Kemess Turnaround

The Kemess South gold-copper mine in the rolling Omineca Mountains of north-central British Columbia is easy to like. The Toodoggone region is magnificent, and the people at the mine are very down-to-earth.

At first glance the Kemess South mine does not stand out, especially in comparison with other large mines in Canada’s far north–the oil sands of Alberta’s Athabasca Basin or the diamonds near Yellowknife. What makes Kemess special is that it has overcome a shaky start, proving what can be accomplished when a valuable resource is given the benefit of good management and strong financial backing. The renewed mine is doing so well that it is turning into a company-maker for this latest incarnation of Northgate Exploration.

Kemess is the only operating mine for 100%-owner Northgate Exploration Ltd., a company with only two full-time employees. Northgate’s head office is in Vancouver where president and CEO Ken Stowe and CFO Jon Douglas spend part of their time, but the pair also rent office space in Toronto. “At this point in Northgate’s evolution we don’t need a large head office staff, and certainly from a shareholder perspective, less is more when it comes to overhead,” quips Stowe.

Royal Oak Mines acquired the Kemess South deposit from two junior mining companies in 1996. With the assistance of the provincial government, which fast-tracked the permitting phase of the project, Kemess began production in mid-1998. Unfortunately for Royal Oak, they became insolvent by April 1999, before Kemess had reached anything close to its full potential. Stowe explains: “Kemess never had a fair chance because Royal Oak’s financial problems prevented them from providing the working capital necessary to properly commission an asset the size of Kemess.”

Operations continued for a year under the interim receiver, PriceWaterhouse Coopers. In September 1999, Stowe (a metallurgist with 20 of operating experience) was sent to the site to oversee the operation. He was protecting the interests of creditors Trilon Financial (a merchant bank, later renamed Brascan Financial) and Northgate Exploration, which were the first secured creditors, having lent Royal Oak US$120 million to complete construction of the mine in 1998.

In February 2000, through Royal Oak’s proposal under the Bankruptcy Act, Northgate Exploration (30%-owned by Trilon Financial at that time) acquired Trilon’s security position and exchanged both Northgate’s and Trilon’s security for a 95% interest in the Kemess mine. In February 2003, Northgate acquired the remaining 5% of Kemess from Royal Oak Ventures Inc. Brascan currently owns 41.5% of Northgate and retains a 1.62% royalty on Kemess South.

In the depressed gold and copper environment of 1999, not everyone would have wanted a gold mine with a checkered history. However, with strong financial backing from Brascan Financial, Northgate seized the opportunity to purchase a fundamentally sound asset at 35% of its original cost. The company believed that the commodity cycle would rebound and renew interest in gold and copper mining assets, especially in stable regions of the world.

Before Northgate assumed control of the mine, the operation was hamstrung by equipment shortcomings, poor maintenance practices and supply contracts that were not performance-related. After Kemess emerged from the bankruptcy of Royal Oak, Northgate began the task of renegotiating contracts (voided in the bankruptcy process) with suppliers who were interested in developing co-operative, long-term relationships. As well, Northgate systematically corrected the deficiencies inherited from the previous owner, spending less than US$10 million to put the finishing touches on a US$500-million asset. “We identified the issues and corrected them one-by-one,” says Stowe. “The money we spent on improvement projects had tremendous payback and was much less than many people suggested would be required.”

To improve the day-to-day operation of Kemess South, Northgate began by installing a new management team with the requisite skills to turn the operation around, and who were willing to make a long-term commitment to the success of the mine. General manager Maurice Ethier, who has 30 years of experience in mining and mine management, most recently as general manager of Noranda Inc.’s Gasp mine in Quebec, headed this team. “We chose people with the skills we needed but we were also careful to select individuals who would fit into the new performance culture that we were building,” says Ethier. “It took a good 18 months for the team to stop fighting fires and gel together as a unit, but we reached that point in early 2002 and we have not looked back.”

Kemess certainly has turned around. In January 2002, the BC & Yukon Chamber of Mines recognized this by giving Northgate the E.A. Scholz Award for Excellence in Mine Development for “their impressive operational and exploration skills in achieving a dramatic transformation in the fortunes and outlook for the Kemess South mine. In addition to the operational turnaround at Kemess South, Northgate has also achieved considerable exploration success at the nearby Kemess North project, which should result in a significant extension to the mine life at Kemess.”

