Acadian set to buy Gays River mine

Looking to take advantage of the spike in base metal prices, Acadian Gold (ADA-V, ADGLF-O) has entered into a definitive agreement with HudBay Minerals (HBM-T, HBMFF-O) to purchase the Gays River zinc-lead mine property, 50 km northwest of Halifax, for $7.5 million.

The principal assets are a modern 1,500-tonne-per-day processing plant, maintenance facilities, administration buildings, a tailings pond and associated infrastructure, plus 51 sq. km of mineral rights and 19 sq. km of exploration licences.

Peter Jones, HudBay’s president and CEO, says the company is willing to part with Gays River because it is focused on its Balmat zinc project and other opportunities.

“The Gays River property is remote from other HudBay assets,” he says. However, “Gays River could offer another mining company a production opportunity, as it has a concentrator already at the site.”

Accessible by paved roads, the Gays River mine site is 15 km off the Trans Canada Highway and 1 km east of the community of Gays River. Shipping facilities are available in Sheet Harbour, some 80 km from the mine. National Gypsum, 5 km west of the mine site, transports its gypsum products by rail to its facilities in Halifax.

Gays River was discovered in 1972 by Esso Minerals, which began developing the mine in 1978 and commissioned the mill in October 1979. Through to 1981, the mine produced 553,688 tonnes of ore grading 2.12% zinc and 1.36% lead. Faced with bad ground conditions along the hangingwall of the deposit, Esso was forced to leave behind a hangingwall pillar that was composed of high-grade massive sulphide mineralization. The mine was closed in 1982 due to groundwater inflow problems and operating losses.

Seabright Resources acquired Gays River in 1985 for $3.5 million. Strategically located just 50 km west of the Beaver Dam project, the mill was refurbished to process bulk samples trucked from the advanced-stage underground gold projects at Beaver Dam and Forest Hill. Following the takeover of Seabright, Australia’s WMC completed a review of the Gays River mine in 1989 and restarted operations. Production was short-lived, however, and ceased in May 1991 due to poor ground conditions, water inflow problems and economic considerations. In total, 187,010 tonnes of material was mined from underground over a 15-month period at an average grade of 7.47% zinc and 3.5% lead.

The geology

Mineralization at Gays River is described as Mississippi Valley-style, composed of massive-to-disseminated sphalerite-galena sulphides hosted in reef-facies limestones of the Carboniferous-age Gays River Formation. The carbonate host rock formed as a reef complex on a paleotopographic high underlain by metasediments of the Meguma Group. A thick marine sequence of evaporates and intercalated carbonates and shale overlie the basal carbonates.

The zinc-lead mineralization extends over a 3-km strike length and occurs at the carbonate-evaporite contact as replacement of dolomitized limestone. Massive sulphides give way to net-textured and disseminated sulphides with increasing distance away from the hangingwall contact, which is defined in parts of the deposits by breccia rock.

The mineralization is generally simple. Government reports describe it as iron-poor, fine-grained, beige-coloured sphalerite and silver-poor, medium-grained galena, with minor-to-trace amounts of late-stage calcite, chalcopyrite, barite and fluorite. Historically, the Gays River mill achieved recovery rates averaging 90% zinc and 91% lead, with concentrates grading 61% zinc and 75% lead.

Savage Resources Canada, subsequently taken over by Pasminco, acquired the Gays River assets from WMC in 1997. With some 800 surface holes and 500 underground holes already drilled on the property, Savage tabled a resource estimate in 1998 after conducting a delineation drilling program of some 30 holes, for a total of 2,339 metres.

Gays River was estimated by Savage to contain a 5.1-million-tonne resource grading 5.49% zinc and 2.45% lead. The resource is contained in the designated Central, Western and Northeast zones. A preliminary open-pit model, at that time, held 1.5 million tonnes of 4.9% zinc and 2% lead. A mine plan filed with the Nova Scotia Department of Natural Resources considered moving a section of river in order to accommodate the open pit. About 16 million tonnes of unconsolidated sands and gravels, along with 3.2 million tonnes of hangingwall rock was modelled as waste.

HudBay’s predecessor, OntZinc, felt there may be potential for some added value should the overlying sand and gravel, and hangingwall gypsum prove saleable. Acadian will be looking at redesigning the open pit, based on current metal prices.

The open-pit concept received the provincial government’s blessing in August 2000, but the existing environmental plan was limited to the Central zone of the mineral trend. Any expansion of that open pit will be subject to further environmental assessment and approval of the Nova Scotia government.

“That is one of the beauties of this acquisition, the environmental assessment has already been completed,”says Acadian Gold president William Felderhof. “My understanding is what we need now is industrial approval, so we don’t have to go through the full meal deal of environmental approvals.”

New owners

Acadian Gold is focusing its initial efforts on quantifying the zinc-lead resource and determining the feasibility of fast-tracking it into production as quickly as possible to take advantage of record base metal prices. Should it be successful in this new endeavour, the company will use the cash flow from the zinc-lead operation to develop its gold projects. The sale of Gays River is scheduled to close on or before July 6, 2006.

In order to purchase Gays River, the company raised $12.7 million through a private-placement financing led by Northern Securities and Canaccord Adams. The offering comprised 20 million units priced at 50 apiece and 4.1 million flow-through shares at 65 each. Each unit consists of one common share and half a warrant. One warrant is exchangeable for an additional share at 65 for 18 months.