Canada’s junior mining companies have a long-standing tradition of being at the forefront of international exploration and development. This is especially true in countries where the potential is greatest, and the risks relatively high.
One company seeking to continue this trend and reap the rewards is HMZ Metals, a junior base metal producer currently trading on the Nasdaq pink sheets under the name
HMZ holds a 92% equity interest and a 95% profits interest in Guangxi Guanghe Metals Co. GGM’s assets include a 9% interest in Gaofeng Mining Co., which owns and operates the Gaofeng polymetallic mine and processing facilities, a 100% interest in the Wuxu polymetallic mine and processing facilities, and a 100% interest in the Hechi copper smelter. In addition, GGM has a letter of intent to acquire another 20% interest in Gaofeng Mining Co. All of the operations are in Guangxi province, about 500 km northwest of Hong Kong.
GGM acquired its assets from the government in 1998 through the privatization process currently under way in China. The company has 300 employees and a highly experienced management and professional team running the operations.
As consideration for the acquisition, HMZ issued shares totalling 78.4% of its outstanding voting stock, and the company is committed to providing funding of US$7.3 million to GGM by September 2003.
“China is undergoing dramatic and rapid change, in part due to its recent entry into the World Trade Organization,” says HMZ President Kerry Smith. “In order to enhance competitiveness, the government is revamping its banking laws, rewriting its Mining Act to Western standards, and privatizing many under-funded, state-owned enterprises, and this is particularly evident in the mining sector.”
Smith joined the company in 2000 after a 6-year stint as a mining analyst, most recently with Merrill Lynch Canada following 16 years in the base metals industry. He assumed the role of president last year, when Gilles Laverdiere, geologist and founder of HMZ, moved up to the vice-chairman’s role. Rounding out the Canadian management team is Robert Doyle, executive vice-president and chief financial officer. Doyle spent the past seven years as a mining analyst, most recently with Credit Suisse First Boston, following 15 years in the mining industry.
HMZ’s production and smelting assets are in a prolific base metal mining region of China. The Gaofeng and Wuxu mines and the Hechi smelter are in the Dachang area, which has a history of tin and zinc production dating back to the early 1900s. Discoveries in a 40-by-60-km region include six large mines, 23 medium-sized deposits and 18 small ones. Ore grades in the Dachang region can range up to 10% zinc, 2% tin, 5% lead, 5% antimony and 150 grams of silver per tonne, along with minor amounts of gallium, germanium and indium.
The Gaofeng mine, 85 km northwest of the town of Hechi, is a medium-sized underground tin-zinc-lead-antimony-silver mine that produces roughly 1,000 tonnes of ore per day. Production amounted to 397,000 tonnes in 2000 and 356,000 tonnes in 2001. Two shafts are used to bring men and materials to the workings. Eight main levels are used to gain access to the orebody, which is 170-815 metres below surface. Primary crushing is completed underground, and the ore and waste travels to the surface in a series of three inclined shafts. Ore is then hauled in 10-tonne trucks over a 3-km distance to the Bali mill, which has a capacity of 350,000 tonnes per year.
Wuxu is a small-scale zinc-lead-antimony mine 23 km southeast of Hechi. On a daily basis, it cranks out 100 tonnes of ore. Production in 2000 and 2001 added up to 15,974 tonnes and 17,000 tonnes, respectively.
Hechi smelter
Through GGM, HMZ also holds a 100% interest in the Hechi copper smelter, 4 km east of Hechi and adjacent to the state highway and railway. The Hechi copper smelter produces blister copper and comprises a blast furnace and a continuous horizontal converter. It is the only copper smelter in Guangxi province and acquires most of its feed from local base metal mines. The annual production capacity of the smelter is 4,900 tonnes. The smelter, which commenced operation in 1994, produces 500-kg blister copper ingots typically containing 96.5-97.5% copper. The smelter also produces sulphuric acid, which is sold in local markets. In 2001, sulphuric acid production totalled 18,000 tonnes of 98% H2SO4. GGM also, from time to time, buys base metal concentrates from small-scale mining operations and then sells these to smelting and refining enterprises.
Smith says there is excellent, near-term growth potential for HMZ insofar as China has received relatively little investment of capital or technology. “We think we can double production at our mines in the short term through modest capital investments in new technology and equipment,” he states. In addition, environmental and safety improvements are certain to result from the introduction of modern operating procedures.
China’s significant mineral exploration potential remains largely untapped. “This is the third-largest country in the world, and we know of large regional mineral belts — some up to 300 km long — that have not received any modern scrutiny. Needless to say, there’s lots of low-hanging fruit.”
HMZ is raising additional equity capital to finance its expansion plans. The company intends to improve the technology side of it operations and expand both capacity and production levels. It also wants to add to its production base by acquiring additional producing assets.
— The author is a Toronto-based freelance writer specializing in mining and investment issues.
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