The operating results at the end of 2002, compared with 1999, demonstrate a stunning turnaround:

the mining rate (ore plus waste) increased 50% to 117,000 tonnes/day;

the average daily mill throughput increased 22% to 47,400 tonnes/day;

gold and copper recoveries each increased by 9%;

annual gold production increased 34% to 282,300 ounces, and annual copper production was up 55% to 73 million pounds;

the cash cost of gold production (net of by-product credits) shrank 40% to US$204 from US$350/oz.

“When we assumed control of the mine we knew that for it to survive we needed to drastically decrease operating costs and increase metal production,” says Stowe bluntly. “The first two years were rough, but over that period the experienced management team increased availability and metal recoveries in the mill and improved productivity in the pit by redesigning and optimizing operations and maintenance.”

Not surprisingly, Northgate’s financials have improved, from a loss of US$23 million in 2000, to a loss of US$14.2 million in 2002 (including a one-time US$9.8-million charge for closing gold hedging contracts). Since the mine was acquired using bridge financing provided by Brascan Financial, Northgate has managed to reduce its debt load by more than US$135 million to US$55.5 million through two equity issues during 2002. Over the past year, the company’s market capitalization has increased almost ten-fold, from Cdn$40 million the beginning of 2002 to Cdn$370 million by February 2003.

“The Kemess South mine has become a true success story, by any yardstick, and this allowed us to issue 160 million common shares of Northgate during 2002,” says Stowe. “We added over 35 new institutional investors during the year and went from having no analysts covering us to having eight covering us today.”

With proven operating success, Northgate is now looking to extend the operating life of the Kemess mill and infrastructure by proving up additional reserves. Exploration drilling during 2001 and 2002 increased the total resources and reserves in the 65,000-acre land package surrounding the mine to 11 million ounces of contained gold, including Kemess South, Kemess North and the new Nugget zone. (See “High Hopes for Kemess North” sidebar.)

Northgate is also conducting grassroots exploration in the region, using its knowledge of geology at Kemess as well as high-resolution geophysics, and satellite hyperspectral and TM imaging.

Some additional properties in the Toodoggone region have already been optioned or staked. Diamond drill results last year on the Brenda property, 25 km northwest of the Kemess South mine, have expanded the region that is prospective for porphyry deposits.

Northgate has an agreement in principle with Vancouver’s Doublestar Resources Ltd. regarding the Sustut copper deposit, located 65 km by road south of Kemess South.
Doublestar and Procon Mining are studying the economics of mining the resource (6 million tonnes at 1.9% Cu and 6 g/t Ag) and custom-milling the ore at Kemess.

CMJ visited Kemess in November 2002, and interviewed Stowe in Toronto during February 2003 for this article.

Kemess South Mine

The deposits in the Kemess area form North America’s northernmost giant copper-gold porphyry, part of a system that encircles the Pacific Ocean. Mine geologist Gary Paarup describes the Kemess South deposit as a calc-alkaline porphyry system around the Lower Jurassic, relatively flat-lying, homogeneous Maple Leaf quartz monzodiorite sill or wedge. The intrusive is underlain by Takla Group mafic volcanic rock, and is unconformably overlain by Sustut Group sedimentary rocks.

The porphyry underwent two waves of alteration: the first (hypogene) introduced potassium and sericite with pyrite (1-5% of the rock), chalcopyrite, magnetite-hematite, bornite and molybdenite, with lesser pyrrhotite, tetrahedrite and native gold, plus intense quartz stockwork veining. The second (supergene) was a prolonged period of arid weathering, and lead to retrograde alteration to chlorite and pyrophyllite, with mineralized zones containing native copper, chalcocite, bornite, chalcopyrite, hematite, native gold and rare silver.

An important part of Paarup’s job is to sample every ore blasthole and every fifth waste blasthole. Besides the grade and hardness, he is checking on the acid-discharge characteristics of the rock. Another important focus of his job is to monitor the graphite content of ore, which occurs in certain isolated areas of the deposit, and to advise the mill so that they can take appropriate action when the ore reaches the mill. The geology team classifies the rock into four ore types and seven waste types. The ore is stockpiled for separate campaigns in the mill and the waste rock goes to various storage areas depending on its acid-generating potential.

