I don’t want to pre-empt that, it looks like we are fairly well on track,” he said.

He noted that it would still take some time before VMS would receive its share of cash flow from the mine, as about $75-million in construction debt first needed to be paid back. “If all goes well, we’re looking at cash flow at the end of 2015, early 2016,” Roozendaal stated.

He noted that it would probably be an attractive proposition for HudBay to make an offer to acquire VMS’s 30% stake in the Reed mine.

“I think having a minority-interest partner is not something HudBay likes – they like to consolidate ownership of their projects. We also think that would be best for our shareholders, but, at this point, VMS is not for sale,” he said.

Brubacher declined comment on whether HudBay was interested in VMS' share of the Reed mine, noting that while HudBay had equity investments in a number of junior exploration companies, its growth strategy was on the exploration and development of properties it already controlled, as well as other mineral assets it might acquire that fit its strategic criteria.

Vancouver-based VMS discovered the Reed copper project, near Snow Lake, in 2007, and, in 2010, entered into a JV with HudBay to develop the deposit and two claims to the south.

The project was completed under the planned budget and declared commercial production ahead of schedule at a throughput rate of about 1 300 t/d in the first quarter. Over the mine's planned five-year life, it was expected to average output of 15 000 t/y.

GROWTH PATH

VMS was currently aggressively evaluating projects for potential acquisition.

“We believe our primary area of growth would be another acquisition at par or greater than Reed’s size. That’s really the direction the company needs to go in to remain attractive to shareholders.

“We are aggressively looking at quite a few projects and we hope to have a project identified by the end of the year that would give us a sense of where the company is headed growth wise, beyond the Reed mine,” Roozendaal said.

He noted that while VMS had a gold exploration property in Ontario, the company was focused on exploring its assets in Manitoba and would spend about $700 000 over the next year and a half. HudBay would also be undertaking a winter exploration programme around Reed, owing to the property having a significant exploration upside, which could further enhance its value.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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