A MINING POWERHOUSE

HudBay Minerals has transformed into a Canadian mining powerhouse in less than four years as a public company. However it took seventy-six years, a spike in base metal prices and a lot of hard work to get there. HudBay Minerals, operating their base metal mining and processing plants in Flin Flon, Manitoba, while directing one of the largest mining exploration programs in Canada, has built up a cash position of $729 million as of June 2008. It is part of the S&P TSX Index and recently completed a business combination with Skye Resources developing an advanced nickel project in Guatemala. Hard to believe that HudBay was put up for sale for $316 million in 2004. Even harder to believe there was no bidding war. HudBay Minerals financed a buyout from its former owner Anglo American for C$316 million, financed with an Initial Public Offering and an issuance of senior notes using a junior exploration company ONTZINC as a financing vehicle. It would be the first time in 76 years HudBay was a master of its own destiny. The following explains why HudBay is doing so well.

In the mid 1990s, when the company was near the end of its mine life, it made a major effort to find a new source of ore for the Flin Flon operations. With a limited mine life, it appeared the mine would close in 2005. This would have resulted in the closure shortly after of their entire operations with a devastating economic impact on the Flin Flon area.

HudBay has one of the largest exploration programs in Canada having spent $41 million in 2007 and planning for $43 million in 2008. In addition they are leveraging option ventures with juniors which levers the money spent on exploration to about $80 million. HudBay is directing about 75% of their exploration resources on the Snow Lake area and the balance in the Flin Flon area.

HudBay announced in August of 2008, 43-101 resource estimates for their Lalor deposit located 15 km from the Snow Lake concentrator. They have 3.4 million tonnes of indicated resources grading 8.8 % zinc, 0.71% copper, 1.9 gpt of gold and 20.5 gpt of silver. In addition they have 13.2 million tonnes of inferred resources grading 8.1% zinc, 0.70% copper, 2.9 gpt of gold and 34.1 gpt of silver

In addition, they are leveraging the resources of junior exploration companies to develop projects previously explored that were deemed a lower priority. Hud- Bay has joint ventures with VMS Resources, Rockcliff Resources, Murgor Resources, Halo Resources, Troymet, Strider Exploration and Crowflight Minerals.

The 777 Mine, (named after the discovery drill hole) is HudBay’s flagship mine, is producing about 4000 tonnes per day grading 4.55% zinc, 2.65% copper, 2.28 gpt of gold and 26.23 gpt of silver, while the Trout Lake mine is producing about 2200 tonnes per day grading 4.24% zinc, 1.64% copper, 1.26 gpt of gold and 22.08 gpt of silver. The Chisel North operation near Snow Lake is producing about 900 tonnes per day grading 8.31% zinc.

HudBay has a labour stability agreement in place with their union workers which provides for no strikes or lockouts until 2012 and in return all employees except for senior management receive profit sharing. This agreement was negotiated as a condition for the development of the $435 million development projects, including the 777 Mine, the Chisel North Mine and other upgrades of the metallurgical plant. Employees have been handsomely rewarded with the average profit sharing payout per employee for 2006 paid in 2007 was approximately $33, 000 and this past year it was $29,000.

The development of the 777/Callinan mine

The 777/Callinan Mine is located about 500 m from the metallurgical plant and North Main shaft. It’s discovery is the result of the exploration campaign started in the mid 1990s to develop more ore reserves or risk closure of the entire operation. Much of the exploration in the Main mine had been done to extend the mine at depth. There was limited exploration done at surface also due to the claims held by Callinan Flin Flon Mines.

Previously it was thought that a large thrust fault was a boundary to mineralization however drilling in 1984 changed this theory. HudBay changed their drilling at the suggestion of Manitoba geologists to drill four widely spaced holes to the 5000 foot level and one hole intersected mineralization which was followed up by underground drilling. Drill hole CX-777 was drilled from underground and intersected 35.63 meters at 4.08% copper and 5.4% zinc -hence the 777 mine name.

777 Mine General Information

The 777 Mine started production in January 2004. The shaft is 6.7 m in diameter and sunk to the 1534 meter level, five-compartment, concrete lined, and equipped with steel sets at 6 meter intervals. Shaft stations on 690, 1082, 1262, and 1412 levels access an internal ramp system developed in the hanging wall of the ore body.

Mining is concentrated in three areas -1082 level and above, 1262 level, and 1412 level which are divided into a North and South separation resulting in six mining horizons. This allows also for blending ore for a consistent mill feed. Longhole open stoping is used where widths are 5 m and for lesser widths, longitudinal retreat is used.

Mining Equipment

The mining Jumbos used were the Atlas Copco 2 boom M2D’s four units and there are also 2 -322 A/C Rocket Boomers from the Callinan mine still in use. All the rockbolting and screening is done using MacLean blockholers.

The scooptrams for the mine were Tamrock 1400’s. Six units were used in the Ruttan Mine and were refurbished after its closure. These units will be replaced by December 2008 with CAT Scooptram R 2900’s. The truck fleet consists of five, 40D Toro trucks and the bottom level haulage truck has been upgraded to a 50D haulage truck. Road floors are maintained by CAT Grader with Getman being the main utility vehicle and Toyota is the mancarrier of choice.

Productivity Improvements over the last five years

1) The mining plan is good with no unplanned events. The stope muck is excellent and dilution is very low, the engineered hanging wall at 90 degrees allows for stability. All stopes are cavity monitored and reconciled after mining.

2)The 8 yd scooptrams are being upgraded to 10 yd units. Using drawpoint mucking to ore passes with chute loading of trucks is more efficient the 8 yd unit loading trucks and hauling.

3) Less hoisting of waste with successful secondary stoping. Development waste used as fill in the secondary stoping.

4) Upgrading to 50 tonne haul trucks from the 40D’s trucks.

5) Longhole program has been a success. The use of sulphide inhibited explosives, (emulsions) has improved fragmentation and stopped secondary sulphide explosions. Computerized detonators have worked very well. Boart Longyear drill program has been very successful with excellent drill quality.

Conclusion

Eighty years later, HudBay is still going strong and looking stronger than ever. One wonders what the fictitious Professor Josiah Flintabbatey Flonatin would have to say about the mining operations in his namesake Flin Flon?

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