HudBay to spend $85 million for ramp linking Chisel North mine to Lalor deposit

By David Paddon, The Canadian Press

TORONTO - HudBay Minerals Inc. (TSX: HBM.TO) will get started within weeks on what's expected to be a $450-million gold and base-metals project in northern Manitoba, one that CEO Peter Jones says could become Canada's next great underground mine.

Phase 1 will see $85 million spent on the construction of a three-kilometre tunnel ramp from HudBay's Chisel North mine to the Lalor mineral deposit, which has a significant amounts of gold, copper and zinc that the company plans to mine and process over the coming years.

Work on the ramp to the Lalor deposit is to begin almost immediately, probably using a combination of HudBay's own workforce and outside contractors.

"And within a matter of weeks, if not months, we will have people there using equipment to actually drive this incline tunnel," Jones said.

The company's stock has been setting successive 13-to 15-month highs almost every day since HudBay announced on Sept. 22 that it had discovered what appears to be a major new copper-gold zone beneath a base metal zone and a gold zone that had already been identified by the company.

HudBay shares closed at $13.70 Wednesday on the Toronto Stock Exchange and gained $1.25 or more than nine per cent by mid-afternoon Thursday after the company announced it's got the go-ahead for Phase 1.

Since returning to head HudBay in March after a 14-month hiatus, Jones has staked his considerable reputation on finding a new path for a company that some investors had felt lost its way under previous leadership.

Since Jones' return as chief, HudBay has sold its minority stake in Lundin for $236 million, announced plans to close its copper smelter in Flin Flon by mid-2010 and focused on aggressive development of the Lalor deposit.

"Large mines, especially large underground mines, don't come along every year, so this is quite a bookmark for us," Jones said in an interview Thursday.

"And for me personally, it's great to see us discovering this and putting the company on a firm footing in northern Manitoba going forward. It will assist us in being successful with our other mines and our other plants for years to come."

There will initially be about 30 people to get Phase 1 going, rising to 70 as the construction advances.

"And when the project (mine) is at full production, we'll have between 350 and 400 people," Jones said.

HudBay said the development of the ramp is expected to take about 2 1/2 years and will provide approximately 1,200 tons of ore per day for processing at HudBay's concentrator at Snow Lake, Man., once completed.

The ramp, or inclined tunnel, will start inside the Chisel North mine at a depth of about 400 metres from the surface and will go down in more-or-less a straight line to the upper layer of the Lalor deposit at a depth of about 800 metres.

There will also be a vertical shaft dug from the surface above the deposit, initially to a depth of about 1,000 metres. This production shaft will be used to hoist large volumes of ore to the surface, for transport elsewhere.

"All of the mining activity will be underground and the processing of the ore that is broken and brought to surface, it'll be trucked to our existing plant in Snow Lake where it will be processed into what we call a concentrate, and that concentrate will then be taken to our facilities in Flin Flon and processed into metal," Jones explained.

Apart from providing access to the zinc-laden base-metals zone, the ramp will provide an underground drilling platform for advanced exploration of Lalor's deeper gold and gold-copper zones.

"We want to start on that ramp right away and we want to fast-track the entire thing," Jones said.

One reason the company can move so quickly with Phase 1 is that it doesn't need to wait for regulatory approvals, he said.

"For this ramp, because it starting inside one of our existing mines, our belief is that it will not be necessary to seek individual permits for it," Jones said.

"However, for other parts of the project - including the principle vertical access shaft - that will require, more than likely, provincial permitting and possible review at the federal level as well."

"We're very hopeful that we'll be able to get that in place in eight months time."

The company plans to complete a pre-feasibility study by the end of this year and a feasibility study in 2010, which will provide a detailed analysis of costs, schedules and other requirements for the project.

HudBay, with the equivalent of about $850 million in its treasury, expects to fund the ramp entirely from its own resources and it would be able to pay for the entire $450-million projected cost for all three phases of the Lalor development.

"Using alternate funding is always a possibility, but right now we're saying it will likely be funded through our cash in hand."

HudBay is an integrated mining company with assets in North and Central America. It is focused on the discovery, production and marketing of base metals.

Jones said it believes the zinc and base metal zone, by itself, justifies the launch of Phase 1 of the Lalor project and work will continue to more precisely identify the extent of the gold and copper deposits that are more than a kilometre beneath the surface.

"Most of the other mineralization, the base metals and the gold zones, are at a higher elevation than the 1,300 metres where we believe the most recent copper-gold zone has been discovered," Jones said.