Gold-Ore wants to make grade at Bjorkdal

SITE VISIT

Skelleftea, Sweden — The Skelleftea belt is best known as a base metal camp, the home of Boliden (BLS-T, BDNNF-O). But like Noranda, Snow Lake, and other massive sulphide camps, it hosts gold mines as well.

The Bjorkdal open-pit gold mine in the eastern part of the belt has a checkered history, including one closure and an insolvency. Partly the victim of the weak gold prices of the late 1990s, it got a new lease on life when bought out of receivership in 2001. Now, Vancouver-based Gold-Ore Resources (GOZ-V, GREXF-O) hopes to deliver something Bjorkdal could have used a long time ago: grade.

Gold-Ore exercised an option to buy Bjorkdal from Irish-based Minmet (mnt-l) in November. The terms of Minmet’s sale to Gold-Ore transferred ownership in the Swedish-domiciled operating company, Bjorkdalsgruvan, to Gold-Ore in exchange for US$2 million and 4 million Gold-Ore shares. Minmet keeps a net smelter return, starting at 0.5% when gold prices are below US$400 per oz., increasing to 1% for gold at US$400, and rising by quarter-point steps with each US$50 increase in the gold price. The royalty tops out at 1.75% (for prices above US$550 per oz.) and can be bought out for US$1 million, either in cash or in shares at market value.

Gold-Ore had gained that option by issuing 5.8 million shares to Minmet in January 2006; Minmet sold the shares for $4.5 million, after they had almost doubled in value.

Bjorkdal was discovered the Swedish way: regional till sampling led Swedish company Terra Mining to do detailed geochemical sampling in 1983. Terra drilled a discovery hole in 1985 and had the deposit in production by mid-1988. Toronto-listed William Resources bought control of Terra in 1996 for $147 million, aiming to increase reserves by mine-scale and local exploration. William — memorialized in the Bjorkdalsgruvan office with a signed hockey stick from former William director Darryl Sittler — ran into cost troubles at Bjorkdal and at its other gold mines (Pahtavaara in Finland, another Terra property, and the Jacobina mine in Brazil), and finished up issuing shares to its creditors. Bjorkdal went into receivership in 1999, essentially at the nadir of the gold market.

That put Bjorkdal on the auction block as a valuable asset in an insolvent company, whence it ended up in the hands of private interests in 2001, and Dublin-based Minmet in 2003. Minmet’s idea was that a capital infusion was what Bjorkdal needed most, and production initially rose substantially, peaking at just over 43,000 oz. in 2003. But head grades from the pit were a disappointment, and the mine was forced to cut back to producing purely from ore stockpiles.

With the production cutbacks, inevitably, came other cutbacks as well, and Minmet wrote down the carrying value of Bjorkdal by US$9 million in 2005. With Minmet looking for an opportunity to clear the mine off its books and Gold-Ore looking for an asset in a politically stable part of the world, the two came to an option agreement in 2006 that installed Gold-Ore as the operator with an option to buy the mine.

That deal, apart from the share issue and option payment, included a US$1.5-million loan to Bjorkdalsgruvan — which stayed under Minmet’s control during the option period — for a year’s worth of exploration, and a standby credit of US$500,000 to keep the mine adequately capitalized. Bjorkdalsgruvan posted a gross profit of US$314,000 in the first six months of 2007. Production was about 20,000 oz. in 2006, and 19,200 oz. in 2007.

Production at Bjorkdal now comes from the stockpiles above ground and from limited exploitation of underground stopes, accessible from two declines in the pit, the Main Tunnel and the Central Tunnel.

The resource, estimated in November 2005 using a 0.5-gram-per-tonne cutoff grade, was 3.8 million tonnes, measured and indicated, grading 1.8 grams gold per tonne, plus 14.5 million tonnes of inferred resources grading 1.7 grams per tonne. One statistic relevant to underground mining is a resource calculated at a 3.5-gram cutoff, which is 386,000 tonnes measured and indicated at 5 grams per tonne, plus 1.4 million tonnes inferred at 5.4 grams per tonne.

