VANCOUVER — Toronto-based miner AuRico Gold (TSX: AUQ; NYSE: AUQ) is hoping it can give the past-producing Kemess gold-copper mine a new lease on life.
The old mining complex lies 430 km northwest of Prince George, B.C., and was in operation from 1988 to 2011. A much-needed mine expansion was shelved after local First nations opposition and an environmental permit rejection back in 2008, but AuRico is hoping an updated mine plan and a potentially material mineral discovery will allow locals and regulators to view the project in a better light.
Kemess’ environmental problems date back to 2007, when a federal review panel determined that a proposed open-pit expansion at the Kemess North deposit posed “significant adverse environmental, social and cultural effects, some of which may not emerge until many years after mining operations cease.” The main issue involved then-operator Northgate Minerals’ plan to use the nearby Amazy Lake as a tailing and waste-rock facility.
With Kemess’s value essentially reduced to zero, AuRico bought Northgate for US$1.5 billion in 2011, with its target being the Young-Davidson gold mine, 60 km west of Kirkland Lake in northern Ontario.
AuRico hasn’t made a lot of noise about Kemess since then, but hasn’t given up on it either. The company filed a project description for a proposed underground mine with the B.C. environmental assessment office in February.
AuRico released a feasibility study on the Kemess underground in March 2013. The main changes include the used of block-cave mining as opposed to open-pit mining, and a steep drop in the volume of tailings and waste rock. The company says its plan would generate 102 million tonnes of waste, which is down 86% from Northgate’s original plan.
The lastest Kemess study was based on proven and probable reserves of 100 million tonnes grading 0.56 gram gold and 0.6% copper. The US$452-million development would have average annual production of 105,000 oz. gold and 44 million lb. copper at cash costs of US$213 per oz. gold, net of by-product credits, over a 12-year mine life.
The economics at the time were lean, however, as the model had a US$134-million after-tax net present value at a 5% discount rate, along with a 10% internal rate of return. The economic conclusions were based on metal prices of US$1,300 per oz. gold and US$3 per lb. copper.
AuRico indicated it was “pursuing strategies” to enhance the value at Kemess, which included more exploration on the greater property package.
And regional drilling looks to have paid dividends. On Dec. 15 AuRico announced a gold-copper porphyry discovery at a target called Kemess East, situated 6.5 km from its dormant 55,000-tonne-per-day processing facility. Since late 2013, the company has drilled over 27,000 metres at the target, with 16 of the 19 holes intersecting mineralization.
Highlights from Kemess East include: 768 metres grading 0.442 gram gold per tonne and 0.4% copper in hole 14-4; 304 metres grading 0.557 gram gold and 0.4% copper in hole 14-9; and 601 metres of 0.5 gram gold and 0.4% copper in hole 13-8.
“The new gold-copper porphyry mineralized system is higher grade than the Kemess underground and is located in immediate proximity to the existing processing facility and associated surface infrastructure,” president and CEO Scott Perry said in the release. “This discovery demonstrates the significant potential of the Kemess land package, with some of the program’s drill holes ending in mineralization. With an initial resource expected early next year, we will look to expand our exploration drilling program and advance our Kemess underground permitting efforts.”
The company reports that preliminary mineralogical assessments indicate Kemess East has “similar characteristics” to the Kemess underground deposit, with detailed metallurgical testing underway.
The company’s expanded drilling program next year will focus on delineating Kemess East and ongoing exploration.
The Toodoggone district in northwest B.C. is an assemblage of Mesozoic volcanic rocks with intrusion-centered hydrothermal systems, including copper-gold porphyries and low-sulphidation epithermal veins. Kemess East is underlain by Triassic Takla Group basalts, which are uncomfortably overlain by low- to middle-Jurassic age Hazelton Group volcanic rocks.
Kemess North is a calc-alkaline porphyry typically found in the district, with mineralization on its western flank generally low-grade down to 150 metres below surface. On the eastern side, the Kemess underground is a higher-grade zone ranging from 300 metres to 550 metres below surface.
BMO Capital Market analyst Brian Quast — who has a “market perform” rating on AuRico shares along with a $3.50-per-share price target — calculates that the average grade and width of the intercepts reported is 0.43 gram gold and 0.4% copper over 352 metres.
“While the grades are intriguing, BMO Research would expect that mining a porphyry at the depth of the holes reported to be quite challenging,” Quast wrote on Dec. 15. “Permitting at the Kemess underground has been problematic for several years. Consequently, BMO Research would expect similar issues to apply to potentially permitting Kemess East.”
Meanwhile, Scotiabank analyst Trevor Turnball adds that his modelling of the drill results show “an intrusion-related copper-gold-silver-molybdenum system” between 150 metres and 1,000 metres above sea level, while surface topography is 1,750 metres above sea level. According to estimates by Scotiabank analyst Mike Hocking, Kemess East holds 107 million tonnes grading 0.68% copper equivalent based on 46 reported drill holes.
AuRico shares have traded within a 52-week window of $3.33 to $5.91, and closed at $3.62 at press time. The company expects to produce between 210,000 and 240,000 oz. gold this year at cash costs ranging from US$675 to US$775 per oz.
AuRico reported cash and equivalents of US$100 million at the end of the third quarter, and has 249 million shares outstanding for a $896-million market capitalization.
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