Positive PEA for Queenston’s Upper Beaver

A preliminary economic assessment of Queenston Mining’s (QMI-T, QNMNF-O) flagship Upper Beaver project in northern Ontario envisions production of 120,000 ounces of gold and 5.3 million pounds of copper a year at attractive cash costs through the use of low cost, bulk underground mining methods.

The company is advancing its 100%-owned project in Kirkland Lake to the feasibility stage and plans to sink an exploration shaft to access the deposit and collect bulk sampling to confirm the continuity and mineability of the deposit, Queenston says.

The PEA was based on a resource estimate from May 2011 that puts indicated resources at 3.1 million tonnes grading 6.98 grams gold per tonne for 690,000 ounces of contained gold and 0.54% copper for 36.6 million pounds of copper and 3.1 million tonnes grading 6.19 grams gold for 616,000 ounces of contained gold and 0.42% copper for 28 million pounds of copper of inferred. The resource was calculated using a 2.5 grams gold per tonne cut-off grade and a minimum width of 2 metres.

The resource estimate used in the PEA does not include drill results in 2011 when Queenston drilled an additional 84 drill and wedge holes totaling 41,019 metres. An updated resource estimate will be completed in the third quarter of 2012 that will include drill results from 2011and the early part of 2012.

At a base case of US$1,275 per oz. gold and a copper price of US$3 per lb., the PEA outlines an underground operation with a ten-year lifespan processing an average of 2,000 tonnes per day.

The study estimates metal production over the life-of-the mine will reach 1.1 million ounces of gold and 50.5 million pounds of copper at average life-of-mine cash costs of US$386 per oz. gold net of copper credits.

At a 5% discount rate, the project’s pre-tax net present value (NPV) would be about $345 million with an internal rate of return (IRR) of 26.5% and payback in about two and a half years. After-tax NPV at the same discount rate would fall to $233 million and the IRR to 22.1%.

Using more current metal prices of US$1,700 per oz. gold and US$3.80 per lb. copper, the pre-tax NPV rises to $688 million and the IRR to 41.6% with payback in one and a half years. (After-tax NPV at the same metal prices would stand at $475 million and the IRR at 35%.)

The study puts pre-production capital costs including a 15% contingency at $240 million, with average operating costs, including a 20% contingency, at $73 per tonne.

The deposit remains open at depth and along strike and the company has reported recent new discoveries in the hanging wall towards surface that Queenston believes have potential to improve the project’s economics by cutting initial capital requirements, increasing the resource size and trimming the payback period.

For this year’s drill season Queenston has increased the number of rigs on its property from four to six.

The company says the primary mining method at Upper Beaver will be conventional long hole with paste backfill and 35 metre sub-level intervals. The average thickness of the ore body is 5.6 metres.

Ore extraction and processing would start in the third year after the start of project development with commercial production during the fourth year.

Net positive cash flow of $76 million is projected during the fourth year.

Underground access will be through a fresh air shaft that is 6 metres to 6.5 metres in diameter, concrete-lined, and 1,300 metres deep. The shaft will have a hoisting  capacity of 3,000 tonnes per day at an ultimate depth of 1,800 metres, using a two-hoist configuration.

Gold and copper willbe processed in a 2,000 tonne-per-day expandable mill and paste backfill plant using conventional crushing, grinding, flotation and carbon in leach methods.   

The flow sheet does not include a gravity circuit as more testing is required to determine if it is warranted. And the design considerations will look at this mill as a future central milling facility for all of Queenston’s projects within the Kirkland Lake gold camp. (Queenston has five other gold deposits, all of which have compliant resources, and the company believes they can provide additional feed for a central milling facility.)

Metallurgical testing by SGS Lakefield Research has yielded gold recoveries of 98% and copper recoveries of 90% using simple flotation and cyanide.

About 80% of the gold would be recovered through flotation with the balance being recovered from carbon in leach and the gold-rich copper concentrate would be shipped to an off-site smelter.

Power to the project will be supplied by extending the existing 115-kilovolt line two kilometres to a substation, then through a new 7-km-long 44-kilovolt transmission and communications line to the Upper Beaver mine and mill complex.

The PEA estimates that power consumption for the mine and mill will be in the range of 25-30 megawatts and run as high as 36 megawatts at peak production.

Roughly 35%-55% of the tailings will be converted to paste backfill and deposited underground.

Currently environmental baseline studies are underway. Testing suggests that the mill tailings will not generate acid, which means that they can be impounded at the same place as the historic tailings from the mines that previously operated on the Queenston property.

It was 1912 when gold was first found on the property. In 1919 Argonaut Gold Mines built a small mill with limited production until 1928.

Between 1935 and 1964 a number of different companies conducted exploration on the property with no reported production. In 1964, Upper Canada Gold Mines acquired the ground and resumed production, mining to depths of 365 metres until the mine was closed in 1971.

Queenston purchased the Kirkland Lake assets held by Upper Canada Resources in 1977.  

From 2005 to 2010, Queenston completed 201 drill holes outlining multiple gold-copper zones adjacent and below the Upper Beaver mine.

The majority of the mineral resources occur in a series of breccia zones that dip steeply north below the old mine workings. These zones contain chalcopyrite, magnetite, pyrite and visible gold within a mineralized corridor that extends over a horizontal length of about 500 metres and a dip length of about 1,300 metres. The most prominent are the porphyry zones that contain roughly 80% of the resource.

Queenston has cash and short-term investments of about $75 million with no debt and its exploration budget for 2012 is $25 million.

At presstime the company was trading at $4.87 per share within a 52-week range of $4.12-$8.07 per share and has nearly 83 million shares outstanding.