High-grade Eskay Creek mine spins gold and silver for Prime Resources

Set in the scenic Iskut River region of northwestern British Columbia, the Eskay Creek mine is so compact as to suggest a development project rather than an actual producer. There is no mill on site, and the largest structure is the 109-man bunkhouse.

Yet looks can be deceiving.

Homestake Mining (NYSE), which operates the property through 50.6%-owned affiliate Prime Resources Group (TSE), is well beyond the development stage, having started commercial production last January.

Today, more than six producing months later, Eskay Creek has officially opened, and The Northern Miner was recently on hand to witness the unveiling of what is surely one of the highest-grade mines in North America.

Based on a cutoff grade of 0.4 oz. gold per ton and a mining dilution factor of 27%, Eskay Creek hosts a proven and probable minable reserve of 1.2 million tons grading 1.91 oz. gold and 85.5 oz. silver per ton. This equates to a gross rock value of more than $1,600 per ton, based on current metal prices and exchange rates.

“Our sumps are higher-grade than most mines,” joked Paul Nesbitt, mine co-ordinator. He added that the operating crew has had some million-dollar rounds that put to shame what most companies consider bonanza grade.

Still, with ore shipped directly from the property to smelters in Quebec and Japan, operating costs are just as significant.

During the first quarter, the mine shipped 20,436 tons of ore grading 2.21 oz. gold and 93 oz. silver. Production totaled 42,973 oz. gold and 1.8 million oz. silver, for a gold-equivalent output of 65,227 oz. The cash operating cost per gold-equivalent ounce amounted to US$186 (inclusive of smelter charges), which works out to an operating cost per ton in the order of $800.

Based on a production rate averaging 270 tons per day, Eskay Creek is expected to pump out 170,000 oz. gold and 7.3 million oz. silver this year, for a gold-equivalent yield of about 270,000 oz. The average cash operating cost is forecast at US$185 per gold-equivalent ounce.

In subsequent years, production is expected to average about 330 tons per day, boosting output to the level of 320,000 gold-equivalent ounces at a cash cost in the range of US$185 per oz.

Minable reserves are hosted within a contact unit consisting of a highly carbonaceous upper mudstone layer and a rhyolite-mudstone breccia. The unit dips about 45! to the west, with the hangingwall consisting mainly of flow and sill volcanic complex andesites. Gold and silver are contained within base metal sulphides, primarily sphalerite, tetrahedrite, pyrite and galena.

Roughly described, the reserve measures 650 ft. in dip length and up to 2,000 ft. in strike. It varies in thickness from 6 to 26 ft.

Mining is contracted out to Procan Mining & Tunneling, which is employing a drift-and-fill method.

The ore zone is accessible via a crosscut, driven from the ramp in the footwall. An 8-by-8-ft. drift is then driven along strike of the zone and subsequently filled with cemented backfill. Additional drifts are driven parallel to the first until the width of the zone is mined. The crosscut is then altered to allow access to the ore just above the cemented drifts, and the process is then repeated.

Backfill consists of a cemented aggregate (6% portland cement). Obtaining the aggregate has proved difficult, as most of the rocks in the immediate vicinity of the mine are shales, which do not have the required strength.

As a result, the company has turned to the Iskut River as a source. About 47,000 cubic yards of river gravels have been stockpiled at mile 20 on the 36-mile access road. Empty ore trucks pick up a load of aggregate on their return trip to the mine. Unfortunately, the cost of stockpiling and transporting the material is high — about $37 per cubic yard.

Once on surface, ore is run through a jaw crusher and an impact crusher in 165-ton batches, each of which is sampled and stored according to grade for later blending.

Blending is a crucial process, as the deposit contains significant quantities of mercury and antimony, both of which are subject to smelter penalties. The blending is carried out in such a way as to keep mercury and antimony content to a minimum.

After blending, the ore is trucked, under contract, to Arrow Mining Services. Two trucks, using a B-train configuration, complete eight loads per day for a daily average of about 375 tons. Sixty per cent of the ore is trucked 224 miles to Kitwanga, where it is loaded on to rail cars for shipment to Noranda’s smelter in Quebec. The remaining 40% of the Eskay ore is trucked 164 miles to the port of Stewart for shipment to Japan.

Gerry Biles, mine manager, explains that the company must be particularly conscious of quality at Eskay Creek. “With 60% of our costs relating to shipping and smelting, there is a pretty hefty penalty for shipping waste.” Mining dilution and grades have compared favorably with the feasibility predictions, although, as Biles points out, “it’s still pretty early to be making any grand statements, considering that less than 5% of the deposit has been mined.”

Eskay Creek’s first three months of production enabled Prime Resources to earn $5.4 million and generate cash flow of $17.4 million.

Considering the company just spent more than $70 million to place Eskay Creek into production, its balance sheet is in excellent shape, with working capital of $16.8 million and no long-term debt.

Prime has 76 million shares outstanding.