Sherwood marches Minto ahead

SITE VISIT

Whitehorse, Yukon — It’s the first significant mine to start producing in the Yukon in 10 years. No wonder people here are excited about Sherwood Copper’s (SWC-V) Minto copper-gold mine.

On a recent tour by The Northern Miner and other guests of Minto’s brand new mine, mill and tailings facility, one employee from the Yukon government’s Department of Energy, Mines and Resources commented that it’s “so exciting to be touring a mine in the Yukon that’s not abandoned.”

Mine development at Minto has been moving at full speed since Sherwood acquired the property by taking over privately held Minto Exploration (MintoEx) two years ago. Since then, Sherwood has taken the project from near dormancy through to feasibility, construction and now production.

There were some big problems to tackle:

The Minto project sits on Selkirk First Nation Category A settlement land, which means the Selkirk own the mineral and surface rights; the wide, fast-flowing Yukon River runs between the project and the Klondike Highway; the closest port is Skagway in Alaska, where the only ore terminal, inactive since 1997 and rife with corrosion, was torn down in 2003; and the closest power line ends some 60 km away.

But on Sherwood’s side was the drive of Lutz Klingman, former president and CEO of MintoEx, who kept promoting the project during the last, long round of low metal prices.

“The basics were here, in terms of permitting and planning,” says Bill Dunn, Sherwood’s manager of regulatory and corporate affairs. “We worked hard to get everything done in two years but Lutz’s efforts made a big difference.”

Dunn said Klingman knew he had a good project on his hands, even though the Minto deposit is rather unusual. Theories as to the deposit’s genesis run the gamut from a highly metamorphosed stratiform deposit in sedimentary rock, to a hydrothermally emplaced deposit in screens of poorly digested Pelly gneiss, to a concentration of sulphides within an igneous melt in response to the underlying Klotassin batholith crystallizing.

The copper-gold mineralization is in sulphide zones made up of chalcopyrite and bornite, plus minor pyrite and magnetite. Gold occurs as free gold, while silver occurs as the silver-telluride mineral hessite, and both are associated with bornite. Copper oxide minerals are found in the upper parts of the mineralized zone and, to a lesser extent, along faults.

The mineralization is hosted by foliated granodiorite or gneiss, with quartzo-feldspathic, biotite-quartz feldspar and siliceous gneisses carrying the highest grades.

Throughout the deposit, the mineralization is typically evenly disseminated, equigranular and medium to coarse-grained. The main zone forms a flat-lying oblate body under the south-facing slope on the north side of Minto Creek.

Discovery

Covered by thin overburden and up to 50 metres of rock, the non-outcropping Minto deposit was discovered via a stream sediment anomaly in Minto Creek.

More extensive work started in the early 1970s, when Asarco and Silver Standard Mine staked the claims, sampled the soil, and then collared enough diamond-drill holes to complete a feasibility study in 1975 that tallied resources of 8.4 million tonnes grading 1.7% copper.

But declining copper prices shelved the project until 1993, when Klingman formed MintoEx and took over the claims.

Work then progressed only slowly. By 1998 MintoEx had built a 29-km access road from the Yukon River to the site, drilled a water well, excavated and poured the mill foundations, and brought two used grinding mills on-site.

But even the granting of water and production licenses couldn’t save this large-scale copper-gold project from rock-bottom metal prices, and the project went into care-and-maintenance mode in 1998.

In late 2005 Sherwood grabbed the project by acquiring 100% of MintoEx, as well as taking over Asarco’s right to earn a 70% interest in the project, buying Falconbridge’s repurchase rights, and exchanging Asarco, Teck Cominco (TCK.B-T, TCK-N), and Falconbridge’s combined 1.5% net smelter return royalties for Sherwood shares.

Within a month Sherwood extended the construction and operation licence to 2016 and started a rapid drill campaign that produced a new feasibility study. The new study expanded the size of the copper-gold deposit, upgraded inferred resources within the pit limits, and suggested historical gold assays had returned uncharacteristically low results.

In the spring of 2006, contractors got to work rehabilitating the airstrip and access roads, and pre-stripping the waste material overlying the higher-grade pit resource.

At the same time, Sherwood management were in talks with Alaska Industrial & Export Agency (AIDEA) about getting the dilapidated Skagway ore terminal back up and running.

Those talks proved fruitful. The ore terminal is currently being re-activated, with AIDEA financing the work plus construction of a new concentrate storage building. Sherwood will reimburse AIDEA for the costs over seven years with a 7% interest rate.

At the terminal, a 1,000-tonnes-per-hour ship loader is almost complete and Sherwood expects to load the first 5,000 tonnes of concentrate onto a ship in September.

