The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Coming to agreement with Taku First Nations on road to Atlin, Chieftain sells gold/silver to secure first US$60M for construction
One year after going public, Chieftain Metals Inc. is blazing a trail through roadblocks that impeded past efforts to re-open the historical Tulsequah Chief Mine, a precious metals-rich volcanogenic massive sulfide project on British Columbia's western border about 65 kilometers (40 miles) northeast of Alaska's capital city of Juneau.
A C$20 million initial public offering that closed in December 2010 provided Chieftain with the funds needed to put the project back on the path to production, an objective the Toronto-based mining company believes it can achieve by 2015.
The brief timeline from IPO to production is due to the fact that major permits for constructing and operating the Tulsequah Chief project are already in place. These permits were granted to former project owner, Redfern Resources Ltd., and its parent company, Redcorp Ventures Ltd., before the mining firms filed for bankruptcy in 2009.
"The company itself was created for the purpose of purchasing this property from the receiver that was holding it as a result of Redfern and Redcorp going into bankruptcy," Chieftain Metals COO Keith Boyle explained during a Jan. 7 teleconference with a Juneau-area task force formed to monitor developments at the upstream mine.
In September, Chieftain announced it has engaged Wardrop Engineering to complete a new feasibility study for the Tulsequah project. Updating a similar assessment completed in 2007 for former Tulsequah owner, Redfern Resources Ltd., the revised feasibility will include recalculated capital costs and updated mineral reserves based on the 31,000 meters of drilling carried out in 2011. The 2012 study also will blueprint a road to deliver concentrates produced at Tulsequah to market, a sticking point in Redfern's efforts to revive the historical mine.
The 2012 feasibility study - expected to be published in the first quarter of 2012 - will form the basis for construction of the Tulsequah Chief project, which is scheduled to begin later in the year.
Treating ARD
One of Chieftain Metals' first tasks as owner of Tulsequah Chief is to stop the acidic metal-laden water that has been seeping from the historical mine shafts for more than 50 years.
This legacy acid rock drainage - which was reaching the Tulsequah River, a tributary of the Taku River that flows into the Lynn Canal near Juneau - has been a concern for First Nations, regulators and others in both British Columbia and Alaska.
"One of the items we completed was the construction and subsequent commissioning of an interim water treatment plant and it is treating the effluent from the historic Tulsequah Chief Mine that produced ore in the 1950s," Boyle informed the Juneau-based Taku River task force on Jan. 7.
The Chieftain Metals CEO told the watchdog group that the permanent solution to the acid rock drainage is not the continued treatment of the metal-laden water flowing from the historical adits but to backfill the legacy mines. He said the company plans to backfill the sulfide-rich chasms with tailings and waste rock from Chieftain's planned operations.
"We are going to develop the mine that we are proposing and with the waste that we are going to mine from this operation, we are going to fill those old stopes and stop the water from turning acidic," the COO explained.
The third and final stage will be the closure and reclamation of the Tulsequah Chief Mine after Chieftain has completed its mining, returning the site to a state that resembles the landscape before Cominco began mining the deposit in the 1950s.
"The mine is there, it is a springboard to do something really good and to leave something really good after the mine is shut down," Boyle said.
Road to Atlin
In order to realize something good from Tulsequah, Chieftain needs to get the metals to market, a dilemma that plagued Redfern.
The former Tulsequah developer originally wanted to build a road from the VMS project 155 kilometers (96 miles) north to the British Columbia road system at the mining town of Atlin. When that route hit a roadblock with local First Nations, Redfern tried to engineer an innovative system of navigating the Taku River.
The plan to use large hoverbarges to transport materials to the mine and ore to markets proved to be too logistically challenging to be practical and ran into opposition from Juneau-area Alaskans worried about what affect the prototype transportation system would have on the Taku River and its salmon.
Citing difficulties with getting supplies to the site with conventional barges in 2011, Boyle reassured the Taku River task force.
"It has become very clear to us that barging up the river is not an option, both for the construction of the site and then the subsequent production," the Chieftain Metals CEO expounded.
