June 12, 2002 BUSINESS AND INVESTING > THE SPECULATOR
SPECULATOR: MINING HISTORY
The old BHP pit at Broken Hill in the far west of NSW looks like any other hole in the ground to the untrained eye. But as Professor Ian Plimer put it as he swept his arm across our view of the ancient rockface: "This is the pit that industrialised Australia." And indeed it was, for it yielded probably the richest ore extracted from the hill in a history of 120 years, during which time silver-lead-zinc worth more than $70bn (in 2002 dollars) was produced from 200 million tonnes of ore.
On May 31, the last of the big old companies mining the hill, Pasminco, paid off its workforce and handed over to a leaner, younger company, Perilya, a gold miner and prospector out of Western Australia. Whereas the old Pasminco employed some 600 miners and staff to extract 2.8 million tonnes of ore a year, Perilya plans to extract from Pasminco's old workings about 2.45 million tonnes a year, employing perhaps 400 staff under new, cost-effective work practices.
Next door, on the old BHP leases covering the central 3.8km of the Barrier lodes, another small company, Consolidated Broken Hill (CBH), also plans to reopen the workings that have stood idle since 1977. It is working on a feasibility study to mine 2 million tonnes a year employing only 300 men. This will be possible because with realistically lower costs a lot of metal-bearing lode previously bypassed will become profitable ore, even at current depressed metal prices.
Plimer, professor of geology at the University of Melbourne, is also a director of CBH and a keen historian of the old Silver City. "The ore in this pit ran as high as 20,000oz/tonne of silver and up to 30% lead", he enthused. "They used to bag it and carry it by dray to the Daydream silver smelter near Silverton, 25km away to the west, until the smelter at Port Pirie [South Australia] opened in 1892."
So rich was the ore for so many decades that the Broken Hill orebody became the golden milch cow to the state, the workers' unions and the shareholders. From the late 19th century, the NSW government struck a 50% royalty on the value of the ore, the South Australian government enriched itself with high rail freights, wages (including a market-linked lead bonus) were thrice the basic wage and the town council made the mines benefactors to the local people through inflated rates, water and electricity charges.
All of those costs raised the cut-off grade of mineable ore. Plimer remembers as a young geologist employed on grade control in the old North Mine in the early 1970s, "anything under 18% combine metal was left behind". In those days, 5000 were employed to extract as little as 1.8 million tonnes of rich ore a year.
Plimer and CBH managing director Bob Besley (also a geologist) have identified considerable remnant silver/lead ore throughout the company's central leases together with six unmined zinc lodes along the main lode. In addition, the large-tonnage Western Mineralisation zone of dominant lower-grade zinc sulphide discovered in 1913, but never mined, is a target together with another unexplored lode to the east. Using a decline entry to the ore, trackless mining equipment and a heavy media separation plant on site to extract up to 50% barren waste (mainly quartz) from the zinc sulphide ore, these targets will become profitable feedstock.
The CBH story has impressed Toho Zinc of Japan, which late last month subscribed $1m cash for a share placement at 6.5¢ and agreed to advance another $2m in a convertible loan to finance drilling to complete a bankable feasibility study to support an initial 10-year mine life. That's due in 10 to 12 months for a projected operation to yield up to 120,000 tonnes of zinc and 60,000 tonnes of lead concentrate a year. Toho will buy 50% of the zinc concentrate.
The announcement of the deal has so far not done much for CBH's share price, now languishing near its year's low at 6¢. The company's 175 million shares are capitalised at $10.5m and it has the $3m needed to complete the feasibility study. It's good to see some enthusiasm from directors, too, with CBH chairman Jim Wall buying on market 450,000 shares last month to top up his super fund, now holding 3.87 million CBH shares.
Correction: Last week I referred to Kalrez Energy's oil prospect on "Serum" Island in Indonesia. It should have been, of course, the less medically aligned Seram Island.
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