DAILY NEWS Sep 20, 2012 4:55 PM - 0 comments

Unfinished business at Prairie Creek

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By: The following article is reprinted with permission from CMJ's sister publication The Northern Miner.
2012-09-20

Nahanni National Park, NWT — The paint dried over 30 years ago but a wet paint sign still hangs on the metal railing that was erected to stop the uninitiated from falling into the crushing circuit below.

The hopelessly outdated sign wasn’t the only thing left behind. Alan Taylor, Canadian Zinc’s chief operating officer explains that empty cups of coffee were perched on the control room desk when his team first came into the mill in the early nineties.

The signs and mugs are remnants of past ambitions to build a mine that would pull silver, led and zinc from beneath this mountain and feed the wealth of one of America’s richest families at the time. And while that particular dream died thirty years ago, Canadian Zinc stands on the cusp of bringing its own vision to fruition and mining one of the highest grade, undeveloped zinc, lead and silver deposits in the world.

While impressive, it isn’t such mineral wealth that makes the Prairie Creek mine one of the most well known "almost" mines in Canada. The project’s status derives partly from its connection to the notorious Hunt brothers, and more prominently from its being situated so close to the Nahanni National Park in the Northwest Territories.

Both factors contributed in their own way to keeping Prairie Creek as an "almost" mine some 80 years after the discovery was first made. But to understand how, we have to go back to the beginning.

The Prairie Creek tale begins with prospector Poole Field, who made the discovery back in 1928. Field was hiking up the Prairie Creek in the Nahanni River region when a sheen off a mountain face first caught his eye and then his imagination. Field believed he had stumbled upon the same gold deposit discovery he had been told of in a letter from a friend 16 years earlier.

A former Mountie turned prospector, Field knew the Nahanni region well and understood more than anyone how it had earned its haunted reputation. It had been Field, after all, who discovered the headless bodies of two prospectors in his days as a Mountie, and it was also Field who found the bones of his friend after he made that gold discovery. The friend’s name was Martin Jorgenson, and his bones were found near his scorched cabin, but his skull wasn’t.

With the rumors of prehistoric, man-eating animals wandering the valleys and cannibals living in the cliff sides no doubt circling inside of his head, Field managed to find his way back to civilization after his find with that head still on its shoulders. And while he has the distinction of being the first to dream of turning the find into a silver mine, he was also the first to be denied its fulfillment.

By the time the dream died along with his body, the fear of cannibals and prehistoric animals had subsided; they were no longer seen as an obstacle to development of a mine — but the region's growing reputation as a place of natural beauty was.

In 1972, then Prime Minister Pierre Trudeau designated the area around the Nahanni River as the Nahanni National Park, and in 1978, the United Nations Educational, Scientific and Cultural Organization (UNESCO) chose the Nahanni as the first World Heritage site.

And while the Prairie Creek property lay just outside of the original park boundaries, it was clear from that point on a delicate balance between environmental stewardship and northern development needed to be struck.

By 1978 the development side was represented by Nelson Bunker Hunt and Herbert William Hunt, better known as the Hunt brothers — the same Hunt brothers that made billions on Texas oil, then billions more on silver before their attempt to corner the silver market came back to bite them.

While their massive silver play was rolling along — silver went from US$6 to close to US$50 over the course of their buying in the '70s — the brothers decided that a silver mine at Prairie Creek would be the ticket to more wealth through the 1980s.

But the dream was not to be. The price of silver collapsed, investors filed suit and the U.S. Congress stepped in to investigate whether the Hunts' activities in the silver market were legal. With depressed silver prices and mounting regulatory fines, the Hunts were up against bankruptcy and had to pull the plug on Prairie Creek just three weeks before the mine was to set to get into production.

And so back at the mill, coffee left in mugs evaporated and wet paint signs grew cobwebs until Canadian Zinc came onto the scene in 1993 (it was then known as San Andreas) and purchased the property for $3.25 million.

Since then it has been the company’s challenge to convince regulators and communities around the park that it can mine the ore in a way that preserves the integrity of the Nahanni, while at the same time convincing investors that it can do so with robust margins.

It hasn’t been a quick process. Chief operating officer Alan Taylor has been at it for 19 years, but in December of last year a milestone was reached when the company won an environmental approval for the mine.

That approval was a high bar that needed to be cleared and when combined with the Impact Benefit Agreements (IBA) signed with the two First Nations communities in any sort of proximity to the project, there is clearly cause for renewed optimism.

Two big pieces to the puzzle remain, however, in the form of a crucial water permit and a road permit.

On the water permit front Canadian Zinc has recently finished lock-cycle tests that will help clarify what the compliant numbers will be in terms of the acceptable levels of toxicity in the discharged water — those levels are remarkably small, going out to the fourth decimal place.

Water discharge is being tested and results are being sent to regulators, but there is a slight wrinkle that is specific to the project.