Speaking frankly, Boyle told the group that Chieftain's initial decision not to use hover-barges had more to do with finance than conservation.
"It had nothing to do with the salmon runs - it had everything to do with sitting in front of the bankers and saying 'we want to build a mine,'" he said. "They looked at us and said 'if you think you are doing it with hover-barges we are not giving you money.'"
Once in production, about 148,600 metric tons of concentrates would be shipped from the mine annually. Boyle said that even under the best of conditions a fleet of five 200-ton barges traveling the Taku River could only get about half the product to markets.
With a consensus that the river route is not practical, Chieftain Metals met with the Taku River Tlingit First Nations to if a route through their traditional territory to Atlin could be found. The talks resulted in a new alignment that both avoids the caribou and moose hunting areas important to the Taku River Tlingit and reduces the amount of new road to be constructed to around 30 kilometers (19 miles).
"We reduced the amount of road from about 160 (99 miles) to about 130 kilometers (80 miles) but as well we avoided, reduced and addressed all of the concerns the First Nations stated with respect to the previous permitted route," Boyle explained.
Chieftain has the Special Use Permit for the original route and is preparing an amendment application for the less contentious alignment.
"We recently submitted the environmental assessment amendment application and that will be followed, in probably a month or so, with Special Use Permit amendment application," Boyle explained during the Jan. 7 presentation.
Chieftain anticipates gaining the necessary approvals to begin construction by the end of July and plans to have crews blazing the road from the Atlin and Tulsequah ends shortly thereafter.
The road is scheduled for completion by the end of 2013 and, once established, the new access will be used to haul in the bulk of the material needed to complete the mill construction.
"Following the road construction we will complete the mill and mine development and our tailings; and we should be commissioning sometime in 2015," Boyle said.
First US$60 million
Anticipating the need to raise C$350 million to get Tulsequah Chief into production, Chieftain Metals cut a deal with Royal Gold Inc. in December to sell a portion of gold and silver produced at the future mine in exchange for up to US$60 million in up-front cash.
Upon closing the deal, Royal Gold has agreed to pay Chieftain an initial US$10 million. The Denver-based royalty company will pay the remaining US$50 million as certain milestones are met during the development of the project.
In return for providing the cash, Royal Gold has the right to buy 12.5 percent of payable gold produced at a future Tulsequah Chief Mine for US$450 per ounce for the first 48,000 ounces delivered, decreasing to 7.5 percent thereafter at US$500 per ounce. The royalty company will also have the opportunity to buy 22.5 percent of payable silver at US$5 per ounce up to 2,775,000 ounces, decreasing to 9.75 percent thereafter at US$7.50/ounce.
Chieftain Metals President and CEO Victor Wyprysky said, "We are pleased to enter into this transaction with Royal Gold on the first anniversary of our IPO. Royal Gold's commitment to the company highlights the value of the Tulsequah Chief deposit. This financing does not dilute shareholders and increases the project NAV. The purchase amount, achieved by monetization of a portion of our precious metals demonstrates the value inherent in the project. This transaction is an important first component in the project financing for the Tulsequah Chief development as we plan for mine construction commencement in 2012."
Payable metals
Gold and silver are expected to make up about 46 percent of the net revenues from Tulsequah Chief, with the balance of the proceeds coming from base metals produced from the VMS deposit.
Put into production as imagined in a preliminary economic assessment released by Chieftain Metals in June, a mine at Tulsequah would produce 45,000 ounces of payable gold and 1.4 million ounces of payable silver per year; or some 387,000 payable ounces of gold and 12.5 payable ounces of silver over the life of the mine.
The PEA - prepared by SRK Consulting (Canada) Inc. - outlined the potential for 69,400 gold-equivalent ounces of production annually at a total cash cost (net of base metal byproduct credits) of negative US$365 per gold-equivalent ounce, based on 2,000 metric tons per day over a nine-year mine life.
Zinc, at 29 percent, represents the largest single payable metal at the Tulsequah deposit - copper makes up 22 percent and lead contributes 3 percent.
