Metall on road to recovery

Three factors — higher metal prices, production from two new mines, and the purchase of an interest in a smelter — helped strengthen Metall Mining’s (TSE) performance in the third quarter.

The company earned $6.1 million on revenues of $209 million, compared with a loss of $6 million on $44 million for the same quarter in 1993. The additional revenue resulted from the acquisition of a 35% interest in Europe’s largest custom copper smelter, Norddeutsche Affinerie AG. The increased earnings are a reflection of higher metal prices and investment income. (However, these were partly offset by operating — including exploration — expenses.)

The realized copper price for the period was US$1.08 per lb., compared with US82 cents in 1993.

Metall spent $5.3 million on exploration in the quarter and $14.7 over the past 9 months, compared with $3.5 million and $9.8 million, respectively, in the same periods last year.

“The last few months have been a milestone for our company,” says President Klaus Zeitler. “We’ve changed from being a controlled subsidiary to an independent, integrated mining company with tremendous projects.” (In September, Metall’s former parent, Metallgesellschaft AG, sold its 50.1% interest to the public, by way of a secondary offering, for $458 million.) At the Petaquilla project in Central America, Metall, along with Teck (TSE) and Adrian Resources (TSE), is exploring for and developing copper-gold deposits.

Currently, the project encompasses two deposits — the Petaquilla and Botija — which have a combined minable reserve of about 495 million tonnes grading 0.53% copper and 0.124 grams gold per tonne, at a 0.19% copper-equivalent cutoff.

Teck will fund a final feasibility study, as well as Adrian’s ongoing exploration costs on at least four other deposits.

“You just don’t pass by (a potential) 1.6 billion tonnes of ore,” says Zeitler, commenting on the potential of the project, “and we’re glad a company like Teck has seen that.”

Once the feasibility study is completed, Metall will hold a 48% interest in the project while Adrian and Teck will each hold 26%.

Despite coming second to Magma Copper (NYSE) in the bid for the Tintaya copper mine, Metall is still intent on expanding in South America. The company has opened an exploration office in Santiago, Chile, and is seeking joint-venture possibilities there.

Meanwhile, Metall’s future earnings should receive a boost from production from two new projects, both of which have already received environmental permits.

According to Zeitler, output from the Troilus project in Quebec and the Ovacik project in Turkey could double, or even triple, Metall’s gold production over the next three years.

The Troilus gold-copper mine, 175 km north of Chibougamau, has a minable reserve of 49 million tonnes averaging 1.34 grams gold and 0.11% copper within two zones, to a depth of 290 metres.

The 84 and J4 zones contain 41.8 million tonnes grading 1.31 grams gold and 7.4 million tonnes averaging 1.26 grams, respectively.

Gold and copper are disseminated within mafic to intermediate flows and tuffs, which were brecciated by hydrothermal fluids from underlying granitic plutons, as well as mafic and felsic dykes.

Construction of a 10,000-tonne-per-day operation is projected to cost $150 million. Production is expected to be 180,000 oz. gold in the first year, and average 140,000 oz. over the 14-year mine life.

Minable reserves at Metall’s 33.3%-owned Ovacik project are 1.3 million tonnes averaging 11.7 grams gold and 20 grams silver per tonne. Metall and its partners will spend $48 million to develop a combined open pit-underground operation capable of producing 100,000 oz. gold and 100,000 oz. silver per year over eight years.

Metall has also started producing copper, zinc and lead concentrates from two new mines which came on-stream during the last quarter.

The Cayeli copper-zinc mine entered production ahead of schedule, following the construction of the plant, tailings pipeline and port facilities, in Rize, Turkey.

Cayeli hosts 10.6 million minable tonnes averaging 4.7% copper, 7.3% zinc, 1 gram gold and 68 grams silver. Yearly production of 110,000 tonnes of copper concentrate and 70,000 tonnes of zinc concentrate is expected by the next quarter.

Production also commenced at Metall’s 45%-owned Bougrine zinc-lead mine in Tunisia, although recoveries are falling short of the expected 70,000 tonnes of zinc and 14,000 tonnes of lead concentrates. Minable reserves are 5.3 million tonnes grading 11.7% zinc and 2.6% lead, and the mine should operate for 15 years.

The only clouds on Metall’s horizon are falling production and increased operating costs at the Copper Range copper mine in Michigan. Output of 22.6 million lb. in the third quarter was down from 24.6 million lb. a year ago, and cash operating costs increased to US$1.05 per lb. from US78 cents a year earlier. Lower grades and productivity, combined with difficult mining conditions, were blamed for the poorer results. As a result, the company has decided to proceed with studies regarding solution mining of the crown pillars.

A number of analysts have told company officials they are concerned about possible changes to projected production levels and operating costs. Metall has responded by emphasizing that the feasibility study has only just got under way and that forecasts will be updated upon its completion.