Market Scene : Mining the Arctic for Cold Cash : Entrepreneur who defied doubters has drilled one of the world’s most efficient zinc operations out of Canadian wilderness.

Back one day in the early 1970s, when Graham Farquharson’s chartered bush plane was nosing down through a snowstorm, he peered out the window at the tundra below and wondered whether he had gone mad.

The landscape all around him looked like the surface of another planet. Everywhere were drab, treeless hills covered with rough, broken rock and a dusting of snow. The wind was lacerating. Farquharson knew there were a few Inuit, as the Eskimos prefer to be called, living nearby. But there was nothing that could be called an industrial development for a thousand miles around.

“I wondered how we would ever convince people to come and work here,” recalled Farquharson, today the president of Nanisivik Mines Ltd.

Farquharson had big ambitions for this desolate site: He knew there was zinc, lead, silver and platinum in the ground, and he wanted to spend $56 million building a mine to dig them out. But whose $56 million? When he returned south from his exploratory visit and tried to court Canadian and American investors, “they all laughed at us,” he said.

No one had ever mined this high in the Arctic before. The miners would have to dig through permafrost--a ticklish operation. If the mine air warmed up, the frozen ground would melt and the mine would collapse. Permafrost posed additional problems for drilling. Drills normally require water to keep dust levels down, but in permafrost, the water would freeze.

Even if those technical problems could be solved, potential backers pointed out, the shipping season in these icebound waters, 435 miles inside the Arctic Circle, is but seven weeks. How could Farquharson possibly get the ore out to market? And temperatures here routinely plunge to 40 below in the winter, when there is 24-hour darkness for months. How could Farquharson hope to find miners who would live and work under such spirit-crushing conditions?

Farquharson eventually lined up financing from some strong-stomached European investors. Construction of a mine and a model village for intrepid crews and their families began in 1974, and when the mine was completed in 1976, it was the most northerly such operation in the world.

Today, all those naysayers have had to change their tune. Against all the odds, Nanisivik has turned out to be one of the most cost-efficient zinc operations in the world.

It owes its low costs to the location and structure of the zinc, which is used to galvanize steel for cars and appliances. The ore lies just three miles from the deep, frigid waters of Strathcona Sound, where an enthusiastic Canadian government--hoping a profitable mine would employ scores of impoverished Inuit--helped finance the first permanent deep-water dock in the High Arctic.

Since the distance to the sea is so short, Nanisivik doesn’t have to spend a dime on long-haul overland rail or road transport. While at other mines long-distance transportation can add $80 per ton to costs, Nanisivik just trucks its ore down a hill to the sound. From there, it ships about 100,000 tons per year, mostly to Europe.

A second boon is that Nanisivik’s ore lies in a flat seam, about a mile and a half long and 60 feet high. Those ample dimensions mean Nanisivik’s crews can drive right to the mine’s working face with their 40-ton trucks.

“People come here with the idea of miners going down and crawling around on their hands and knees with pickaxes, but it just isn’t so,” Hanes said. In fact, the interior of the mine is spacious, by mine standards, and almost attractive: The ceilings are supported by huge pillars of white permafrost, which sparkles in the light from miners’ hard hats as if covered with glitter.

Hanes said the ease of mining makes Nanisivik 10 times as productive, per worker, as the temperate Ontario zinc mine where he worked before coming north.

By saving so much on overland transport and worker productivity, Nanisivik can afford to offer the kind of perks that it takes to keep people happy in a place where the most interesting thing that happens all year may be a pod of hungry narwhals swimming up to the dock in pursuit of fish. Wages here aren’t any better than in a southern Canadian mine, but mine management sees to it that they need to buy little, so the miners can save a bundle.

Rents in town are a token--a tiny fraction of the real cost of heating, lighting and maintaining a house in the High Arctic. The houses, many of them igloo-shaped, are painted bright colors to boost residents’ spirits. Two-week vacations come once every 13 weeks--once every six weeks for Inuit employees--and the mine gives the southern employees free plane tickets home each time.

