Beaver Dam mine will be very profitable, study says

If knowing exactly what the challenges will be to make a mining venture a profitable one is half the battle, then managers and shareholders of Seabright Resources Inc. are half way to bringing Nova Scotia’s only operating gold mine successfully into production.

In reality, they are much closer. Ore from the first shrinkage stope should be pulled this spring and milling should start at Gays River, 70 km away, in July at an initial rate of 330 tons per day.

Enough mineable ore, averaging 0.307 oz gold per ton, has been identified to a depth of 335 m to sustain a 775-ton-per-day operation for the next seven years. (A second deep hole intersected mineralization grading 0.13 and 1.00 over 3.3 and 4.0 ft respectively, at a depth of about 2,000 ft — 700 ft below the deepest intersection to date.)

But as with any new mining and milling project there are economic and technical risks and uncertainties. These have been spelled out in great detail for Seabright’s management by three Ontario-based consulting companies.

Their reports, released this week in a hefty, voluminous feasibility study, confirm what President Terence Coughlan has been telling shareholders all along — mining the Beaver Dam deposit will cost the company very little in additional capital expenditures (about $6.8 million) and at today’s prices ($400(US) an oz) could pay back this investment in just eight months.

Kilborn Limited, which did the metallurgical part of the feasibility study, estimates the operation will break even at a gold price of $210 an ounce. So at $400 an oz, the mine will generate a discounted cash flow rate of return of about 200% over the life of the project.

Other, less important factors, which can nonetheless influence the project’s bottom line include: higher- (or lower) than-expected capital costs, higher- (or lower) than-anticipated operating costs and exchange rates vis-a-vis the U.S. dollar. If an extra $4 million in capital is needed to get the mine running as planned, for example, the discount cash flow rate of return would be cut by half. Operating costs 130% higher than predicted would have a similar effect. If actual operating costs turn out to be 80% of the predicted amount, the rate of return on the company’s investment would soar to 350%. Project Assets

One of the biggest reasons for this rosy feasibility picture is the company’s Gays River mill, picked up last year for $3.6 million. To build a comparable facility today would cost $26.6 million, according to Kilborn.

Seabright must invest $325,400 to modify the mill to process the Beaver Dam ore, according to the Kilborn report. The biggest cost item on this shopping list is a front end loader to take ore from the stockpile to the dump hopper.

About 75,000 tons will be processed in the first year of operation at a rate of 330 tons per day, producing 24,400 oz of the yellow metal which will be sold to the Royal Canadian Mint.

About 60% of the gold should be recovered in a gravity jig concentrate using a Wilfley table for cleaning and an additional 36% recovery by a flotation circuit. Mine Costs

Milling (and administrative) costs are expected to be $26.43 per tonne in the first year but mining (and haulage) costs will be at least three times this amount — $90.35 a tonne. Over the life of the mine, average production costs are expected to be significantly lower — $76 a tonne.

Capital expenditures at the mine, estimated by J. S. Redpath, total $3.67 million. Included here is $3.1 million for mine equipment and $555,000 in ramp and lateral development work in the first year. Major equipment to be purchased includes four ST-2 scoops, two JDT-426 trucks, 20 slushers and an air compressor.

Seabright is about to sign a contract for $5.28 a tonne for hauling ore to the mill which includes loading at the mine site.

Seabright’s shares traded this week in Toronto at about $8.65.