Yukon Back to Mining

The clich about the Yukon is of prospectors scouring the territory to make their fortune, but in fact there have been no mines operating in the territory since Viceroy Resources’ shut down the Brewery Creek heap leach gold mine near Dawson earlier this decade.

That situation is about to change. The Minto open pit copper-gold-silver mine near Pelly Crossing, 240 km northwest of Whitehorse, is expected to begin operating in June 2007. This will be the first mine for 100% owner Sherwood Copper Corp. of Vancouver. CMJ interviewed Sherwood’s president and CEO, Stephen Quin, in March about the mine development.

If Minto sounds familiar it’s because Asarco and Falconbridge had a good look at the property in the 1970s, came up with a positive feasibility study in 1995, and formed Minto Exploration Ltd. (MintoEx) to put the deposit into production. The company spent about $10 million on development work, but pulled the plug in 1999 due to tumbling copper prices.

Along came Sherwood Mining Corp., which acquired MintoEx and its 100% interest in the property from Asarco, Falconbridge and Teck Cominco in mid-2005 for $8.4 million. (The Selkirk First Nation retains 0.5% NSR.) Later the same year the company changed its name to Sherwood Copper Corp., and hired Hatch to update the feasibility study.

Geology

Sherwood ran a 6,772-m (57-hole) drill program to confirm the resource and expand the high grade Main zone. The flat, near-surface Minto deposit is in a large granite-granodiorite batholith including abundant magnetite. The Main zone contains a higher grade core, which is the primary focus for planned mining operations. Shallower satellite zones are partially to fully oxidized and will be stockpiled for possible later processing.

The deposit’s core has proven and probable reserves of 5.9 million tonnes (t) grading 2.2% Cu, 0.80 g/t Au and 9.1 g/t Ag. Using a 0.5% copper cut-off grade, the Main zone plus other zones (including the reserves) have total measured and indicated resources of 9.1 million t grading 1.78% Cu, 0.62 g/t Au and 7.3 g/t Ag. In addition there are inferred resources of 90,000 t grading 0.81% Cu, 0.21 g/t Au and 3.8 g/t Ag.

Another zone (Area 2) seems to be made of multiple zones of gently north-sloping mineralization grading 2-3% Cu, stacked up over a 200-300-m thickness. The first phase of exploration this year will test the 100-m-wide “gap” area to see if the Main zone and Area 2 are linked at depth, and test the potential for mineralization extending beneath the planned open pit. The second phase will test other zones, including the nearby Ridgetop.

Development

Sherwood has accelerated Minto’s development, following its mantra of “more production sooner” in order to take advantage of high copper prices. The August 2006 updated bankable feasibility study had robust economics and was given the go-ahead by Sherwood. The most significant changes were speeding up the pre-stripping to access high grades sooner, stockpiling of all low grade (<1% Cu) material during the first six years to maintain an average of 2.5% Cu head grade, and expanding the mill during the first year of operations. The plan called for the mine to go into production by August 2007 at a capital cost of Cdn$98 million, with payback in only 2.4 years.

Hatch was hired to provide engineering and procurement services, and Jeff Stibbard’s group JDS Energy & Mining for construction management. Clark Builders is constructing the process and related facilities including a fuel tank farm. Finning provided the power generators. In January 2007, MintoEx concluded a use agreement with the Alaska government for the refurbishment and use of the Skagway ore terminal in Alaska. In February the company signed a power purchase agreement with Yukon Energy for a 138-kV transmission spur line from the main grid, and to purchase power for the project starting the end of 2008. The company has a signed co-operation agreement with the Selkirk First Nation.

A substantial portion of the waste pre-stripping has been completed by contract miner Pelly Construction; the long-term mining contractor will soon be selected. When the mine is in full production there will be about 100 employees on site–an estimated 66 MintoEx employees plus contractors.

The mill is based on Asarco’s original design re-engineered by Hatch. At an initial 1,563 tonne/day (t/d) capacity, the plant follows a conventional circuit comprised of a crusher, SAG and ball mill grinding and flotation. Concentrate will be filtered and stockpiled in a storage facility for later shipping to Skagway and eventual export overseas. A filtered tailings system will allow dry stacking of tailings, reducing reclamation costs. There is a water retention dam for process water. As of early March, the mill was 75% built. By the end of 2007 its capacity will be expanded to 2,400 t/d.

The plant will produce a high grade concentrate averaging 36% Cu, 10 g/t Au and 150 g/t Ag free of any penalty-level elements. The expected recoveries will average 94% for copper, 74% for gold and 95% for silver over the first six years of operations. Annual production in this period will average 41 million lb Cu, 17,295 oz Au and 0.25 million oz Ag at cash costs for copper of US$0.57/lb net of byproduct credits, with cash costs of US$0.60/lb over the life of mine, assuming diesel power generation. Once grid power is connected, costs are expected to fall by about US$0.09/lb.

“This was a very aggressive schedule, and many doubted that we could do it,” says Quin. “We compressed and did everything in parallel. In April 2006 we were still drilling the reserves while we were doing the feasibility study. The banking was done in August 2006, but construction had already begun in April. This carried a higher risk, but the net effect was to dramatically compress the schedule.” The project is on budget and first production is expected in June 2007–ahead of schedule–with commercial production beginning a few months later.

Sherwood entered into several agreements to secure its financing and payback. In October 2006, at the same time that an $85-million loan facility was finalized with Macquarie Bank Ltd., MintoEx signed forward sales agreements for 65% of the copper, gold and silver production in the first four years (35% of the overall current reserve). The forward sale price for copper starts at US$3.17/lb in August 2007 and gradually declines to US$2.00/lb in April 2011. The gold and silver forward sales are at a flat price of US$636.25/oz and US$11.51/oz, respectively, from July 2007 to April 2011. At the same time, Sherwood entered an offtake agreement for the sale of its concentrates at very attractive terms.

In February 2007 Sherwood closed a $40-million financing with BMO Capital Markets and a $5-million flow-through financing to complete the funding for the Minto project, to accelerate Phase 2 mill expansion, and to continue the exploration of Area 2 and other targets.

In mid-April the company expanded the scope of the prefeasibility study being undertaken by SRK Consulting (Canada) Inc. This will evaluate the potential to increase the mine life by converting the resources at Area 2 into reserves. The study will also evaluate options to increase mill throughput if the reserves warrant it. Recent testwork indicates that the two ball mills could handle up to 3,500 t/d throughput by going to a coarser grind without losing copper recovery. This would necessitate some additions to the remainder of the mill, such as a regrind mill and filtration.