EXPLORATION ’94 — Ups and downs of small-scale mining

Small-scale, underground gold mines have been a feature of British Columbia’s history for well over a century. Some have been likened to slot machines which empty the pockets of over-eager investors, while others have proved to be reliable generators of cash.

The 200-ton-per-day Blackdome mine, 140 miles north of Vancouver, is an example of the latter.

The mine was formerly owned by Blackdome Mining, and prior to being taken over by MinVen Gold (now Toronto-listed Dakota Mining) in 1989, the company handed out $13.4 million in dividends. That compares with a paid-in capital of $19.5 million.

Including the value of the MinVen shares received under the merger deal, Blackdome shareholders received an additional $25 million, or a net gain of $18.9 million including dividends.

Shareholders in other small, underground projects in the province have not been so fortunate.

The Lawyers mine, in the Toodoggone River area, began life auspiciously, but premature exhaustion of reserves nearly sent owner Cheni Gold Mines (TSE) into bankruptcy.

The mine enjoyed cash flow of $9.3 million for its first year, 1989, and $8.9 million in 1990. But subsequent reserve problems caused operating shortfalls and finally forced the company to restructure its debt.

The mine is now dormant and although Cheni did spend about $300,000 exploring the property in 1993, the program was suspended halfway through the year. Jack Vincent, vice-president exploration, said no work is planned on the property itself in 1994 but that the company will be exploring ground nearby. Some of the small, underground projects currently under development are resurrections of past operations where the prospect of using an existing mill softens the pre-production financial burden.

A good example is Cusac Industries (VSE), which is reviving the old Erickson mine on the Table Mountain property near Cassiar.

Original operators called it a day in 1988, leaving idle a modern, 300-ton-per-day flotation-gravity mill.

Cusac completed acquisition of the project from Energold Minerals last year (subject to a final payment of $500,000 through a 10% net smelter royalty) and is currently developing the West Bain vein, which contains 36,000 minable tons at 0.68 oz. gold per ton.

It expects to mine the reserve this year, to produce 23,000 oz. at US$200 per oz. and sees potential for expanding reserves on strike as well as on previously identified veins.

Hera Resources (VSE), through a majority interest in International Taurus (VSE), hopes to get the Taurus gold property back into production. The mine, also near Cassiar, operated from 1981 to 1988 and a 300-ton-per-day cyanide mill is still on site.

Last year, drilling and trenching outlined an inferred resource of 481,000 tons grading 0.21 oz. in eight zones. It is hoped additional drilling will expand and define reserves in two of the higher-grade zones. If the drilling pans out, the mine could find itself back in business by mid-year. Hera President David Hjerpe said drilling is also planned on other targets on the property.

After cranking out 7,500 oz. at its Johnny Mountain gold mine last year, International Skyline Gold (TSE) hopes to continue with seasonal operations in 1994.

Situated in the northwest, the mine was originally commissioned in mid-1988, but lower-than-anticipated head grades resulted in a string of losses. Finally, in mid-1990, Skyline was forced to close the 300-ton-per-day producer.

Last year, following a debt restructuring and corporate reorganization, Skyline milled 24,000 tons grading about 0.34 oz.

President Clifford Grandison conceded that the operation lost money (final figures are not yet available). Nevertheless, weather permitting, Skyline hopes to be back on the property in June to block out more reserves. At least 10,000 tons are required to reopen the mine, although Grandison would prefer to see 20,000-24,000 tons.

Several other projects in the province have been operating intermittently, with run-of-mine ore being sent off-site for processing.

Habsburg Resources (VSE) and Timmins Nickel (TSE) settled a legal dispute last year over their Dome Mountain mine near Smithers.

After starting up in 1991, the joint venture produced 16,000 oz. gold from 50,000 tons grading 0.35 oz. Ore was trucked both to the Equity Silver mill near Houston and to Westmin’s Premier mill near Stewart — until, that is, the dispute forced a shutdown.

That dispute has been settled, with Habsburg retaining an 80% interest until it recoups 200% of its expenditures, after which Timmins’ interest increases to 40%.

Habsburg President Michael Pickens said the project could be up and running by late summer. Underground drilling and sampling are planned for spring, for the purpose of blocking out reserves and completing a mine plan. Previous estimates (all categories) in eight veins put reserves at 230,000 tons grading 0.44 oz.

Fairfield Minerals (TSE) has the unusual distinction of being a mine-to-smelter operation.

To date, the company has completed two bulk samples — 6,000 tons on surface grading 3.5 oz. gold and 230 tons underground at 2.5 oz. — from its Siwash North deposit near Merritt. Ore was sent both to Noranda’s Horne smelter in Quebec and Asarco’s smelter in Helena, Mont.

Further test mining this year is expected to produce 25,000 oz. and the company hopes to bring output up to a commercial level of 40,000 oz. per year by 1995.

Even with transportation and smelting charges, cash operating costs for Siwash North are projected at US$195 per oz. As a result, the company does not plan to build a mill.

Drilling to date has outlined 135,000 tons grading 1.59 oz., although, based on bulk-sample grades, the drill-indicated grade may be significantly under-estimated.