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Troy Mine battles economic woes

by Brad Fuqua & Western News
| December 1, 2008 11:00 PM

When Troy Mine employees arrived at work Monday morning, they punched the clock knowing that they would be earning less on their paychecks. Now, they hope copper and silver prices will stop falling in the coming weeks so they can keep those jobs.

“If we had a good indication the prices would be going down much further in the markets, we’d have to seriously look at shutting the mine down,” said Doug Ward, vice president of corporate development for Revett Minerals.

Although that’s a scary statement to digest for the 185 employees at Troy Mine, Ward and his fellow management partners appear to believe that copper and silver prices will rebound.

“Our view right now is we see copper and silver prices have kind of bottomed out,” Carson Rife, Revett’s vice president of operations, said this past Wednesday. “Hopefully, we’ll gradually climb back up the first half of next year. Of course, we’re making every effort to reduce costs at the mine through wage concessions, instituting that the first week of December. But we do see ourselves moving forward and continuing.”

Ward confirmed that Troy Mine employees received a 10-percent pay cut. In addition, senior management officials at the corporate level are enduring a 20-percent pay cut. But he called the wage reductions temporary and added that the company intends to “make everybody whole” after an estimated six months. That means employees would be reimbursed for wages lost during that time period.

“Our employees are very loyal and dedicated,” Rife said when asked if Revett was concerned about low morale at its Troy operation. “They recognize what’s happening in the world economy and what it’s doing to our metal prices and the economies at the mine, and doing whatever they can to see the mine move forward.”

According to Revett’s operating and financial results report released on Nov. 14, “the collapse in metal prices has resulted in a significant deterioration in the company’s cash position. If alternative financing or a deferral of some of its financial obligations cannot be obtained, the company may not have sufficient financial resources to continue normal operations past the end of December 2008.”

But since the report of that quarterly audit was released, Revett apparently made strides in the area of deferring some of those debts.

“We had a big liability … and since July, prices have dropped about 60 percent,” Ward said, referring to copper and silver markets. “In October alone, it dropped about 40 percent. We’re hit with this big liability to pay these guys back. We negotiated a deferral of those payments that’s not going to hit us on the head.”

The company continues to position itself to “keep our heads above water during this period,” as Ward put it.

“Right now, we have no immediate plans of shutting the plant down,” he added. “I’d be lying if I said we’re not looking at it because we need to know that number. Right now, we’re OK.”

The source of the problem is the big drop in copper and silver prices. But on top of that, Revett’s type of ore production translates into delayed payments. The mine does not produce metals on site – only a mineral concentrate. Through that process, Revett does not receive final payment until three months down the road.

Besides the wage concessions, another move by the mine includes an increase in productivity. So, yes, while taking home less pay, employees are working harder to help Revett get back on its feet. An increase in throughput lowers cost per ton – a needed plus that the company needs right now.

“We’re actually asking them to bear with us and increase production,” Ward said. “What we are working on is all our suppliers to reduce the prices that they’re charging us. And actually, we’re getting some very good relief there.”

Lower fuel prices have been a positive but also the company found some relief in its steel costs. Steel is a primary expense at the mine playing a role in many facets of production from the liners in trucks to anything touching the rock underground.

Revett has also altered its production approach by mining higher-grade materials. For example, Ward said that through September, the mine had been producing about 1 ounce of silver per ton. Now, the mine is running at around 1.4 ounces of silver per ton. So, although it still costs the same to mine the silver, the bottom line sees a 40-percent increase because of the higher grade.

“The guys have actually re-positioned the mine pretty well,” Ward said. “Costs have come down substantially over the past couple of months.”

At the end of last week, copper prices were running at $1.65 per pound with silver coming in at $10.23 per Troy ounce. Those figures indicate for the moment that prices have stabilized.

“I’ve seen a number of metal cycles which is normal but have not seen this abrupt or significant drop in prices as before,” said Rife, a mining industry veteran for close to 30 years. “It’s a pretty sudden and significant drop.”

Revett – based in Spokane Valley, Wash. – acquired the Troy Mine in 1999 with first production in December 2004. The company also has been in the development stages of its Rock Creek Project, another silver and copper operation located near Noxon. But expenditures at that site are practically nil because of lawsuits challenging the permitting process.

“Fortunately, it’s still stuck in the courts,” Ward said. “Most of our expenditures on Rock Creek have been on hold since June anyway. We have a few things here and there that we spend on the project. … We’re waiting on a ruling, so really expenditures have been small.”

Both Ward and Rife estimated 185 employees working at the Troy Mine, along with about 20 contractors.

As for a possible shutdown, it seems to be a long shot. It depends on silver and copper prices and whether or not another major drop awaits in the future.

“If we’re wrong and it drops another 20 percent … then we have to look at things,” Ward said. “Right now, we’re going through whatever measures we can to keep our costs at an absolute minimum while maintaining our productivities.”