The mineralization is in near-vertical quartz veins in a granodiorite stock. The mineralization accompanies a “biotite front” alteration pattern in the intrusive rock, mainly near the contact between the stock and the Skelleftea Group volcanic rocks, mainly felsites that host the bulk of the Skelleftea district’s base metal massive sulphide deposits.

A close comparison, both for the mining engineer and the geologist, can be made to the Troilus gold-copper mine in north-central Quebec, owned by Inmet Mining (imn-t, iemmf-o). Troilus, which has operated since 1997, mines at 0.8 gram gold per tonne, with a copper credit of 0.1%. Inmet found it had to trust to economies of scale at Troilus, while getting head grades under better control. In contrast, Gold-Ore sees Bjorkdal’s future as an underground mine delivering higher-grade ore from zones that can be bulk mined.

The move to underground mining will halve the tonnage and double the grade. That will allow the mill to go to a 5-day week from its current 7-day schedule. The underground stopes will provide 500 tonnes of the daily feed, the stockpile 3,000 tonnes.

“Our Swedish colleagues don’t really want our help,” says Robert Wasylyshyn, Gold-Ore’s president, “and there’s not much we can contribute other than in the pit.”

So Gold-Ore’s Canadian (and one Nicaraguan) geologists concentrate on exploration, while the local staff run the mine and mill.

They are familiar with the mine: “When we started again (in 2001),” says process manager Thomas Trautmann, “a lot of people wanted to come back.”

Wasylyshyn introduces one of the managers as “one of the new guys — he’s only been here four or five years.” The stockpile is mined by a Skelleftea-area mining contractor, Bergteamet.

Bjorkdal’s mill has a capacity of 1.3 million tonnes per year, with jaw and gyratory crushers bringing material down to a size that will pass a 10-mm screen deck. Rod and ball mills grind it to pass 1.5 mm, with some regrind material going back to the ball mill.

The ore is a silicified granodiorite, which tells in a work index of around 20 kWh per tonne, but it consumes very little steel in the mills. Most circuits are set up in parallel, with the redundancy allowing the mill to continue at reduced capacity during maintenance or a breakdown.

“It’s not often something happens that we have to shut down the whole plant,” Trautmann says.

Bjorkdal does do a 1-week shutdown every year for scheduled maintenance.

The comparison to Troilus is reinforced in the mill. Bjorkdal takes 79% of its gold out of two gravity circuits, a high-grade one producing a 50%-gold concentrate and a medium-grade one that runs 1,500 grams per tonne. A flotation circuit gets the remainder, which is sold to Boliden’s Ronnskar smelter down the road.

With gravity concentrates that grade as high as these do, Bjorkdal’s furnace sits idle: “it’s never been economic to use,” Wasylyshyn says. The gravity concentrates are sold to Norddeutschen Affinerie in Hamburg, Germany (Inmet, coincidentally, used to be one of the refinery’s owners).

The relative payout from the concentrates also drives much of the thinking on optimizing processes at Bjorkdal. Fully 98% of the high-grade concentrate’s gold content is payable, and 92% of the medium-grade concentrate’s metal. The flotation concentrate, running 100 grams per tonne, pays at 70% of metal content.

So, clearly, there is a compelling logic behind putting resources into efficient gravity recovery. The system currently consists of cone and spiral concentrators, which feed two large shaker tables, one for each concentrate stream.

A plant upgrade, therefore, is almost certain to include a Knelson gravity concentrator — not necessarily to recover more gold, as recoveries from the underground material are near 92%, but t
o increase the fraction of gold coming out in the higher-paying gravity concentrates. Recoveries from the stockpiled material, which grades 0.6 gram per tonne, have averaged just under 86% since production resumed in 2001.

At the time of The Northern Miner’s visit, the plant was being audited for its salvage and replacement value, but the option to buy the asset for US$4 million in cash and shares was a slam dunk.

Developing the mine along the lines mapped out by the Bjorkdalsgruvan and Gold-Ore staff hinges on the results of test mining in the Main Tunnel decline, where a series of levels are being opened up. Test production from the Main and Central Tunnels will provide about 100,000 tonnes of material for test milling, as well as a revenue stream for the operation.

