Loki plans Brewery Creek startup

By next summer, Loki Gold (TSE) hopes to be in production at its Brewery Creek project near Dawson City, Y.T.

Startup for an open-pit, heap-leach gold mine is scheduled for August, 1995, with planning based on the results of a positive feasibility study by Loki’s engineering consultants.

The operation is targeted to produce 80,000 oz. annually, with average cash costs of US$173 per oz., and cash-plus-capital costs of US$234 per oz. Existing reserves, based on more than 900 drill holes, would support an 8-year mine life.

Current diluted minable reserves stand at 16.7 million tonnes at 1.48 grams gold per tonne (or 19.4 million tons at 0.043 oz.), containing about 24.9 million grams (800,000 oz.). These minable reserves are based on a 0.5-gram-per-tonne cutoff, resulting in a stripping ratio of 1.2-to-1. Loki plans to spend $4.5 million this year to advance the project further, including an expenditure of $1 million on exploration. Limited exploration last year identified about 200,000 oz., with a cash finding cost of about US$4 per oz.

Mineralization at Brewery Creek is said to be similar to Nevada-style “no-see-um” gold and, consequently, soil geochemistry has been an important exploration tool. Loki notes that the recent discovery of the Blue zone within sedimentary rocks opened up the exploration potential of the property. (Previously, only the intrusive areas were considered worthy of exploration.) “We still have lots of exploration potential,” Loki President Ronald Netolitzky told a group of Vancouver mining analysts. “We want to add another 200,000 oz. to the project this year.”

He said the company will have considerable operating flexibility, as reserves occur in eight separate, near-surface deposits. The fact that all these are dip-slope deposits should render mining relatively easy; and since most of them face south, permafrost is not expected to be a serious problem. The shallow-dipping deposits are within an unglaciated region of the Yukon and are weathered to depths of 40 metres or more. This oxide portion is underlain by sulphide mineralization that is refractory.

Mining operations would be seasonal (about 230 days per year), but the company plans to operate the leaching circuits year-round.

Mine planning takes into account an expected drop in recoveries in winter, to be partly compensated for by flush production in the spring (as experienced by most mines operating in colder climates). Because the material at Brewery Creek leaches quickly, Loki expects most of the gold recovery will occur within 90 days of leaching in the warmer months.

“What makes this project fly is the exceptional leach characteristics of the oxide reserves,” Netolitzky said, adding that recent metallurgical work indicates recoveries of 84% on run-of-mine material. “We will not have to crush or agglomerate, which means cents we will save] $8 million from our capital costs by not having to install a crushing plant.”

Capital costs are projected at $41 million, which includes a new fleet of mining equipment and reclamation requirements for complete closure. Power will be supplied by a diesel generator on site.

The base case financial analysis assumes an exchange rate of C$1.35-to-US$1, a gold price of US$375 per oz. and a conservative gold recovery of 80%. This results in a payback of capital in 1.8 years from startup.

The cash-plus-capital costs of production (US$234 per oz.) include a sliding-scale royalty on the first 300,000 oz. to Hemlo Gold Mines (TSE), and a 5% net profits royalty after return of all capital to Total Energold. Last year, Loki acquired Hemlo Gold’s 51% share in Brewery Creek for $2 million cash plus 2 million Loki shares. With production looming, Loki intends to strengthen its engineering team, which currently includes well-known mining engineer Henry (Hank) Giegerich.

Plans for this year include stripping of the plant site, leach pad area and construction camp site. (This work will allow additional geotechnical investigations in a possible permafrost area.) Bridges and roads are being upgraded in order to improve access for the large equipment needed for this year’s program.

The property is accessible by road from Dawson, a distance of 76 km. Terrain is moderate (foothills), and the low annual rainfall (32.5 cm) should result in few, if any, water balance problems.

Loki plans to submit the initial environmental evaluation by mid-July, with final permits and licences for mine development expected in early 1995. Netolitzky does not rule out the possibility of vending the project to an interested major, if such a move is in the best interest of shareholders. But the prospects of building a producing company appear to be of more interest to him and associate Lawrence Nagy, both of whom were previously associated with the early stages of the Snip and Eskay Creek gold deposits. “We lost Snip through a hostile takeover (of Delaware Resources) and we felt it was best to let a major take on Eskay Creek because of its metallurgical complexity,” Netolitzky said. “But Brewery Creek is the kind of project we can bring into production ourselves.”