The wrinkle has to do with how water treatment discharge is monitored. Normally regulators take an end of pipe approach to measuring discharge. In the case of Prairie Creek, however, the project will discharge treated water into a mountain creek that is dynamic in terms of water flow.

So where regulators normally measure on a consistent day-to-day basis, the company has something else in mind.

“We’re not proposing (a consistent discharge volume),” Taylor says. “We will decant more treated water when the creek flow runs high and less when the creek runs low. A consistent volume ratio of treated discharge water to local creek flows, at an acceptable concentration provides a consistent mix and in turn has the least impact on the ecosystem.”

The second key permit is for a road that will allow the company to truck concentrate from the mill, through the park, and down to the railhead some 460 km away.

The road has, in the past, been a sticking point for environmentalists who argued that a road carrying heavy trucks could damage sensitive areas of the park. Canadian Zinc dealt with those concerns by designing a road that goes around such areas of concerns.

Complicating matters slightly, however, is that the road permit is multijurisdictional with the Mackenzie Valley Land and Water Board being the authority for the portion on Crown land, and Parks Canada being the authority for the portion of the road running through the Nahanni National Park.

The Crown land portion of the road has received a draft permit and the company’s board is revising the draft based on comments received and may issue a second draft for quick review.

As for the permit from Parks Canada, the company has applied for the permit but says that Parks likely won’t consider the application complete until it submits a road design, which it expects to do by the end of October.

Provided the permits are sorted out, the company’s grand plan is to truck concentrate 85 km to the Tetcela transfer facility (TTF). The facility would allow it to store concentrate until the more southerly stretches of the road freeze over, allowing the stockpiles to be hauled out.

The bottleneck in the trucking process will be an ice bridge, which would cross the Liard River, and would only be open in January, February and March; hence the need for the concentrate storage supply near the ice bridge crossing at Tetcela.

By building up concentrate supply during periods when the bridge isn’t open, the three-month window will be maximized and the company will be able to get all of its annual production out.

From the bridge, the trucks will wind their way through the mountains until they end up at Fort Nelson, where railcars will be at the ready to take the concentrate to port, likely for shipping to overseas smelters.

Canadian Zinc estimates that trucking costs will come in at $115 per tonne of concentrate and rail costs will be $100 per tonne for a total cost to port of $215 per tonne.

When and if the water licence and road permits are issued, Canadian Zinc will at last be in a position to be the one that gets Prairie Creek in the Northwest Territories into production.

The company currently has $12 million in cash and estimates that it will need roughly $200 million to build a mine that would generate a net present value of $253 million using an 8% discount rate. The internal rate of return is estimated to be 40.4%.

Those numbers come out of a prefeasibility study done by SNC-Lavalin this year, and are generated using zinc and lead prices of US$1.20 per lb. and a silver price of US$28 per oz. for the first two years. Longer term prices of US$1.00 per lb. for lead and zinc and US$26 per oz. for silver are used.

The study envisions a mine that would produce 60,000 tonnes of zinc concentrate and 60,000 tonnes of lead concentrate for 76 million lb. zinc, 90 million lb. lead and 2.2 million oz. silver per year.

Of the construction costs, roughly $80 million will go towards improving the existing mill, with the key expenses there being the addition of new diesel generators, a dense-media-separation (DMS) plant and the construction of a paste-fill plant to deal with all tailings. Those three items are expected to account for $80 million of $160 million in capex, with the remaining $30 million being for contingencies.

It's a bargain by today’s standards, as far as Taylor is concerned.

“One of the reasons we’re here is because of the mill that is already standing,” he says. “It would cost a quarter of a billion to build this facility from scratch.”

There is little doubt that the mill is in surprisingly good condition after 30 years. Once it is refurbished it will have a 1,700-tonne-per-day crushing capacity, although the plan is to mine 1,300 tonnes per day and mill 1,000 tonnes per day.

To run the mill Canadian Zinc will need 5 megawatts of power that will come from new Caterpillar diesel generators. The 1.5 megawatt units will cost a total of $20 million but will use 30% less fuel than the rusting hulks that are currently housed in the mill. Heat from the new generators will be used to help heat the camp.

Another new addition to the facility will be the DMS plant that will be part of the crushing circuit and will separate light form heavy material, allowing the company to upgrade feed without expanding the mill.

Taylor says the DMS plant will help relieve stress on dilution from underground operations by removing all limestone and dolostone at an early stage, thus acting as a kind of pre-concentrator of ore before it goes through the rest of the circuit. Some of the waste rock separated out from by the DMS plant will be carried by conveyor belt to mix with tailings and aggregate at the paste-fill plant.

The paste-fill plant is a key component of the mine's environmental protection engineering. Rather than deal with any risks of having a tailings pond in a river valley, all tailings from underground will be processed in the plant and put back underground as paste fill for areas that have been mined.

The actual break-down of mined rock in terms of where it will end up is that 47% will go back into the mine as paste backfill, 27% will be stored as harmless waste rock with no acid rock drainage issues, and the remaining 26% will make its way into the concentrates.

