Permitting issues delay Nixon Fork startup

Despite a permitting delay to restart mining in the underground, shuttered Nixon Fork gold-copper mine in central Alaska, developers hope to begin producing gold from existing mine tailings this fall.

Mystery Creek Resources Inc., a wholly owned subsidiary of publicly traded, Toronto-based St. Andrew Goldfields Ltd., submitted to regulators this spring a new five-year plan of operations for Nixon Fork, 35 miles northeast of McGrath, Alaska. The mine has been mothballed for the last five years, and will require substantial work to recommission, the company said.

Mystery Creek plans to refurbish the existing mill, change the extraction process to allow for gold and silver dory production on-site and drive new tunnels connecting two drifts. The company hoped to start production by the end of this year, but according to a June 28 press release, underground mining will be delayed, probably until the third quarter of 2005.

That's because the company must apply for an additional National Pollutant Discharge Elimination System permit from the Environmental Protection Agency.

"In order to satisfy the necessary technical requirements to prepare this application, additional dewatering tests, water quality analysis of both the underground ground water and receiving streams, stream hydrology and an aquatic analysis of the receiving streams will be necessary," the company said in its press release. "It is estimated that these technical requirements will be completed by the end of the summer of 2004 and then the application will be submitted. It is anticipated that this NPDES permit could be issued in the spring of 2005."

Capital costs to start production at Nixon Fork have been estimated at $10 million, according to Mystery Creek President Paul Jones, with cash operating costs estimated at $265 per ounce of gold.

Re-treating tailings to extract gold

While working on its water discharge permit, Mystery Creek plans to start gold production by re-treating existing mine tailings on site, beginning this fall if the necessary permits can be obtained in a timely manner, the company said.

Auger drilling in the existing Nixon Fork tailings has indicated grades ranging from 0.16 ounces to 0.9 ounces of gold per ton of rock. The company estimates that 80,000 tons of tailings contain approximately 20,000 ounces of gold.

Preliminary metallurgical tests indicate that up to 36 percent of the gold in the tailings could be recovered by a gravity circuit, and up to 80 to 90 percent of the gold not recovered by gravity could be extracted by the proposed metallurgical process the company plans to use on ore mined in the future.

The company estimates that approximately 40 tons of tailings could be excavated per hour and treated in the gravity circuit, producing about 1,600 ounces of gold per month with operating costs less than $100 per ounce.

"Further technical studies and permitting for the tailings re-treatment operations are under way," the company said.

The company hopes to begin re-treating tailings this fall, before new lower-grade tailings are added to the stack after underground mining restarts next year. "This gold would be otherwise lost if underground production deposited new lower grade tailings on the existing tailings," the company said in its press release.

Average gold grade of Nixon Fork ore during its last year of operation, in 1998, was 1.3 ounces of gold per ton of rock.

Existing geological estimates of gold remaining at Nixon Fork include an indicated resource of 71,900 ounces and an inferred resource of 64,400 ounces, with an average grade of one ounce of gold per ton of rock, Jones said previously.

High grade drill results reported

Crews began drilling at Nixon Fork in January, continuing throughout the spring with an underground program. Previously, St. Andrew announced plans to spend more than $3 million on two phases of drilling, scheduled to be completed last month.

In its June 28 press release, St. Andrew said that 78 diamond core drill holes, totaling 8,600 meters (28,214 feet) have been completed, most drilled from the underground exploration drift.

The company now plans to continue the underground drilling to the end of 2004, with expectations that the work will increase the resource base by 120,000 tonnes. That will add significantly to the existing resource of 69,000 tonnes in the indicated resource and 76,000 tonnes in the inferred category.

Drilling tested two zones previously mined at Nixon Fork, an area that will likely produce new ore when underground mining resumes. The work confirmed the depth of mineralization and indicated a longer strike of the C-3000 zone. The best results from that area produced a three meter interval grading 46.9 grams of gold per ton of rock (9.8 feet at 1.5 ounces of gold per ton of rock).

Crews are continuing to drill the C-3300 area, and the company said that work has confirmed mineralization to 60 meters below the current workings, part of the inferred mineralization reported. Intercepts from 20 drill holes were released last month, and the company said assays are pending for 17 more holes.

The best results included an 11-meter intercept with a grade of 79.3 grams of gold per ton of rock, (36 feet at 2.54 ounces of gold per ton), a 10.1-meter intercept with a grade of 74.5 grams (33 feet at 2.39 ounces of gold per ton) and a 5.5-meter intercept with a grade of 299.5 grams of gold per ton of rock (18 feet at 9.62 ounces of gold per ton).

St. Andrew believes the high-grade drill results indicate potential to discover additional high-grade ore bodies in the region.

"The margins of the Mystery Stock are particularly prospective to host similar skarn-type mineralization and the area that has been explored to date represents less than 10 percent of the potential area for skarn-hosted mineralization," the company said.

Modeling completed in 2003 by the company's subsidiary, Geoinformatics, indicated a number of targets for such skarn-type of mineralization, the company said.