By spending $264 million to build a brand new concentrator at its Lalor deposit in Manitoba, instead of refurbishing its existing Snow Lake plant at a cost of $120 million, HudBay Minerals (HBM-T, HBM-N) expects to lengthen the life of the gold-copper-silver-zinc project and boost returns.
According to a preliminary economic study completed by HudBay, total capital costs under the plan come to $704 million, $120 million of which has already been spent. That compares with $560 million total capex projected last year under the original plan to upgrade the Snow Lake plant.
The original plan forecast production at 3,500 tonnes per day with operating costs (mining and milling) of $80 per tonne and annual sustaining capex of $15 million.
The revised plan calls for a 4,500-tonne-per-day concentrator and paste backfill plant, with operating costs projected at $52 per tonne (35% lower) and annual sustaining capex at $22 million.
The new concentrator won't be completed until late 2014. But initial production will begin in the second quarter of 2012, when the company will start hoisting ore from a ventilation raise that is being built at the underground mine.
While the new concentrator is under construction, the company is electing only to crush ore from Lalor at Snow Lake, 15 km away, before trucking it roughly 200 km for processing at its Flin Flon concentrator. Operating costs at Snow Lake, which is only operating four days of the week because of a lack of feed, are $25-30 per tonne compared to around $15 a tonne at HudBay's Flin Flon concentrator.
HudBay will be hoisting up to 1,200 tonnes of ore through the ventilation raise initially, rather than using a 3,200-metre access ramp being built from its Chisel North mine, 2.4 km away. The ramp has been advanced 2,300 metres so far.
"There are federal tax benefits associated with constructing a new mine," said CEO David Garofalo on a conference call to discuss the Lalor plan, "And if you bring production ore up through the Chisel North mine, then you run the risk of jeopardizing that new mine status, which would likely overwhelm any potential financial benefits from trucking ore up the ramp."
Construction of the concentrator is slated to begin in early 2013. It should be completed by the end of 2014, around the same time an adjacent 985-metre production shaft will be finished.
Chisel North will be depleted by the end of 2012, just as Lalor begins to ramp up from 100,000 tonnes that year to 1.6 million tonnes per year in 2018 and beyond. HudBay anticipates the operation's greater efficiency and reduction in unit operating costs will allow it to mine lower grade ore and increase the tonnage mined, extending the mine life past 2030. The earlier plan had the mine life extending to 2025.
The initial production will be from Lalor's base metal zones. But in the first quarter of next year, the access ramp should intersect the base of the ventilation shaft, and at that point, the company will be able to build an underground drilling platform that will allow it to define the gold and copper-gold zones of Lalor.
The company is also considering building a gold plant to improve recoveries, which are forecast at 95% zinc, 86% copper, 66% gold and 60% silver (compared with 95% zinc, 90% copper, 80% gold, and 75% silver under the original plan). Brad Lantz, vice-president mining, said the capital costs of a gold plant are likely to be roughly $70 million, but the company is still examining its options.
The gold-rich zone at Lalor won't be reached until 2015 or 2016, so HudBay has time to mull that decision.
Probable reserves at Lalor are 10.5 million tonnes grading 1.55 grams gold per tonne, 21 grams silver, 0.64% copper and 8.31% zinc. In the base metal zone, it has additional indicated resources of 2.5 million tonnes grading 1.04 grams gold, 27.07 grams silver, 0.29% copper and 5.72% zinc plus inferred resources of 4.8 million tonnes grading 1.3 grams gold, 26.2 grams silver, 0.58% copper and 9.25% zinc.
In the gold zone, it has 5.4 million inferred tonnes of 4.7 grams gold, 30.6 grams silver, 0.47% copper and 0.46% zinc.
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