Minnova rethinks strategy after Samatosum

The original investments Minnova (TSE) made in the Winston Lake and Ansil mines have been paid off, and the company is in the enviable position of having a substantial cash balance, shareholders learned at the annual meeting.

Excellent results from the company’s five mining divisions plus strong markets for copper and zinc contributed to an increased operating cash flow. Net income in 1990 was $1.05 per share (compared to a loss of 48 cents a share in 1989), President Ian Bayer said. The company’s cash balance was $63.1 million at year-end.

Other highlights of the 1990 performance included a 68% rise in net metal sales (to $196 million from $116.6 million in 1989) and a tripled operating profit (to $44.8 million from $15.1 million). A $10-million writedown was made against the Lac Shortt gold mine in northern Quebec. A similar amount was set aside as provision for mine closures.

First-quarter results this year were affected by softening metal markets. Net sales were $41.3 million, down 13% compared to a year earlier; however, production costs were lowered by the same percentage. Net income was 29 cents per share, compared with 31 cents for the same period in 1990. Cash and short-term securities increased during the quarter to $83.7 million.

Minnova benefited from the startup of both the Winston Lake mine in northwestern Ontario and the Ansil mine in northwestern Quebec at a cyclical peak in copper and zinc prices. This stroke of good timing allowed the company to recover its investment in these two operations – Winston Lake in 33 months and Ansil in 18 months. Zinc production at Winston Lake rose by 30% to 130 million lb. last year; copper and precious metals output was also increased. Ansil turned out 75 million lb. copper and more than 30,000 oz. gold in its first full year of operation.

The Samatosum mine also completed its first full year of production with 5.3 million oz. silver to its credit. However, silver prices hit a 15-year low of US$3.50 per oz. during the first quarter of 1990. Although Minnova expects eventually to recover its costs, the financial performance of this project has been disappointing. This experience led to a re-evaluation of the company’s corporate strategy.

“We would likely not invest in a Samatosum today until we had delineated additional reserves or unless the deposit was to feed an existing concentrator,” Bayer said.

Future exploration and acquisition activities will focus on properties with large reserves and the potential to provide significant cash flow to the company, he added.

Minnova’s immediate challenge is to increase its ore reserves. Closures are planned at Lac Shortt (in 1992) and the 40-year-old Opemiska copper mine (in mid-1991). Whether it will be economic to go underground to recover all of the reserves at Samatosum is being studied.

Given the desire to find large-scale deposits, the company is targeting its efforts on areas judged to have excellent geological potential to host massive sulphide deposits and those associated with porphyry and epithermal systems.

“Our exploration budget has been re-allocated to provide increased funds in areas having this potential, including both the U.S. and Central America,” David Watkins, senior vice-president, said.

“In mid-February we opened and staffed an office in Panama City.”

Perhaps as much as 25% of the $11-million grassroots exploration budget for 1991 will be spent in Central America, he indicated.

In Canada, Minnova has three exploration projects in the advanced stages. There is a “very good” chance that the Mobrun 1100 lens massive sulphide discovery in northern Quebec could be mined at a rate of 2,000 tonnes per day. Undiluted preliminary reserves are estimated to be 8.1 million tonnes grading 0.8% copper, 5.6% zinc, 39.6 grams silver and 1.4 grams gold per tonne. Minnova is earning a 50% working interest by spending $10 million on exploration and development.

The Lac Frotet property, 160 km north of Chapais, Que., has a “good” chance of becoming a mine.

According to Watkins, the main mineralized zone is a tabular sheet of disseminated chalcopyrite, pyrite and pyrrhotite totalling 3-5% sulphide.

The preliminary reserve is estimated to be 21 million tonnes grading 2.1 grams gold and 0.18% copper to a depth of 200 metres, although mineralization extends below 500 metres.

A second zone, which will require additional drilling, was discovered about 450 metres from the main zone. Metallurgical testing of a bulk sample is currently under way.

The third project is at Pick Lake, 1.5 km from the Winston Lake shaft. The site has yielded a dramatic high-grade massive sulphide intersection 13.4 metres long. It graded 25% zinc, 2.6% copper, 106 grams silver and 0.4 grams gold. Other similar high-grade cores have been pulled, but not over such lengths.

“Drilling is still in progress to establish the size and grade of the deposit,” Watkins said. “Potential remains within the area we have drilled to place tonnage about equal to the Winston Lake deposit, that is, three million tonnes.

Additional potential for more mineralization is suggested by geophysics and alteration south of the drilled area.”

He cautioned that the economics of mining the deposit must be carefully evaluated because of its depth, below 1,000 metres. Marilyn Scales is field editor of Canadian Mining Journal