The Kemess South deposit contains predominantly hypogene ore (84%) with the balance consisting of supergene ore (11%) and leach cap ore (5%). The deposit is bounded on the north side by a boundary fault, which has already been reached on several benches.

Proven reserves at Kemess South as of Dec. 31, 2002, were 109 million tonnes grading 0.71 g/t Au and 0.23% Cu, for about 2.5 million contained ounces of gold and 564 million pounds of copper. In addition Kemess South has 47 million tonnes of indicated resources at 0.48 g/t Au and 0.17% Cu.

Mine superintendent Tony Marconato and chief mine engineer Greg Tucker described the mine to CMJ.

The configuration of ore at Kemess South makes the deposit ideal for low-cost, high-volume open pit mining. The pit is mined in 15-m benches, with a bench angle of 68* and a wall angle ranging from 40* to 48* depending on the structural integrity of the rock. A re-optimization plan in 2002 eliminated 6.7 million tonnes of marginal reserves, and brought the life-of-mine strip ratio of ore:waste down to 1.05:1.

There are currently two drills operating in the Kemess South pit–a P&H 100XP electric rotary drill and an Ingersoll Rand 351 Pit Viper diesel hydraulic drill, both drilling 311-mm-diameter holes. Emulsion explosives and Anfo are used for production blasting in the pit with an average powder factor of 0.22 kg/tonne. BXL Bulk Explosives has recently been chosen as the contractor for explosives supply, mix and delivery.

The digging equipment consists of a P&H 2800 XPB electric shovel (32-m3 bucket), a P&H 2300 XPB (25-m3 bucket) that was commissioned in 2002, a LeTourneau L1400 hydraulic loader (21-m3 bucket), and a Hitachi EX3500 hydraulic shovel (18-m3 bucket) that is being retired this year when overburden stripping is completed.

Kemess has a fleet of thirteen Euclid R-260 haul trucks, each of which has a rated capacity of 238 tonnes. Truck availability has increased from 65% to almost 90% since Northgate acquired the mine and instituted a preventative maintenance program, part of which included a fixed-cost engine maintenance program with Detriot Diesel. Kemess has also increased tire life by 40%, which has reduced annual haulage truck tire costs by more than US$500,000. This was accomplished by implementing a comprehensive road maintenance program as well as an improved tire design and maintenance program in conjunction with a new tire supplier, Fountain Tire.

As a result of these improvements, the average mining rate (ore plus waste) has increased to over 145,000 tonnes per day in the first quarter of 2003, compared with 56,300 tonnes per day in 1999.

Milling and Flotation

The 50,000-tonne/day Kemess concentrator runs separate campaigns of hypogene, supergene and leached cap ore, and produces a bulk gold-copper concentrate with a minor byproduct silver value. It has a 132-person workforce including mechanics.

The concentrator used to be fraught with problems, according to mill superintendent John Hoffert and chief metallurgist Greg Rasmussen. A series of small capital projects has improved the system, and the employees’ attitudes have changed dramatically in the two years since Northgate took over the mine. “Instead of competing for resources, there is now inter-department co-operation,” says Hoffert. “Employees have the confidence to deal with problems and take on more individual responsibility.”

He adds: “The US$700,000 that we spent in 2001 on building a new mill operators dry and lunchroom/safety room was an important investment in the workers’ comfort. This went a long way to letting workers know the company was sincere in its promises, and even helped in negotiating the recent collective agreement.”

The result has been very positive: an increase in the average daily mill throughput to 47,420 tonnes last year from 38,700 in 1999. (Each percent of throughput is worth more than US$1 million every year.)

The plant uses conventional crushing, grinding and flotation controlled by a fully integrated Foxboro IA DCS system. It requires 24,000 gal/min of process water.

A 1.5-m x 2.3-m Metso primary gyratory crusher in the pit reduces ore to -15 cm; this is conveyed to a stockpile with 48 hours storage capacity. Coarse ore is fed into twin parallel grinding and rougher flotation circuits.

Grinding is done by one of the two 10.4-m x 4.7-m SAG mills followed by screening, and a cluster of 10 Krebs 66-cm-diam cyclones that make a flotation feed of 65% -200 mesh. The Cyclopak underflow reports to one of the two Metso 6.8-m x 11.0-m ball mills, some of the largest ball mills in the world. Kemess worked with Metso Svedala in 2001 to eliminate ball mill flange bolt breakage, to reduce downtime and costs. Svedala was also able to help Kemess improve the availability of the primary crusher.

