Nerco fashions Con turnaround with US$95-million investment

A well defined operating strategy backed by more than US$49.4 million in capital improvements has enabled Nerco Minerals, a unit of Nerco Inc. (NYSE), to achieve a turnaround in operations at its Con gold mine, on the outskirts of this northern community. The Con mine — purchased from Cominco in late 1986 for US$46 million — is Nerco Minerals’ first underground mine and its first Canadian operation. The oldest and perhaps most famous of northern mines, Con has turned out more than three million ounces of gold during 51 years of continuous operation.

The deposit can be reached by two production shafts, one of which is more than a mile deep, and it has more than 50 miles of underground workings extending under the city of Yellowknife and under Great Slave Lake’s Yellowknife Bay.

Thomas Albanese, chief operating officer for Nerco Minerals, candidly admits the northern mining venture has been a greater challenge than anticipated. But he also said the mine and adjacent 16,700- acre land package was found to have more potential for growth than expected, justifying the company’s commitment to upgrade and modernize the aging mine which was in need of capital improvements.

Nerco spent US$13.7 million on capital projects in 1987 and a further US$35.7 million in 1988 as part of a multi-front effort to increase production, improve efficiencies, and lower unit costs. While the company wasn’t able to meet its production and cost-reduction goals in 1988, operating results in 1989 appear to confirm the view that Nerco has indeed come of age as an underground miner.

The company poured 94,872 oz. of gold from the Con refinery last year, a 22% increase from the 77,927 oz. produced in 1988. At the same time, direct cash production costs decreased 23% to US$230 per oz. of gold produced. Nerco, which has four open pit precious metals mines in the U.S., produced a total of 177,000 oz. gold and 6.3 million oz. silver last year.

Clynton Nauman, a geologist and mine general manger, outlined a number of factors that led to the improved production performance at Con, including the implementation of a strategic operating plan.

“In 1988 the mine couldn’t see any further than 60 days down the road,” he told The Northern Miner during a recent property visit. “Now we’re looking down the road at least 18 months in a detailed manner and our planning horizon has expanded to five years. We’re now looking at operating plans for the next 10 to 12 years.”

When Nerco acquired the mine, reserves stood at 520,000 oz. of contained gold. This was increased by ongoing exploration and currently proven and probable reserves stand at 2.93 million tons grading 0.30 oz. gold per ton. Typically gold mineralization is hosted in quartz-rich pods, lenses and stringers within large Archean shear zones. Ore zones vary from 4 to 60 ft., and dip at abut 60 degrees .

One of Nerco’s more immediate objectives was to change the mine’s operating methods from a predominantly conventional to a more mechanized operation. During the underground tour, it was explained that a mix of mining methods is used — including some shrinkage stoping — based on the ore zone configuration and on economic and safety considerations.

In 1988, for example, conventional cut-and-fill accounted for 68% of the total tonnage from the mine. This was reduced to 44% in 1989. Mechanized cut-and-fill, which accounted for 9% of total tonnage in 1988, was increased to 19% in 1989. Longhole stoping accounted for 12% in 1988 and this was increased to 25% in 1989.

“If you combine mechanized cut-and-fill and longhole, both of which are highly mechanized methods, the change as a percentage of the total tonnage increased to 44% in 1989 from 21% in the previous year,” Nauman explained.

The advantages are obvious because it costs about $10 for a mechanized ton and $23 for a conventionally mined ton. As a result of these and other changes, Nerco’s mining costs at Con were reduced by about 38% in 1989 from the previous year.

In addition to converting a number of areas for mechanized or trackless mining, Nerco replaced the old C1 headframe with a new conveyance system for both production and exploration purposes, upgraded the ventilation and electrical systems, centralized maintenance, purchased new scooptrams and other mining equipment and carried out extensive rehabilitation and safety improvements underground. (Part of this was work related to a rockburst that added US$20 to Nerco’s 1989 cash production costs.)

Con was and still is a labor- intensive operation. It currently employs about 160 people on the mining side and 20 in the mill. Therefore it’s not surprising that Nerco has placed great emphasis on the human side of the productivity equation. Albanese credits Nauman’s people and management skills for having forged “a more motivated and productive workforce.”

