HudBay sees mid-2010 decision on Guatemala nickel project
By: Liezel Hill
4th November 2009
TORONTO (miningweekly.com) - Canadian base-metals-miner HudBay Minerals expects to make a final decision on whether to proceed with the Fenix nickel project, in Guatemala, around the middle of next year, CEO Peter Jones said on Wednesday.
The company is trying to come up with a low-cost power solution for the project, which is bought last year when it acquired Skye Resources, and is also relooking at the mine plan and reserves and resource calculations, all of which are expected to result in improved economics for the mine.
An updated capital cost estimate is also being compiled and Jones said that the company will start looking at look at options to finance the Fenix project, including potential joint-venture partners "and other strategic options that could make Fenix more attractive for HudBay".
However, CFO David Bryson commented that these discussions will be somewhat limited by an existing agreement with Brazilian-owned Vale Inco, which has the rights to market ferronickel produced from Fenix.
However, talks with Vale Inco have indicated that the larger miner will be open to a situation where it helps set up and structure an offtake agreement with another party that could also invest in the project as a strategic partner, he said.
"The presence of those marketing rights does impact [on] the attractiveness of Fenix to some of the nickel majors; I think that is a fair comment.
"But just in terms of the joint-venture offtake from someone who is not a nickel producer in a substantial way, I think that we do still have that option open," Bryson said.
Currently, however, the key focus is to secure and settle on a dedicated power supply for the project, which the company would like to have finalised by early next year, Jones indicated.
It is considering thermal power options - either coal fired or pet coke - but there is also the option to participate in one of several hydroelectric projects that are moving through the development process in the region.
HudBay is also working to improve community relations around the project - violence flared up again in September over attempts to persuade people living illegally on the property to relocated.
"Discussions between ourselves and various stakeholder groups are ongoing and we are committed to broadening community support for our activities," Jones said.
HudBay mines zinc, copper, gold and silver from its 777 and Trout Lake mines, in Flin Flon, and announced last week it would restart the Chisel North mine and concentrator in Snow Lake, Manitoba.
Plans to close the company's copper smelter in Flin Flon by mid-2010 remain on track, and HudBay still expects to have concentrate offtake agreements in place before the end of 2009, COO Michael Winship said.
The company reported a third-quarter net income of C$20-million late on Tuesday, up more than 600% from earnings of $2,8-million reported a year earlier.
HudBay shares rose 9,2% on Wednesday, to C$15,74 apiece by 14:39 in Toronto.
EXPLORATION
After cutting operating costs, and with the benefits of firmer metals prices, the company plans to ramp up spending on exploration, Jones said on Wednesday.
Management will ask the board to approve a budget of almost C$40-million for exploration in 2010, which will likely include around C$25-million in grass roots exploration in the Flin Flon greenstone belt.
"We believe this will be one of the largest exploration budgets in Canada," Jones said.
"For HudBay, we have a great track record of success turning exploration dollars into new mines in the belt.
"And this might seem like an obvious statement, but the more we invest, the more we discover."
LALOR
The most recent example of HudBay's exploration success is the Lalor deposit, located near the Chisel mine.
The deposit started as a high-grade zinc discovery, but the company has since identified additional gold and copper/gold zones.
Last month, HudBay approved C$85-million to build a production ramp linking the Chisel North mine to the Lalor deposit, which will allow it to fast-track production of zinc-rich ore, while also proving access to the gold zones for underground exploration.
Tenders for the awarding of the ramp construction contract are currently being developed and the work should be awarded in mid-November, with ramp driving following shortly thereafter, Winship said.
The development of Lalor remains the company's top priority, he reiterated.
The company is working on a prefeasibility study for the broader development of a mine at Lalor and expects to start on a feasibility document early next year.
The second phase of the project will involve clearing the site, procuring long lead items and collaring the shaft, and Jones said that he hopes to be in position to go for board approval for phase 2 in early 2010.
Subject to completion of studies and environmental permitting, initial production from Lalor is expected in 2012, followed by full production in 2014.
Edited by: Liezel Hill