The Cyclopak overflow from each grinding circuit is floated in two parallel rows of seven 130-m3 Wemco tank cells (28 tank cells altogether). Underflow from these roughers goes to final tailings.

The concentrate overflow from all four rows of bulk rougher flotation cells reports to a cluster of 24 cyclones that produce middlings (sent to a regrind mill) and overflow. The flotation overflow is cleaned in two parallel circuits of 16 conventional 17-m3 Denver flotation cells, which is where much of the gold is captured. The installation of the Denver cells in late 1999 was the first major improvement.

Cleaner concentrate overflow reports to two 3.3-m-diameter x 11.0-m-tall column flotation cells in series. The flotation columns were designed and constructed at Kemess for US$500,000, to improve metal recovery and concentrate grade. They started up in May 2002 and have worked like a charm ever since. In fact, they were directly responsible for the concentrator setting new records for gold and copper recovery of 74% and 86%, respectively, in the fourth quarter of 2002.

The flotation middlings are reground to 70% -325 mesh before final cleaning/scavenging. The column overflow reports to a 20-m-diameter Westech thickener followed by twin Eimco-Baker Hughes pressure filters. Kemess installed the larger, more efficient thickener and modified and
overhauled both press filters in 2000, so the moisture level in the concentrate is now consistently <8% for shipping.

The mill produces an average of 400 tonnes/day of bulk concentrate that grades 23-24% Cu and 60 g/t Au. Prince George-based Lomak Bulk Carriers trucks the concentrate 380 km by road to a rail spur at Mackenzie, where it is transferred to covered gondola rail cars. All the concentrate is sold and shipped to Noranda Inc.’s Horne smelter in Rouyn-Noranda, Que. The three-year sales agreement will expire in December 2004.

The mill uses about 55 of the 60 MWh of electrical power consumed at Kemess each year, supplied via a 380-km-long power line from Mackenzie. Upon its arrival at Kemess, the electrical power is stepped down from 240 KV to 25 KV by a new US$1.4-million transformer that was commissioned in 2001 to replace a smaller unit, which now serves as a backup to ensure electrical availability.

Although the Kemess mill is now operating reliably, the mill staff must stay alert to subtle changes in the ore that can affect recoveries and concentrate grade. “Graphite, sericite and clay all absorb reagents at different rates, necessitating constant monitoring of the flotation system to maintain optimum conditions,” said Hoffert. “Adjustments to the milling circuit are also required on a continuous basis to deal with variable hardness of the ore in order to optimize the mesh size of the grind. Over the past two years we have developed very good communications with geology who constantly update us on the characteristics of the incoming ore so we can maintain optimum operating conditions.”

The mill staff is dedicated to continuing to improve their operation, and two projects are being fast-tracked for deployment in 2003. An expert computer system will be integrated into the mill control system and is expected to boost the throughput by an estimated 3%. As well, a system of trommel magnets is being installed on the ball mills to remove pieces of broken steel, thereby enhancing grinding efficiency.

Tailings Empoundment

Mill tailings are pumped through two 66-cm-diameter rubber-lined pipes to the tailings impoundment area 7 km from the mill. The 10 Ash pumps with 930-kW drives push the tailing 285 m uphill to 1,510 m above sea level. The fail-safe system means that if the mill stops, the tails can immediately be discharged into three dump ponds. The entire line is bermed and culverted in case of spillage. Last year the pumping capacity was boosted to accommodate the final elevation of the dam.

The tailings impoundment is built in a valley with a clay-core dam and operates as a zero discharge system. A barge reclaims process water in the impoundment area and three 450-kW Peerless pumps send the water back to be reused in the mill.

A very innovative, US$3.5-million tailings cyclone plant was installed last year next to the impoundment. The plant removes a clean coarse-fraction of the tailings, which is used in the actual construction of the dam. This construction technique reduces the ultimate height of the dam and decreases the total cost of construction by US$20 million by eliminating the need to haul waste rock from the open pit to build the dam.