Nauman said recent improvements in individual productivities owe much to a “far-sighted” incentive bonus plan and the introduction of a computerized information system that allows management to keep track of unit costs throughout the operation, including every working area of the mine.

“We’ve also moved several of the key staff on to the front lines of the mine and this has made a big difference,” Nauman said, adding that this means the geology superintendent and the head of the engineering department work as operating supervisors, or shifters, underground.

“Underground productivity has increased to 21.8 tons per man shift in 1989 from 15.8 tons in the previous year and we’re proud of that,” Nauman explained. “At the same time the costs of those tons has decreased 21% to $18.10 from $23.03 per ton in 1988.”

Nauman also said the average tonnage hoisted daily increased to 722 tons in 1989 from 599 tons in 1988, largely as a result of the incentive bonus plan. In 1990 Nerco hopes to increase the total tonnage hoisted to 300,000 tons per year through the Robertson shaft and 30,000 tons through the newly rehabilitated C1 shaft. This would be a substantial increase from the 264,000 tons hoisted in 1988.

“The constraint in this mine is not in the hoisting which was the perception when we first bought the mine,” said Nauman. “We are now hoisting about 1,000 tons per day and we don’t see any limit.”

Development activity — including track drifting, mechanized drifting, conventional raising and sub- drifting at Con — saw a 42% increase in productivity while costs decreased 15%. As a result of this, Nauman said the number of active working areas in the mine has “increased dramatically.”

Optimization of the mill circuit was another crucial factor in the turnaround, given that the head grade of ore at Con has gradually declined over time.

“In 1989 the head grade was 0.37 oz. gold whereas 10 years earlier it was about 0.445 oz. gold per ton,” Nauman explained. “In addition when Nerco took over operations the mill was often hungry because mining often fell behind mill capacity.”

In order to offset this and the declining head grades, Nerco reduced the cutoff grade and thereby built up a large, lower-grade stockpile of ore that has allowed it to increase throughput.

“This was a strategic and important move toward increasing efficiencies and decreasing costs,” Nauman emphasized. As a result of these changes, the company processed a slightly lower grade of ore than it did in 1988 and the recovery dropped to 95.7% from 96.3%.

“That’s acceptable as the mine is not really sensitive to small changes in recovery,” he said, adding that milling costs were reduced by 25% in 1989 from the previous year. On the other hand, total tonnage through the mill increased by 25% to 735 tons per day in 1989 from an average of 586 tons in 1988.

During our tour through the un-mechanized wooden mill (which probably looks much as it did decades ago), Nerco was busy installing an additional 5×9 ft. ball mill in the cyanide processing circuit to allow it to increase throughput to 850 tons per day. This work is expected to be completed in early April. Since 1970, ore at Con has been free-milling, so the roaster
used to process refractory ore in the past has long since been removed.

For optimum recoveries, ore is ground in a ball mill and tower regrind circuit to between 75-80% minus 200 mesh. Sandy tailings piped from the mill are used to backfill stopes underground.

Nerco has its own hydroelectric generating facility that supplies 50% of its power, but it recently negotiated an agreement with a local utility that it expects will result in a 15% and as much as 30% reduction in power costs over 10 years. Environmental issues are also being taken seriously at Con these days, and one of Nerco’s major capital improvements is a new water treatment plant and state-of-the-art environmental services department building.

Summing up the changes at Con in the past several years, Nauman noted that some of the company’s workforce has moved out of company housing (at a company saving of $1.5 million per year) to settle in Yellowknife on the expectation that the mine will be around for years to come.

Exploration will be the key to that longterm future, Nauman stressed, adding that only 15% of the company’s land package has been explored to date.

In addition to ongoing underground exploration to increase reserves, and the application of some interesting new concepts on ore controls in the mine, Nerco will be spending about $650,000 on a surface exploration program largely aimed at testing known showings and shears. Led by geologist Dr. Norman Duke, it will be the first systematic and contemporary exploration effort to use geophysics on the Con mine property.