These concentrates will contain both silver and copper content as well, with the lead concentrate holding silver at a ratio of 7 to 3 in favour of lead. Copper will appear in both the lead and zinc concentrates at a 1-to-1 ratio.

Taylor says there is also the possibility of producing a copper concentrate on its own. The idea was considered back when the Hunt brothers ran the show, but the process being considered at that time involved the use of cyanide. Given the heightened environmental awareness of our modern times, cyanide is now off the table, but Taylor says that a copper concentrate could be made without the use of cyanide. The economics of that process are being evaluated.

One other consideration with the ore is that it does have a high mercury content, especially in the zinc concentrate. Taylor says the company has already reached out to smelter operators and they have assured it that the mercury content is workable.

Feeding the concentrate production will be a deposit with measured and indicated resources of 5.43 million tonnes grading 10.8% zinc and 10.2% lead with 160 grams per tonne silver and inferred resources of 6.24 million tonnes grading 14.5% zinc and 11.5% lead with 229 grams per silver per tonne.

Of the measured and Indicated material, 5.2 million tonnes are in the proven and probable reserve category with an average grade of 9.4% zinc, 9.5% lead and 151 grams silver.

But like all underground deposits, the rich mineralization continues to trend to greater depths, and a producing mine at Prairie Creek will no doubt continue to prove up new reserves as it goes forward.

Indeed the preliminary feasibility study completed in June outlined a mine with an initial 11-year mine life — and that ignored inferred resources. To give a sense of just how much mineralization is present, the current global resource runs 2.1 km down into the base of the mountain, and more than half of that area is still in the inferred category. What is more, exploration drills have tested a further 1.8 km down dip and continued to hit high grades with a highlight intercept of 3.4 metres grading 11% zinc and 5% lead.

The deposit is composed of a richly mineralized vein that is part of the north-south trending Prairie Creek fault structure, which runs over 10 km on the property. Within that structure there are a total of 12 separate massive sulphide vein occurrences but the current resource focus is on only one: Zone 3.

Walking down the adit and into the mine, the mineralized vein of Zone 3 is readily visible. It cuts through what are known as the Whittaker Formation below it and the Road River Formation above it.

The two structures make finding targets for future exploration a somewhat simple task. Currently the Rico showing offers the most exploration upside potential, and even thought it is roughly 6 km from the mine site, it too is connected to the Whittaker and Road River formations.

The Rico showing is made up of high grade boulders that were discovered during road construction. Assays returned 1.1 metres grading 35% lead, 18% zinc and 242 grams silver. Taylor opines that the high grade boulders most likely came up from the same Road River and Upper Whittaker formations that host the known deposit because the Cadillac formation — which overlies Road River and upper Whittaker — is brittle and would have allowed mineralization to pass through it. If that is indeed the case, Zone 3 could well extend further 4 km.

As for how much capital should go into continued exploration considering how much ore has already been outlined, Taylor is ambivalent.

“We can do it or not,” he says. “The region likes to see activity at the site and without exploration there wouldn’t be much activity.”

The statement points both to how much the company values community relations, and how well it has done on that front.

The two impact benefit agreements it signed in 2011 cover the community of Nahanni Butte, which is the closest community to the mine, residing roughly 90 km to the southeast of the project and Fort Simpson, which is roughly 150 km to the west.

Signing the deals was a testament to the strong community relations team that Canadian Zinc has assembled. Taylor gives much of the credit to Wilbert Antoine, an elder and member of the Liidlii Kue First Nation who has 40 years of experience in the mining industry. Antoine is the company’s manager of northern development.

Coinciding with the improved community relations is the tenure of Bob McLeod as N.W.T. premier. McLeod, who was elected in 2011, is considered to be one of most progressive premiers in terms of northern development.

Such an improved business environment has Taylor seeing the proverbial light at the end of a long, long tunnel.

“There’re more challenges behind us than ahead of us now,” he says.

It’s been a long road to get where the company is today. The usual technical challenges of outlining a deposit and planning out a mine have been compounded by the project's location. Being in such a remote area means that the Prairie Creek project has been especially susceptible to ill-formed opinions from the general public. An average citizen in Calgary or Halifax reads that a company plans to build a mine near a National Park and he or she is immediately concerned.

But that kind of knee-jerk concern would fail to consider not only that a facility has already been standing for 30 years but that mine engineering has advanced to a stage where a facility can be built that safeguards the surrounding environment.

With time and education, the perception that building a mine near a treasured park is too risky has begun to turn. Where once naysayers of the project played to Canadian pride for the natural landscape, it is becoming increasingly clear that pride can equally be drawn from this country’s mining expertise and the environmental sensitivity that allow for the construction of a mine that contributes to the Far North’s economy without fear of threatening the majestic landscape around it.

Such a fine balance between engineering, economics and environmental stewardship is not found just anywhere in the world.

To read more Northern Miner articles, click here

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