In the cyclone plant, a Krebs Cyclopak first sizes the material. The underflow is discharged into the world’s largest flotation cell, an Outokumpu 160-m3 flotation tank, which floats off all (acid-generating) pyrite. The remaining clean material is pumped into a second stage Cyclopak, and its underflow is the sand product for dam construction, at a target size of 15% -200 mesh. The plant was successfully commissioned late last year and is fully operational. It will now be an integral part of the dam construction program for the remaining life of the Kemess South orebody.

Environmental Activities

The Kemess South mine and camp are located within the Kemess Creek drainage system of the Omineca Mountain Range. Kemess Creek flows into Thutade Lake, which ultimately drains northward into the Finlay River. The mine site lies within the Spruce-Willow-Birch Biogeoclimatic Zone (SWB mk) and receives approximately 100 cm of precipitation annually. A variety of wildlife inhabits the area including black bears, grizzlies, wolves, fox, moose and caribou.

Environmental services superintendent Harold Bent described the company’s environmental programs on the 1,000-ha Kemess South site, within the 26,000-ha Kemess mine property.

The environmental team is involved in monitoring and implementation programs throughout the drainage basin. These include extensive water quality monitoring; comprehensive fishery resource evaluation and monitoring; detailed geochemical characterization of all rock types; erosion control and reclamation programs; and responding to potential impacts from the mining operations.

The extensive water quality and fishery resource database was established prior to mine development and continues to present day. The environmental department conducts a variety of laboratory analyses and experiments onsite, and uses commercial laboratories for its large water quality analytical needs and other procedures.

An extensive fisheries compensation program was developed to offset the loss of fish habitat to protect mostly the Bull trout (a blue-listed species in British Columbia) and the Dolly Varden fish populations. It included: (1) the salvage and transplant of Bull trout and Dolly Varden; (2) the construction of three fish ladders at a cost of approximately US$700,000; (3) the construction of 14 artificial spawning beds; (4) beaver dam removal to provide habitat access; and (5) the construction of a water diversion system to provide fresh water to South Kemess Creek, at a cost of approximately US$2.5 million. All of the programs have achieved great success. In fact, Kemess mine was the first to record the successful utilization of artificial spawning beds by Bull trout.”

Kemess conducts a very comprehensive waste rock segregating program designed to minimize all potential future liabilities. Each rock type is transported to a specified location. Non-acid-generating waste is placed in dumps that will be re-contoured and a vegetative cover established for final reclamation closure. The potentially acid-generating rock types are deposited subacqueously for permanent disposal or are temporarily stored on prepared compacted, low-permeable dump pads with drainage collection systems. At the end of mine life these materials will be deposited into the exhausted open pit and flooded for final closure.

Ongoing reclamation and deactivation programs are conducted annually, keeping the area of disturbance minimal for final closure at the end of mine life. They provide an opportunity to determine which reclamation techniques and plant species are most successful. The single largest program to date was the reclamation work completed along the 380-km power line corridor. The US$1.1-million program was initiated in 1999 and completed in 2001. Subsequent inspections have shown all of the works have ‘set-up’ as designed and are achieving the desired erosion control and reclamation objectives. Kemess’ efforts were acknowledged at the 2001 Annual BC Reclamation Symposium with the receipt of a citation “In Recognition of Outstanding Reclamation Achievement”.

Human Resources

Kemess is a remote, fly-in operation. The workforce consists of 89 staff and 300 hourly employees. The hourly employees are represented by the International Union of Operating Engineers. The mine works 12-hour shifts on two rotations: 14-days-in, 14-days-out; or four-days-in, three-days-out.

A new three-year collective agreement was signed in June 2002, and is in effect until December 31, 2004. “The wages here under the new agreement are fairly standard for mines in British Columbia,” says human resources superintendent Linda Hodgson, “but we can’t compete with the pay rates in the oil sands industry in Fort McMurray.” A variable compensation program was introduced for all employees in the second quarter of 2002. The program encourages all employees to have a hand in making improvements
and to share the resulting benefits.

Approximately half the employees are from northern British Columbia, and about 7% of the workforce is aboriginal. “We are committed to hiring from northern BC,” says Hodgson. A provision in the collective agreement addresses Kemess’ commitment to the local First Nations groups whose traditional territories are directly affected by the mine. This allows for an on-site training program in entry-level positions for members of the First Nations groups, to expose them to work in a mine.