Management also gives everyone in town a free hot lunch every day and organizes a yearly sea lift of subsidized food--a tremendous benefit in a place where a sack of potatoes flown in from the south sells for $80.

“It’s a little odd to think a year and a half ahead,” Hanes said. “The challenge for the women of Nanisivik is to figure out how many rolls of toilet paper, how many cans of Coke and how many bags of dog food they’re going to need in a year.”

Farquharson was far from the first Canadian to realize there was money to be made from the minerals of Nanisivik. A Canadian ship wintered near here in 1910, and a prospector on board noted in his records that there were valuable minerals underfoot, lamenting that the latitude made it impossible to get them out. The Inuit he encountered in the region began calling the place Nanisivik, or “the place where people find things.”

In 1937, two prospectors staked claims. But it took them so long to cover the 1,000 miles from Churchill, in Manitoba province, by dog sled that their claims had almost expired by the time they got here. They left empty-handed.

The government sent the next round of prospectors in the 1950s, but their reports didn’t attract more than fleeting private-sector interest until Farquharson’s party arrived in 1972.

The 1970s were a time of tremendous Canadian government interest in northern development. Ottawa wanted to show the flag in the sparsely populated Arctic; it wanted to try out new cold-weather building and shipping technologies, and it wanted to find some way of boosting the Inuit, whose poverty in the face of southern Canadian well-being has long been a source of embarrassment.

The minister of Indian and northern affairs at the time, Jean Chretien, saw in Nanisivik the chance to create a model Arctic community, one that would be a blueprint for other intended northern settlement efforts.

Nanisivik’s management promised during negotiations to have a 60% Inuit work force on the payroll after the first three years of operation. In exchange, the government agreed to build an airport at Nanisivik and to make loans for a town and a port. Ottawa started off with an 18% interest in the mine; it has since been bought out. (Today, Nanisivik Mines Ltd. is a subsidiary of Conwest Exploration Co. Ltd. of Toronto.)

Nanisivik’s engineers solved the problem of mining in permafrost by keeping the mine air cold and using the frozen earth as support pillars. Mine manager Bill McNeil said that using the ice to “bind” the roof of the mine has actually saved money. Nanisivik’s engineers have also pioneered waterless drilling methods.

Their need to get the ore to market provided an incentive for a Canadian shipping consortium to develop--with government assistance--a reinforced bulk-cargo ship that can push through ice two meters (a little over six feet) thick. The ship, now in regular use, has extended the Arctic shipping season by a precious two months.

Nanisivik’s commercial success has prompted other southern investors to take a second look at the Arctic. Today, this is no longer the world’s most northerly mine. That distinction is claimed by another zinc operation, on Little Cornwallis Island, about 200 miles northwest of here.

The one thing Nanisivik has not been able to do is hire the Inuit en masse and set its intended example of how to establish beachhead communities in the High Arctic.

The mine has long since abandoned its target of a 60% Inuit work force. Inuit culture shock, and the nearly irresistible temptations of the generous Canadian welfare system, have conspired against that goal. Nanisivik management now says that Inuit employment is about 25%, still one of the best native-hiring records in the Canadian North.

And few think the town can live on after the ore is mined out, as it inevitably will be. Mine officials say about 75% of the zinc ore has been extracted by now. When 95% has been mined, they’ll close down.

Which means that one day, a few years from now, there will be an excellent airport, a deep water dock and a thoughtfully designed cluster of extremely well-insulated houses here in Nanisivik, all for the asking. The Inuit don’t want them; Inuit like to live at the shoreline, and the model village sits three miles inland. The Canadian army was briefly interested, but then the Cold War ended, the military budget was cut, and the army planners disappeared.

“People ask what happens to Nanisivik when the mine closes, and the answer is, ‘We don’t know,’ ” mine geologist Ron Sutherland said.