Big Plans

After 12 years at Agnico-Eagle Mines Limited, lastly as chief financial officer, David Garofalo took over the top job at Toronto-based HudBay Minerals Inc. in mid-July and quickly put his stamp on the company.

Not only did he make a dynamic career change by leaving Agnico-Eagle after a dozen years, he also took that “moving forward” approach with him to HudBay by convincing his new company to start construction immediately, not later, on its $560-million, zinc-gold-copper Lalor mine in the Flin Flon district of northwestern Manitoba.

While some of HudBay’s directors, as well as a few of his executives, favoured a phased, go-slow approach, Garofalo pushed for the job to begin and now Lalor is a project in motion.

“There was some reluctance to bring the project fully into construction, but I thought it advisable to advance it because it introduces growth into the HudBay story and that’s been absent for a long time. We can now actually talk about growth in gold production and zinc production,” said Garofalo.

When the new mine is in full production (and that’s slated for early 2014) HudBay’s annual zinc production will grow by 50 per cent over current levels while gold output will double by 2016. That will make the company a mid-tier gold producer and, ideally, boost share prices to reflect that change.

Furthermore, HudBay is debt-free and sitting on nearly $1 billion in cash and will finance the new mine entirely from its own reserves.

But some of the analysts were still skeptical about moving ahead so quickly. Many greeted the news with a ho-hum attitude.

“Lalor is replacing production from two other mines, Chisel Lake and Trout Lake, which are essentially exhausted,” said one analyst. “It was required to maintain the overall viability of the assets they have in Flin Flon. As well, it’s a very deep deposit so I’m trying not to get too excited by the gold.”

But in Flin Flon (population 5,200), located 750 km northwest of Winnipeg, the announcement was cause for celebration.

Mayor Tom Therrien, who also manages the local Co-op store, points out that Flin Flon is the quintessential, one-horse, Canadian mining town. HudBay is the largest employer and has been the economic cornerstone of the community for 80 years.

“This is absolutely fantastic for northern Manitoba,” says Therrien, who adds that he can see the headframe of HudBay’s flagship 777 mine from his office window. “Mining is why we’re here. It will take a few years before they begin producing from Lalor. I wish it was starting tomorrow.”

All told, HudBay has developed 26 mines in the Flin Flon district, the 777 being the most recent. It began operating in 2004 and last year produced 1.54 million tonnes of ore. Trout Lake, located six km northeast of the town, has been open since 1982 and last year yielded nearly 680,000 tonnes. Chisel Lake, a 90-minute drive north of Flin Flon, produced its first ores in the summer of 2000. It turned out 325,156 tonnes of zinc ore in 2008 and then was put on a care and maintenance program for most of 2009. Late last year the company decided to re-start the operation and it came onstream in the second quarter of 2010. However, both Trout Lake and Chisel Lake are scheduled to be closed by mid-2012 and that’s when the first ores are supposed to be coming out of Lalor.

The Lalor deposit is currently estimated at 32 million tonnes, based on surface drilling that identified six base metal zones, five gold zones and one with both gold and copper. It is located next door to Chisel Lake. In January, HudBay began constructing a ramp from Chisel North into Lalor. It will serve primarily as an underground exploration platform to fully determine the size and extent of the mineral-bearing zones.

By early last month, the ramp had been extended 900 m into the deposit and by the second quarter of 2012 it will have reached its maximum length of 3,000 m. Underground drilling can then commence and is expected to add significantly to the company’s copper-gold reserves. At the same time, the company will begin extracting zinc from some of the shallower zones located 750 to 800 m below surface and the ore will be processed at HudBay’s Snow Lake concentrator, some 12 km from the mine site.

Until Garofalo took over as chief executive, the company had planned to complete the ramp, conduct an underground exploration program and then make a decision on whether or not to proceed with development of a mine. He convinced the board to put the whole project on fast forward. As a result, the company will start construction this year of a 985-m shaft and all the associated underground workings. Work will also begin on upgrades to its Snow Lake concentrator to handle the ores coming from Lalor.

The shaft, which will be capable of handling 6,000 tonnes of ore per day, is expected to be complete by the fourth quarter of 2014. The mine will initially begin producing 3,500 tonnes daily, to match the capacity of the Snow Lake concentrator, and it will employ some 300 people. Gold output is expected to increase until reaching full production in 2016, which will be double the 2010 level, most of which comes from the 777 mine.

The plan for the Lalor mine is based on an estimated resource of 16 million tonnes of ore dispersed through a geological trend that is five km wide by 10 km long and slopes down at an angle of 30 degrees. But the company believes it may be sitting on a resource that is actually twice as large.

“The resource estimate is all based on surface drilling,” says Garofalo. “We still have a lot of geophysical anomalies to follow up on. We’ve only included half the resource into the mine plan because we don’t have tight enough drill spacing in the deeper reserves.”

The company will continue to drill from the surface to explore the periphery of the reserve, but will drill deeper into the copper-gold zone once the ramp is completed. Mineral zones have been discovered 1,400 m below surface and Garofalo is confident that they extend much farther underground, based on the nature of the formation and a successful deep-drilling expansion of Agnico-Eagle’s flagship LaRonde gold mine in north- western Quebec.

“During the 12 years I was there we expanded the LaRonde mine four different times,” Garofalo says. “At LaRonde they’re mining down to 3,300 m and they’re drilling holes down as far as 4,000 m because the deposit remains open geologically. These types of systems have significant depth potential and that’s the kind of potential I see at Lalor.”

Based on the current, conservative mine plan, Lalor has a projected lifespan of 15 years, meaning HudBay will remain a player in northwestern Manitoba until at least 2030.

If Garofalo is correct about the resources at depth, Lalor will be in operation for many years beyond that. As well, the company owns 400,000 ha in the district and continues to search those lands for additional deposits, all of which is good news for the people of Flin Flon, Snow Lake and other remote and isolated communities in northwestern Manitoba.