The safety programs introduced by Northgate–the Five Point Safety System in 2000 and Practical Loss Control Leadership in 2001–have obviously had their desired effect. Kemess had only two lost-time injuries in 2002, for a frequency of 0.49 per 200,000 person-hours worked, and a frequency of 0.22 in 2001, down from 2.5 in 2000 and 4.1 in 1999.

Working away from home for two weeks is not for everyone, and this has an impact on the turnover rate at Kemess. To minimize this, Kemess flies all candidates to the mine site for job interviews, so they can see the situation before they sign up.

Accommodations consist of over 500 private rooms in 17 single-story bunkhouses, a central dining hall, an exercise room, recreation building and a guesthouse managed by the catering contractor Eurest Support Services.

In any remote camp, food and flights are “hot” topics of conversation, and Kemess is no different. “Food is a difficult issue because everyone has different tastes,” admits Hodgson. Northgate has successfully overcome the former flight reliability problems by signing a new contract with Northern Thunderbird Air. NT Air provides two flights per day from Prince George to Kemess and one from Smithers, Monday through Thursday at regularly scheduled departure and arrival times.

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High Hopes for Kemess North

With the valuable asset of a 50,000-tonne/day mill in its pocket, Northgate decided to get serious about looking for additional ore reserves to extend the productive life of the Kemess mill. The exploration team was drawn, in 2000, to a small, near-surface deposit 5.5 km north of the Kemess South pit. By drilling deeper holes than previous groups, Northgate discovered and defined a major resource at Kemess North some 200 m below surface, that could extend Kemess production by 10 to 15 years.

The geology is somewhat like Kemess South, according to consulting geologist Brett LaPeare. It is a porphyry formed by a quartz monzonite body intruded into Triassic Takla Formation volcanic rocks, that has later undergone horst-and-graben faulting. Chalcopyrite is the main copper mineral, associated with pyrite. The gold is highest where there is elevated magnetite. Alteration has introduced abundant sericite and biotite, but not much potassium feldspar. The softer Kemess North mineralized rock means that mill throughput could be as much as 25% higher than with Kemess South ore.

As of late February 2003, the combined indicated and inferred resource at Kemess North is 514 million tonnes grading 0.40 g/t Au and 0.21% Cu, containing 6.6 million oz Au and 2.4 billion pounds Cu. A higher-grade core (0.8 g/t Au equivalent cut-off) is estimated to contain 185 million tonnes grading 0.511 g/t Au and 0.275% Cu, containing over 3 million oz Au.

The Nugget zone, 1.3 km southwest of the proposed Kemess North pit edge, was explored for the first time in 2002. It is estimated to have an inferred resource of 87 million tonnes at 0.38 g/t Au and 0.16% Cu, containing 1.1 million oz Au and 300 million pounds Cu. The deposit is open in all directions. Further drilling will determine whether Kemess North and Nugget are parts of the same volcanic centre.The proximity of the Kemess South infrastructure makes the capital cost of bringing in Kemess North much less than the cost of a similar-size greenfield mine. The results of a pre-feasibility study will be announced this summer. “We’ll have to determine how much stripping is necessary,” says Stowe. “The pit design is the important thing here.”

Hatch Engineering has been retained to determine the bottlenecks in the crushing, the mill, and the tailings system and to optimize the ultimate throughput of the existing processing plant. Klohn Crippen has been hired to study the environmental aspects of mining Kemess North. A detailed feasibility study is scheduled for completion at the end of 2003.

The conceptual development of the Kemess North deposit assumes an ore-mining rate of 75,000 tonnes per day and production of 250,000 oz Au and 121 million pounds Cu per year. The capital cost of the mine is currently estimated at US$150 million. Permitting would be done in 2004, and detailed engineering the following year. Pre-stripping and construction of a link between Kemess North and Kemess South would take from 2006 to 2008. In early 2009, when reserves at Kemess South are exhausted, the primary crusher would be relocated to Kemess North, which would begin to supply ore to the existing mill.

The Kemess environmental team has already begun to monitor the land and water around the Kemess North deposit, in anticipation of future developments. However, the economics will depend on the future prices of copper and gold. Says Stowe, “Metal prices in 2006 will determine whether Kemess North is developed” on this schedule.

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