Initial test mining from the Central Tunnel produced 648 oz. gold from 12,700 tonnes of development rock, a recovery of 1.6 grams gold per tonne.

The information from the mining and milling campaigns will feed a feasibility study by Wardell Armstrong International, with results expected in 2008. The mining scenario Gold-Ore wants to assess is long-hole open stoping, with production from the decline.

Long-hole, often considered the province of underground base metal mines with reliable width and easy geometry, can take advantage of several of Bjorkdal’s traits — the vein systems are vertical, allowing good ore flow, and the multiple zones can provide good mining widths, provided dilution is under close control. Add the stability of a granodiorite host rock, and you have a good candidate for open stoping.

Gold-Ore had drilled 17,300 metres of exploration holes in the two tunnels by the end of September, indicating mineralization over a 1,200-metre strike length and an 800-metre width. And it is in drill results and underground workings that the possibilities for higher-grade underground mining start to show up. Taken over the whole of the mineralized corridor, Bjorkdal is a low-grade mine; underground, it looks more like a classical vein-type situation, with local zones of very high-grade material and plenty of visible gold on faces and in core.

Drill intersections in the Central Tunnel mostly ranged between 2 and 3 metres in width, with a number of wider zones. Most holes intersected multiple veins, often with very high gold grades — 16.4 grams per tonne over 4.8 metres, 34.9 grams over 2.6 metres, 38.3 grams over 3.7 metres. Few of the intersections graded lower than 3 grams per tonne.

The results in the Main Tunnel were similar. Grades show the “spiky” character of narrow-vein, coarse gold, which tends to surprise on the high side once bulk-sampled or mined. Grades as high as 91 grams per tonne over a true width of 2 metres, 50 grams over 2.6 metres, and 52.2 grams over 2.1 metres, showed up in holes from the Main Tunnel.

One other ambition for most operators at Bjorkdal has been to establish a continuous zone of mineralization between the Bjorkdal deposit and showings around the property. A hole drilled from surface, tested the extension of the Bjorkdal mineralization to the northeast, toward a prospect called Storheden that yielded good results in the past. Hole 2007-070 intersected 41.4 grams over 4.3 metres, 11.5 grams over 6.2 metres, and 4.8 grams over 4 metres. True widths were about half of the core lengths.

Beyond the mine property, Gold-Ore is looking to exploit the country’s large and sophisticated exploration infrastructure. The company has a regional geochemical database with glacial till sampling at 12 by 12, 6 by 6, and 2 by 2-km sampling densities, plus some local grids where the coverage is tighter. The local sampling comes from both till — which covers about 99% of the northern part of the country, averaging around 5 metres deep — and bedrock.

The glacial environment is well documented. Typically, transport distances are 600 to 700 metres, and most areas were glaciated from the northwest. With a large geochemical database, then, the opportunity opens up to stake ground — the first three years after staking are “essentially free,” says Wasylyshyn — or to find partners with landholdings that can use Gold-Ore’s exploration smarts.

One such partner is Lundin Mining (LUN-T, LMC-N), which sold a land package on the south and east of the Bjorkdal property to Gold-Ore for 250,000 shares and 250,000 warrants, the warrants exercisable until late September 2008 at $1.10. Lundin retains a 2% net smelter return on production from that ground.

In another deal, a private company has optioned a 29-sq.-km land package to Gold-Ore in the Bergslagen district in southern Sweden, near Lundin’s Zinkgruvan mine and Boliden’s Garpenberg mine. There are 13 showings of volcanogenic base metal mineralization on the property. To pick up the option, Gold-Ore must pay $585,000 in cash and shares over four years.

Wasylyshyn is confident the company’s decision to specialize in one country will work out well. Sweden, he says, is a “safe jurisdiction with good geological potential, and now we have a base of operations to work from.”

[Editor’s note: This is James Whyte’s final article as a staff writer with The Northern Miner. In early January, he started a new career as a regulator with the Ontario Securities Commission.]