Outgoing Hudbay president and CEO David Garofalo says the company has abandoned hopes of extending the life of 777 Mine, leaving him with little faith the Flin Flon industrial complex will operate at current levels without interruption after the mine closes.
Garofalo said Monday that exploratory drilling to prolong 777 has ended and that he thinks the War Baby deposit – long viewed as key to extending the mine – has been “effectively sterilized” by exploration.
“There really is no more targets for us to drill at 777. It is defined geologically,” Garofalo, who resigns as CEO effective Dec. 31 (see story on pg. 2), told The Reminder.
Hudbay chief operating officer Alan Hair, who takes over as CEO on Jan. 1, has also been pessimistic on the potential of a longer lifespan for 777.
During a conference call with reporters in July, Hair agreed 777 exploration results had been discouraging.
“I mean, we’ve obviously been drilling in other areas in 777, not just War Baby,” he said at the time. “I mean, as Brad [Lantz, vice-president, Business Development and Technical Services] indicated, it very much looks as if 777 is now approaching the end of its life in terms of ability to extend the reserves any further.”
Based on current estimates, 777 will run out of viable ore in 2020. That’s around the same time that Hudbay’s Reed Mine is expected to close.
Both mines supply feed to the Flin Flon industrial complex. Zinc concentrate from Snow Lake’s Lalor Mine, which is expected to last another 20-plus years, is also trucked to the complex.
Hudbay currently has no new mines in the works near Flin Flon. As such, Garofalo said it’s improbable the industrial complex will operate without interruption once 777 shuts down.
“Right now, with the current technology, with the absence of capital available for mining in capital markets, it seems unlikely that we’ll find [a new mine] in the short term,” he said.
“777’s defined to be exhausted within the next four to five years, and even if we found something tomorrow, the lead times inherent in developing deposits generally means it wouldn’t be in time to replace 777 and perpetuate the business without interruption. It’s just too difficult to do.”
Asked if the industrial complex would continue operating at some capacity without 777 and Reed, Garofalo initially said, “In the absence of ore, it’s impossible.”
But would zinc from Lalor continue to be transported to the complex? Garofalo said he was not sure what would happen in that regard.
“It really depends on what the mine plan looks like,” he said. “In due course we’ll have to have conversation because clearly the zinc plant is going to be short concentrate with 777 eventually shutting down. So there’s a number of challenges associated with that Flin Flon complex because of a lack of feed, whether it’s ore or concentrates, and it’ll be interesting to see how Rob [Winton, head of Manitoba operations] and Alan [Hair, the incoming CEO] rationalize the business to reflect that reality.”
On the plus side, Garofalo said northern Manitoba remains “very prospective geologically” and that Hudbay’s three concentrators in Flin Flon-Snow Lake, and the Flin Flon zinc refinery, represent a “huge competitive advantage.”
In other words, any potential interruption in operations would not necessarily be permanent.
“If we do find deposits in the area, we can reutilize that infrastructure much like we did with the…Stall Lake mill [near Snow Lake],” Garofalo said. “That mill was idle for a number of years and we were able to utilize it for Chisel North [Mine] and then ultimately Lalor. So having that industrial complex there, even if it’s idle for a period of time, gives you almost infinite optionality on anything you find there geologically.”
Garofalo said it’s in everybody’s economic interests to “perpetuate the business,” but he stressed the ore has to be there – and “only God can” decide where the metals exist.
Hudbay will be in northern Manitoba for many years thanks to Lalor, he said, adding that he believes the deposit will last “much longer” than its initial 20-year projected lifespan.
For Flin Flon, the good news in that scenario is that many Lalor employees live in the Flin Flon area. According to one unofficial estimate from 2014, about half of Lalor’s employees were commuting from outside Snow Lake, most of them from Flin Flon.
While Hudbay’s Constancia Mine in Peru and proposed Rosemont Mine in Arizona are each larger than its Flin Flon-Snow Lake operations, Garofalo said the company’s “heart and soul” remains in northern Manitoba.