The PEA utilized a 2007 feasibility study as its technical basis and includes the indicated and inferred resources before the 2011 drill program.
The Tulsequah Chief deposit is currently estimated to have an indicated resource of 6 million metric tons grading 1.42 percent copper, 6.44 percent zinc, 1.23 percent lead, 2.63-grams-per-metric-ton gold and 96 g/t silver. In addition, the deposit contains an inferred resource of 1.1 million metric tons grading 0.94 percent copper, 5 percent zinc, 0.93 percent lead, 1.63 g/t gold and 72 g/t silver.
Big Bull, a deposit about 8 kilometers (5 miles) southeast of Tulsequah, contains a smaller resource.
"There is excellent potential to discover new deposits to the southeast of the Tulsequah Chief deposit within rhyolite stretching between it and the Big Bull deposit, located 8 kilometers to the south," SRK wrote in the report.
Preparing for construction
A 31,181-meter drill program that Chieftain wrapped up at the Tulsequah Chief property in September is expected to add tonnage to the mineral resources.
The 82-hole program included 22,654 meters of drilling in and around the Tulsequah Chief deposit and 8,527 meters drilled at Big Bull.
At Tulsequah, 50 underground holes were drilled to upgrade the resource and evaluate portions of the historical reserves left behind when Cominco Ltd. shutdown operations in 1957. Chieftain said these historical reserves are not included in the 2011 resource estimate.
Highlights from the holes aimed at upgrading the 2011 resource include:
TCU11155 cut 8 meters averaging 4.98 g/t gold 143.6 g/t silver, 18.64 percent zinc, 0.27 percent copper and 2.09 percent lead;
TCU111156 cut 2.6 meters averaging 23.01 g/t gold, 472.27 g/t silver, 24.23 percent zinc, 4.09 percent copper and 5.07 percent lead;
TCU11164 cut 13.9 meters averaging 4.51 g/t gold, 133.13 g/t silver, 6.28 percent zinc, 1.16 percent copper and 1.3 percent lead;
TCU11165 cut 18.1 meters averaging 3.07 g/t gold, 100.52 g/t silver, 9.48 percent zinc, 1.47 percent copper and 2.86 percent lead; and
TCU11176 cut 6.8 meters averaging 2.13 g/t gold, 72.85 g/t silver, 4.47 percent zinc, 1.33 percent copper and 0.67 percent zinc.
Highlights from the holes aimed at confirming the 1957 reserve include:
TCU11190 cut 11 meters averaging 1.05 g/t gold, 55.88 g/t silver,6.05 percent zinc, 2.08 percent copper and 0.79 percent lead;
TCU11191 cut 29.1 meters averaging 0.68 g/t gold, 37.32 g/t silver, 11.89 percent zinc, 1.31 percent copper and 2.48 percent lead;
TCU11194 cut 9.8 meters averaging 1.95 g/t gold, 157.21 g/t silver, 16.09 percent zinc, 1.88 percent copper and 2.02 percent lead;
TCU11195 cut 17.7 meters averaging 1.99 g/t gold, 305.38 g/t silver, 16.02 percent zinc, 5.01 percent copper and 0.85 percent lead; and
TCU11200 cut 5.3 meters averaging 1.38 g/t gold, 200.39 g/t silver, 5.54 percent zinc, 1.88 percent copper and 1.08 percent lead.
Based on the 2011 drilling, Chieftain is having the historical zones located in the upper portion of Tulsequah deposit re-modeled in hope of incorporating them into the new resource calculation due to be released with the 2012 feasibility study.
On surface, 10 holes totaling 4,002 meters targeted shallower portions of the Tulsequah Chief and potential extensions of the deposit.
Chieftain has yet to release assay results from the 22 holes drilled at the Big Bull deposit.
Throughout the winter crews at Tulsequah will be working toward two goals; containment of potential acid generating materials and preparing the plant site for grading and foundation construction, which will begin in the summer.
"I am pleased with the team's ability to execute with speed, accuracy and efficiency. The winter work program will put us ahead of schedule so we can hit the ground running with full mine construction in the spring," said Wyprysky.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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