Sherwood also had to work with the Selkirk First Nation. While the latter’s land-claims settlement classified the Minto property as Category A Selkirk land, the settlement also specifically grandfathered existing mineral and other rights held by MintoEx.

In 1997, MintoEx and the Selkirk signed a co-operation agreement that grants the Selkirk a 0.5% net smelter return royalty on all production from Minto. The agreement also committed MintoEx to work with the Selkirk on employment, training, and contracting opportunities. Today, some 10% of Sherwood’s employees are Selkirk.

Powering production

In mid-2006 a robust feasibility study helped accelerate development at Minto, where reserves in the main pit were updated to 8 million tonnes grading 1.89% copper, 0.66 grams gold and 7.7 grams silver.

In line with Sherwood’s unofficial motto of “more production sooner,” mining will initially focus on a higher grade core containing proven and probable reserves of 5.9 million tonnes grading 2.20% copper, 0.80 gram gold and 9.1 grams silver. Lower-grade ore will be stockpiled to be processed later.

The mill is expected to produce 40.7 million lbs. copper, 17,150 oz. gold, and 250,000 oz. silver per year for the first six years, generating a 37% pre-tax rate of return.

When Sherwood announced it had entered into forward sales agreements for 75% of payable metal sales until 2011, payback time went down to 1.7 years from 2.4 years.

More production sooner hasn’t meant cutting corners, however, as demonstrated by the $8 million spent on a dry stack tailings filtration plant. The original plan was for thickened tailings to be deposited in the Minto Creek valley behind a retention dam, which would have been cheaper on startup.

As Dunn explains, while dry tailings demand greater capital expenditure, they are self-contained, which means closure and remediation are easier and less expensive.

Power was the final piece of the development puzzle to fall into place. By the end of 2006, Sherwood’s extended talks with Yukon Energy resulted in an agreement to provide grid power to the project by extending the 138-kilovolt line some 60 km from Carmacks to Yukon Landing, and then stringing a 35-kilovolt line across the river to the site. After a few hiccups with the Yukon Utility Board, a power-purchase agreement was signed in May 2007.

For Sherwood, grid power at Minto means $3 to $4 million in annual savings in operating costs, and therefore increased profits. For the Yukon government and the Selkirk First Nation, these increased profits translate into more tax and royalty income.

For Yukon Energy, the deal means a significant new customer for some of the excess hydropower generated by its Whitehorse dam.
In addition, extending the 138-kilovolt line from Carmacks to Yukon Landing will go a long way towards connecting the Yukon’s two disparate energy grids, a connection that would allow Yukon Energy to distribute power more efficiently.

Sherwood is guaranteed a fixed rate of 10 per kilowatt-hour until the end of 2012, after which time the rate will rise annually according to inflation. It’s a take-or-pay set up, so Sherwood is locked into paying $12 million over the next four years for power. But that’s an improvement over diesel power generation, which would have cost roughly twice that much.

More to come

On May 31 the Minto mill produced its first copper-gold concentrates, and regular concentrate shipments began on July 25. Commissioning went smoothly, with tonnage ramping up to design levels in six weeks.

Sherwood’s 2006 feasibility study had assumed that a second expansion phase during the first year of operation would take the mill capacity from 1,563 tonnes per day to 2,400 tonnes per day, but that plan has been accelerated. The expansion actually got underway in March, before the mill even started up, and will be complete by year-end.

The reserve expansion potential at Minto is considerable. Area 2 is the most developed expansion target, with a measured and indicated resource estimate of 3.8 million tonnes grading 1.8% copper and 0.74 gram gold, at a 1% copper cutoff, within a larger 7.6 million tonne deposit grading 1.26% copper and 0.48 gram gold, using a 0.5% copper cut-off. Area 2 lies immediately south of the main deposit and would add 61% to the project’s contained copper and 75% to its contained gold.

The new resource is the focus of a prefeasibility study commissioned in February and due out in September. As well as determining Area 2’s reserve, the study will investigate how the new deposit should be incorporated into the mining sequencing and how to accommodate the added tonnage.

One option is increasing mill throughput by using a coarser grind: metallurgical tests have found that a primary grind of 80% passing 280 microns results in the same recovery as 80% passing 150 microns. At the coarser grind the milling circuit could process up to 3,500 tonnes per day, more than double the current 1,563-tonnes-per-day rating. To increase throughput so significantly would necessitate additions to the regrind mill and filtration system, but it’s a possibility for increasing production in the near future.

Sherwood is also exploring four other targets in the area. Dunn sees Area 2 as the first expansion, followed by Area 118, and then a prospect called Ridgetop.