Skyline hopes to start at 200 tons per day

Some detailed information has been made available to the public about Skyline Exploration’s Reg property in northwestern B.C. At this stage, management is confident the property could support a 200-ton-per-day milling operation which would be expandable at a later date.

Norman Anderson, former Cominco chairman, is expected to play a pivotal role in the property’s development. And his brief association with Skyline has added some much-needed perspective to the situation.

Skyline followed up its recent annual meeting in Vancouver with a slide presentation which drew a full house. Several weeks ago the company mounted a similar presentation in London where much of the buying for Skyline shares has originated.

Mr Anderson, who now is chairman of Skyline, told the Vancouver meeting that Skyline will need approximately 300,000 tons of “fully developed” ore to warrant production. He said they already have about half that amount and it will take about 3-4 months to firmly establish the remainder.

Work is expected to resume on the property in the next few weeks; last year’s sampling work will be rechecked although he believes the “assaying was done well.” The fire assay results were cross-checked in Vancouver and company consultant Dr E. W. (Ted) Grove said “the two were very similar.”

In late 1987, Skyline drove a 1,200-ft crosscut into the deposit and completed 400 ft of drifting along several veins. Mr Grove said the program demonstrated that the veins were continuous and not lenticular as previously speculated. Most importantly, the grade was 1.5 to 3 times that indicated by drilling. In general, values were cut to twice the average after taking out all the highs.

Mr Grove noted that the mineralogy of the Stonehouse gold deposit is relatively simple. Gold occurs in native form with pyrite and chalcopyrite in quartz and K-feldspar as massive veins; it also occurs in massive porphyry-like K-feldspar zones. He said the gold is unevenly distributed in this porphyry material, noting that future exploration will “look at the porphyry tonnage potential.”

The objective of the 1987 underground program is to develop a minimum 300,000 tons of mineable reserves in the Discovery and 16 zones above the adit level. Mr Anderson said they will finish sampling the Zephrin zone and run check samples on the Discovery East and 16 zones. They will also look for fault offsets to these zones and complete some more drifting plus sub-level development and a 400-ft raise to surface.

Mr Anderson said the reserves would probably have to average 0.8 to 1.0 oz gold per ton to justify a production decision. At 200-ton- per-day, mine life would be approximately five years and he admitted they will need “some high grade pods to make a success of this thing.” Skyline has an option on a 200-ton mill or they could build a new facility which would have to be airlift ed into the site. An airfield exists on the property but it would have to be extended to accommodate Hercules aircraft. There are no immediate plans to construct a road into the property. The Stewart- Cassiar highway is about 42 miles away and air access is from Wrangle, Alaska, a 30-minute flight.

Recoveries are estimated to be 92%-95% and ground conditions are good based on development work to date. A shrinkage stope mining method would be employed and the company is forecasting operating costs of $100(C) per ton.

Measured reserves are 79,848 tons grading 1.33 oz gold, 1.9 oz silver and 1.5% copper. These are cut and have been confirmed by underground development. Drill- indicated reserves are 153,598 tons grading 0.67 oz gold and 0.97 oz silver while inferred reserves total 705,000 tons at 0.67 oz gold and 0.7 oz silver. None of the reserves are diluted. Copper concentrate and any gold content in it would be stored on site because of the lack of road access.

Skyline has a working capital of $3 million and another $3.5 million in warrants are exercisable by year-end. Mr Anderson said this will be sufficient to get things started and make a down payment on a mill.

Capital costs are estimated at $12 to $17 million and Skyline appears to be looking at total equity financing for the project. Mr Anderson said they want to keep dilution to a minimum and after the project is completed there would be around 7.5 million shares issued.

Gold production would be 60,000 to 90,000 oz per year and the payback period is estimated to be 16-18 months. Referring to Dr Groves’ assessment of the over-all potential at four million tons grading 0.5 oz gold, he said that could justify a 1,000-ton-per-day milling operation which is not in the cards at the moment. Production would be expanded from cash flow as new reserves are established.