Copper prices boost HudBay Ruttan

As the operator at one of Canada’s less successful copper mines, Hudson Bay Mining and Smelting, doesn’t like to be overly optimistic about the prospects for its latest acquisition.

But with copper prices in the $1.26(US)-per-lb range, Hudson Bay is quietly confident that the Ruttan mine, at Leaf Rapids, Man., will continue to exist beyond the 3-year time frame supported by current ore reserves.

To ease a $134-million(C) debt load, including a $1.8-million net operating loss at Ruttan during the first quarter of 1986, Sherritt Gordon Mines sold the operation to Hudson Bay Mining and the Manitoba government in July.

According to Sherritt Gordon production problems caused by an irregular orebody and low copper prices led to a cutback in production in 1981. The mine was also shut down in 1983 while Sherritt Gordon spent $30 million to deepen the mine shaft by 650 ft.

After announcing a writedown of remaining assets, Sherritt Gordon said it would close the mine in September before Toronto-based Hudson Bay emerged as a likely buyer.

Promising to save the 450 jobs at the mine site, Hudson Bay bought the operation as an additional source of ore for its Flin Flon, Man., mill which processed 75,000 tons copper and 96,000 tons zinc in 1986. Project Loan

“Essentially no money changed hands,” said Hudson Bay President and Chief Operating Officer Lloyd Nilsen.

“We agreed to take over the existing liabilities including a $10-million project loan from the Manitoba government in addition to Ruttan’s mining equipment and other assets.”

“The fact that we are going to continue operating the mine beyond 1990 is dramatic news for the people of Leaf Rapids (population 2,000), said Nilsen, who claims the town would have no reason to exist if it weren’t for Ruttan.

A turnaround at the Ruttan mine is also good news for the Manitoba government which is entitled to 50% of this year’s net profits. Under a payback arrangement, Hudson Bay and the Manitoba government share equally in the mine’s cash flow.

But as indicated by the operating problems experienced by Sherritt Gordon, a 62 cents (US)-per-lb copper price combined with a steady gold and silver price are critical to the operation’s revival.

While Nilsen is attempting to reduce unit costs by replacing old mining equipment and increasing productivity, he admits that the operating costs achieved by Sherritt Gordon will be difficult to improve on. Commodity Prices

“Sherritt Gordon did an excellent job of mining a low grade orebody when commodity prices were at an all-time low. They built a good plant and hired an excellent work force,” said Nilsen. “Unfortunately for Sherritt Gordon, no one could have predicted that copper prices would reach an all time historic low in 1986.” Between 1983 and July 1987 copper prices averaged 65 cents per lb.

As Hudson Bay and the Manitoba government prepare to spend $1 million to explore an anomaly west of the current mine workings, copper prices which reached a 6-year high last week are providing some breathing space.

“Some surface drilling has already been completed but during 1988 we would like to drive a drift to the west anomaly before conducting an underground drill program,” said Nilsen who claims that any problems with an irregular orebody have been overcome.

Meanwhile, estimated reserves of around eight million tons averaging 1.64% copper and 1.21% zinc will be mined using open stope and delayed back-fill methods at a rate of 2.3 million tons annually.

That is consistent with a production rate which produced 65 million lb copper, 22 million lb zinc, 18,000 oz gold and 463,000 oz silver in 1986.

The Ruttan mine also supplied 78% of copper concentrates and 28% of zinc concentrates bought by Hudson Bay for its Flin Flon smelter.

“It’s too early to say whether it will be one or seven years but in my view this operation will last much longer than 1990,” said Nilsen.

However, he isn’t betting that copper prices will remain at their current levels. “The outlook is positive at the moment but in our view this may be a short-term phenomenon.”