Focus shifts to development in Yukon

Raising capital to develop new mines is a challenging exercise in Canada’s North, where the cost of doing business is higher than in southern jurisdictions. The Yukon government acknowledged this reality during an industry conference in early 2007, when it noted that the territory had not a single mine in operation despite its rich and diverse mineral potential. And of the 70 advanced exploration projects in the Yukon, only ten were in the feasibility or pre-feasibility stages.

Archie Lang, Minister of Energy, Mines and Resources, pledged that the government would turn its attention to helping these projects “become operating mines” though tax incentives, changes to the royalty regime and infrastructure improvements.

The government has delivered on that promise by working to ensure access to Pacific markets through the Alaskan port of Skagway, and supporting development of the power grid and new roads. By year-end 2007, one of the ten projects in the mine-development pipeline became the first Yukon mine in a decade to achieve production.

Sherwood Copper Corp. of Vancouver built the high-grade MINTO COPPER-GOLD MINE on budget and ahead of schedule, achieved commercial production in early October of 2007, and later that month sent its first concentrates to the port of Skagway, Alaska. By April of 2008, the mill had reached and at times exceeded its daily design capacity of 2,400 tonnes (t). Sherwood owns 100% interest in the open-pit mine, situated 240 km northwest of Whitehorse.

The next mine

Meanwhile, Yukon Zinc Corp. also of Vancouver is developing what will likely be the territory’s next mine at its WOLVERINE PROJECT, 195 km northwest of Watson Lake and 135 km southeast of Ross River. Mine planning is based on a 2007 optimized feasibility study led by Wardrop Engineering that includes results of a $19-million test-mining and definition drilling program completed in 2005, and builds on a previous (2006) feasibility study.

The volcanogenic massive sulphide deposit hosts diluted proven and probable reserves totaling 5.15 million t grading 9.66% Zn, 0.91% Cu, 1.26% Pb, 281.8 g/t Ag and 1.36 g/t Au. These reserves would allow a mine life of 9.5 years (including 1.5 years of pre-production development) at a production rate of 1,400 t/d. Operations could be extended another three years by converting inferred resources into reserves through in-fill drilling.

Average annual metal production in the first three years of full production is forecast at about 53,400 t of zinc, 4,860 t of copper, 6,010 t of lead and 4.93 million oz of silver, plus 20,200 oz of gold contained in the zinc, copper and lead concentrates.

Wolverine is a unique project in that dense media separation (DMS) will be used as a pre-concentration step before standard flotation to optimize metal recovery and produce salable concentrates. About 1,700 t of run-of-mine ore will be processed through the DMS plant to provide 1,400 t/d of higher-grade feed to the mill.

Capital costs were estimated in the optimized feasibility study (early 2007) at $183.2 million before a contingency of $24.3 million and working capital of $15 million. Since the study was released, Yukon Zinc has focused its efforts on securing financing for the project, as well as completing a 24-km access road to the site, and obtaining the necessary permits for the project.

Company spokesperson Shae Dalphond says the company has secured the lead portion of project financing through a US$140-million senior debt facility with Barclay’s Capital. “It’s the last of piece of financing that we’re working to arrange now.”

With the Type A water licence and quartz mining licence in place since last fall, Yukon Zinc has completed the environmental permit- ting for the project, which included public hearings and a multi-stakeholder review process. The company has completed a socioeconomic agreement with the Ross River Dena Council on behalf of the Kaska Nation, on whose traditional territory the project is located.

The company has also completed initial construction of the Wolverine access road, which is allowing equipment and supplies to be mobilized to the site by truck transport. “We’re ready to roll,” Dalphond says. “We have all the necessary permits and have maintained contracts for all long-lead-time items.”

Barclay’s Capital has extended its financing commitment to June 30, 2008, which gives Yukon Zinc a few more months to arrange the remaining $110 million of required equity to fully finance Wolverine. The company is engaged in discussions with various industry and other groups to clear this last remaining hurdle for the project to proceed.

On April 21,Griffin Mining Ltd., a mining and investment company based in Bermuda, offered to take over all the outstanding shares of Yukon Zinc through a court-approved plan of arrangement. At one Griffin share for every nine shares of Yukon Zinc, the deal values Yukon Zinc shares at 20.6, a 46.9% premium over Yukon Zinc’s April 18 closing price. The Yukon Zinc board has approved the proposed transaction, which is expected to close by July 31, 2008, subject to the approval of 66 2/3% of Yukon Zinc shareholders. There is a $2.5-million break fee.

Selwyn project

One of the territory’s largest and most ambitious development-stage projects is being undertaken by Selwyn Resources at the SELWYN PROJECT in the Howard’s Pass zinc-lead district of eastern Yukon. The company has spent almost $50 million on exploration, development and environmental programs at the project, no small feat for a junior company.

It’s obvious, however, that the price-tag for mine development will require much deeper pockets. Selwyn has conceded as much by renewing its search for a strategic partner to fund ongoing work at the large-scale project. With assistance from New York-based Hill Street Capital, the company is seeking a strategic investment for direct equity ownership of the Selwyn project through a joint venture arrangement.

The Selwyn project hosts NI43-101-compliant resources of 154.35 million t grading 5.35% Zn and 1.86% Pb in the indicated category, with another 231.54 million t classified as inferred. These resource estimates include higher grade underground resources of 16.06 million t grading 10.25% Zn and 4.43% Pb in the indicated category, and another 23.15 million t grading 8.86% Zn and 2.8% Pb classified as inferred.

Vivian Danielson is a freelance mining journalist based in North Vancouver, B. C., and can be reached at vivy@Telus.net.

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