As Hudbay commences a new chapter as a truly international company, David Garofalo is taken aback by the whispers of concern.
From Flin Flon and Snow Lake come worries that with his full-throttle expansion into Peru, and eventually the southern US, Garofalo is forsaking Hudbay’s traditional heartland in northern Manitoba.
“I’m surprised to hear it because when I was hired the first thing I did was put two mines into construction in Manitoba before we put any money into work anywhere else,” says Garofalo with a gentle laugh.
Those two mines, of course, are the massive Lalor mine near Snow Lake and its much smaller cousin, Reed mine, situated between Snow Lake and Flin Flon.
Between them the mines cost about $500 million and helped solidify Hudbay’s longer-term presence in northern Manitoba.
Expand
Hudbay is now working to expand known reserves at Lalor, its preeminent Manitoba asset, but the real wild card is Flin Flon’s 777 mine.
Thanks to a deal completed last year, Hudbay is able to drill, and eventually purchase, the War Baby deposit in the middle of the 777 property.
By his nature Garofalo seems to be a glass-half-full guy, but he refuses to sugarcoat the situation.
“We’re trying to extend the [777] mine life,” he says. “And you know, I’m very concerned, quite frankly, about the sunset [closure] potential for 777 and we don’t want to lose employment and we don’t want to lose our business in Flin Flon, but we are running short on time at 777.
“We have to get going. We can’t put [ore] in the ground. God put it in the ground. If it’s there we’ll find it, but we may have to manage a sunset scenario in Flin Flon, and that’s my biggest concern.”
From that worst-case scenario, Garofalo shifts back to Snow Lake, a community to which many Flin Flonners commute to work at Lalor.
“We’ve got a very large deposit in Lalor, so we’re going to be in northern Manitoba for a long time to come,” he says, “and with the underground potential there, hopefully we’ll continue to grow that geologically.”
Growth
Where Hudbay has already grown, in a way that is captivating analysts and business journalists alike, is in Peru.
From the southern portion of that country, Hudbay’s massive Constancia copper mine sent out its first shipment of copper concentrate last Monday, April 20.
“Just in time, too, because we’re actually out of space in storage sheds both at the site and at the port for concentrates because production has ramped up more quickly than we expected,” Garofalo says. “And we’re actually operating at capacity at the mine site, both at the mine and the concentrator.”
Constancia is expected to commence full-fledged commercial production – defined as 90 days of operating at or near capacity – sometime this month or next.
The mine has about 650 employees on site, the majority of whom work for Hudbay. In time the on-site contractors will be replaced by company employees.
Constancia will represent 55 to 60 per cent of Hudbay’s earnings, a far cry from the days when its only moneymakers were in Flin Flon and Snow Lake (at one point, during the Great Recession, it was down to Flin Flon when Snow Lake operations temporarily closed).
“It’s exciting to see a project of that scale get up to capacity and become a very meaningful part of our business,” says Garofalo.
And Garofalo is not done yet, as Hudbay is planning another major copper mine at its Rosemont property in the southern US state of Arizona.
Hudbay has no specific timelines for operations at Rosemont, but Garofalo is highly confident permitting can be completed in due course.
There is also at least one year’s worth of engineering for the project, he says, with the company now accepting bids for the work.
Whenever Rosemont morphs from deposit to mine, Garofalo says Hudbay’s business will consist of about 40 per cent Constancia, 40 per cent Rosemont and 20 per cent northern Manitoba.
Piece of pie
As lopsided as that may sound to Flin Flon and Snow Lake residents, northern Manitoba will still represent a much bigger piece of the parent company pie than it did pre-2004.
That’s the year Anglo American plc, a global mining behemoth, sold what was then called HBM&S to the company that would become Hudbay.
Since Garofalo assumed the reins of Hudbay in 2010, the company has opened the two new Manitoba mines, which entered commercial production last year.
Just recently, the company announced plans to purchase the former New Britannia gold mine in Snow Lake – not for the mine, but for the mill and the processing capacity it can add to nearby Lalor.
But why not reopen the New Britannia mine? After all, a feasibility study found that the mine, operational as recently as 2005, still has six years of life left.
“I would say that the economics on that are quite marginal,” says Garofalo. “We’ll look at it. Obviously we will own the deposit as part of the transaction, but I think what’s exciting for us is the optionality that gives us for Lalor in terms of being able to process additional ore from Lalor, particularly if we continue to have exploration success at depth and the deposit continues to grow.”
Prospects
At the end of the day, Garofalo remains excited by the company’s prospects in Manitoba.
“We’re spending the bulk of our exploration dollars in Manitoba because we’ve got this industrial base there and we want to be able to perpetuate it,” he says. “It’s in everybody’s economic interest, locally and at the corporate level and our shareholders’ level, to utilize that industrial complex we’ve built up over so many decades.”
Q and A
Questions and answers from The Reminder’s interview with David Garofalo:
Q: A common statement is that there’s pretty much no doubt that getting the War Baby deposit option will extend the life of 777 mine. Is that fair to say?
Garofalo: It’s not a foregone conclusion. I mean, there’s geological prospectivity there, but until you drill it, you don’t have it, right?
And what we’re trying to determine is whether it’s just smoke down there. They have had one drill hole there in 20 years and they’ve been wedging off that drill hole continuously for 20 years.
If you’ve seen a schematic of the drilling, it looks like a Christmas tree. You’ve got the principle hole and all of these wedges off of it.
So they’ve done a lot of drilling there, but not enough to determine whether there’s a mineable resource or not, and we’re trying to determine that as quickly as possible because otherwise we’ll have to leave that area behind.
So it’s in everybody’s interest to find more there – in our interest, in employees’ interest, in the community’s interests. Everybody’s interests are lying there.
So I’m hopeful we’ll find more, but again, you know, it’s not us that puts it in the ground. We just have to find it.
Q: What does Hudbay in Flin Flon look like if 777 closes and there’s no Flin Flon area mine to replace it?
Garafalo: You know, it’s a good question. It’s something that we’re going to have to carefully manage and contemplate.
I expect as long as there’s high-grade zinc from Lalor, we’ll continue to run the zinc facility, but at some point Lalor’s zinc production is going to tail off and then we’re going to have a hungry zinc-processing facility.
So it’s hard for me to contemplate. It’s a discussion we’re going to have to have, but I’m hoping that our underground trope program at 777 makes that conversation moot.
We have all of the drills mobilized we can possibly have at 777, particularly into the War Baby claim, looking for that potential to extend mine life there.
Q: We just saw more promising drill results from McIlvenna Bay west of Flin Flon. Why not buy that property? It seems like a natural fit to a lot of people.
Garofalo: You know, I’m hopeful that at some point that deposit becomes economic, but at these current prices it doesn’t look like it’s an economically viable project. Otherwise I think it would have been built by now.
