Minto enters last stretch to startup

With startup of the Minto advanced stage copper-gold project in the central Yukon just around the corner, Sherwood Copper Corp. has already embarked on a plan to add to reserves and extend production at the site.

Minto, a relatively small project by industry standards, is a standout because of its exceptionally high grade copper reserves. Its reserves currently exceed 356 million pounds of copper, with estimated recovery rates of 95 percent for copper and silver and 75 percent for gold.

Sherwood, a Vancouver, British Columbia-based junior mining company, expects to begin production in June and output to total 300 million pounds of copper, 122,000 ounces of gold and 1.8 million ounces of silver over the life of the original project.

Recently, the company announced a new program of exploration aimed at the gap between the two deposits - Minto and Area 2 - that it has uncovered so far. Exploration was set to begin with a first phase in March and continue with a second phase in June.

"Given the tremendous successes at Area 2, where we not only defined a significant new resource but also opened up some very substantial upside potential, the prime focus of the Phase 1 program is to test the possibility that we might be able to link up the Minto and Area 2 deposits, as well as extend the multiple stacked mineralized zones from Area 2 under the main Minto deposit," said Sherwood President and CEO Stephen Quin.

"Success in Phase 1 could dramatically increase the resource potential on the Minto property and could radically change the production potential of the Minto Mine."

"Our Phase 2 program will also test several high priority targets that have similar data and characteristics to Area 2 (before the discovery of the current high grade resource), including high grade copper-gold intercepts from sparse 1970's drilling. Success in these other targets could result in the discovery of additional high grade copper-gold deposits and even link up the entire 2-kilometer trend from Ridgetop to the Minto deposit."

Quin told investors at a conference in February that Sherwood aims to convert Area 2, a 9 million-ton resource, to reserves by mid-2007, a move that could add five years to production.

"We've encountered multiple horizons so this is just the beginning of the story," he said.

Ore shipments through Skagway

Sherwood aims to export ore concentrates from Minto via the Skagway Ore Terminal, some 250 miles away in Skagway, Alaska, to smelters in Asia for treatment and sale. The company has pre-sold some 60 percent of its anticipated production.

In January, Sherwood finalized lengthy negotiations to strike separate deals that will enhance the economics of the Minto copper-gold project when it goes into operation in the second quarter.

The Alaska Industrial Development and Export Authority said it finished negotiating an agreement Jan. 19 with Sherwood that allows the mining company to use the 6.7-acre waterfront ore terminal year-round.

"The agreement with AIDEA provides us with a more cost-effective way of shipping our concentrates than trucking them all the way to a port in Stewart, B.C.," Quin said Feb. 14.

Purchased by AIDEA in 1990, the ore terminal at the Port of Skagway shut down in 1998 after a sharp decline in metals prices forced its mining customers to cease operations.

The pact with Sherwood, described by AIDEA officials as a "compromised acceptable solution," will breathe new life into the Skagway Ore Terminal, a fact that drew praise from Alaska Gov. Sarah Palin.

"AIDEA assets belong to all Alaskans, and I am glad we are getting this facility back in operation producing a return on the state's investment, jobs for Alaskans and a boost to the Skagway economy," Palin said in a statement.

The agreement covers a term of seven years, with an extension option for another 10 years. Sherwood will pay estimated annual user fees of about $1.75 million, along with a security deposit of $350,000.

John Wood, the AIDEA engineer who helped move forward a $25 million renovation of the 6.7-acre waterfront ore terminal, said the project has "an aggressive schedule to meet to be ready for Sherwood moving concentrates this summer."

Wood said Feb. 14 that Hamilton Construction LLC of Skagway began work Feb. 12. Hamilton was one of three contractors that sought to refurbish the terminal.

AIDEA is also looking for other mining customers for the ore terminal.

"I'd say the prospects are good that a year from now, we will have other users for the ore terminal, assuming metals prices remain strong," Wood said.

Power line planned

Sherwood, meanwhile, wrapped up a power purchase agreement Feb. 9 that provides for Yukon Energy to supply the mine with electricity by the end of 2008.

"Completing a PPA and filing the agreement with (the Yukon Utilities Board) is a major accomplishment for the Carmacks-Stewart Transmission Line project," Yukon Energy President David Morrison said, after inking the deal late Feb. 8.

"Grid power, provided from Yukon Energy's Whitehorse hydroelectric grid, could significantly reduce the electrical power costs for the Minto Project vs. on-site diesel generation," Quin said.

The complex agreement is a good deal for Sherwood and a better deal for the Yukon, the parties said.

"It's one of those win-win situations where everybody gets a cut of the pie," Quin said.

He said the agreement provides many benefits for the Yukon economy, including substantially higher taxes and royalties going to the Yukon Government and, through it, to the Selkirk First Nation, from the mine.

In addition, Yukon Energy will have a major transmission line extension providing for about half the infrastructure needed to connect the Mayo-Dawson grid and the Whitehorse-Aishihik-Faro grid, as well as a large customer for its surplus power, he added.

Access to electricity from the Whitehorse-Aishihik-Faro grid would enable Minto to reduce its power costs, though the electricity does not make or break the project, Quin said.

The Minto project currently uses diesel generators on site, and electricity from the power grid would reduce costs an average of $3 million to $4 million per year for the life of the mine. That equates to seven to 10 cents Canadian per pound of copper, produced at an average rate of 41 million pounds of copper in the first six years of operations.

In other words, Minto's estimated production costs would drop to 47 cents per pound from 55 cents. With copper currently selling for about $2.50 per pound, the reduction will help, but the project is already economically viable, Quin said.

Under terms of the agreement, Sherwood will make a $7.2 million contribution to the cost of the $31 million power line, plus 100 percent of the cost of the spur line to the mine site (estimated at $3.8 million) in equal blended monthly payments of interest and principal over the first seven years of service.

Sherwood also committed to a "take or pay" guarantee to purchase at least $24 million worth of power from Yukon Energy within its first eight years of serving the mine, along with security over the mine to ensure payments are made.

Sherwood also agreed to provide $850,000 to be placed into a Yukon Energy fund to cover decommissioning costs at the end of the mine's life.

Yukon Energy committed to provide power for the Minto mine at a firm rate of about 10 cents per kilowatt hour; and a secondary energy rate of six cents per kWh available for the processing of low grade ore, if there is surplus electricity after Yukon Energy serves its firm customers and its regular secondary sales customers.

Yukon Energy also agreed to purchase Minto's four 1.6 megawatt diesel generators for $2.24 million, with the energy company making equal blended monthly payments of interest and principal over the first seven years of service. The utility would use the generators to meet its peak demand from all of its customers.

Yukoners protected in deal

A key aspect of the deal for Yukon Energy was obtaining commitments from Sherwood that will enable the utility to promise that no individual Yukon ratepayer will see an increase in rates due to the expansion project.

Minto plans to use diesel to supply its power until the transmission line is built.

Quin said critics initially feared a repeat of a past situation where the Faro Mine closed, and Yukon taxpayers ended up paying the capital costs of a power line built to provide electricity to the defunct mine.

But details of Sherwood's agreement with Yukon Energy quieted those objections when the pact became public Feb. 12, Quin said. Sherwood agreed to pay Yukon Energy about $5 million per year, for at least four years, for power and contributions to transmission line extensions, and then more than $7 million per year for the subsequent three years. These payments, in aggregate, will be placed in a deferral account to ensure that there is no negative rate impact on ratepayers from the line extension, the company said.

The plan is subject to the approval of federal and Yukon regulators, who sign off on the deal by the end of April in order for Yukon Energy to complete construction of the proposed power line project by the fall of 2008, the utility said.