Junior eyes 2013 Brewery Creek startup

For the past 18 months, Golden Predator Corp. has been working fast and furiously to get a handle on the gold resource it has steadily uncovered at its flagship Brewery Creek Project located about 55 kilometers (34 miles) east of Dawson City in central Yukon Territory.

On Dec. 1, the aggressive junior reported that it was working toward a near-term production decision even as increasingly impressive 2011 drill results continued to surface.

Six months later, Golden Predator Chairman and CEO William M. Sheriff, M.Sc., is busy spreading the word that Brewery Creek will become the Yukon's next operating mine.

Until recently, that distinction had been expected to go to Victoria Gold Corp.'s Eagle Gold Project located farther to the east.

A deposit on the mammoth Dublin Gulch Property, Eagle Gold is still on track to become the largest gold mine in Yukon history with 4.8 million metric tons of indicated and 1.5 million metric tons of inferred resources when it comes online with initial production, expected in the fourth quarter of 2014.

At Brewery Creek, Golden Predator hopes to capitalize on a history of recent production and existing infrastructure to initiate gold output from an expanded heap leach pad on the site and resume the extraction of ore from the formerly mined Foster's deposit on the property.

Golden Predator anticipates startup of the new mining operation in the third quarter of 2013 and the pouring of first gold a couple of months later. Annual production is expected to average 30,000 to 40,000 ounces gold during this first phase of mining.

By late 2015, Golden Predator intends to launch a second phase at Brewery Creek by placing ore on new leach facilities with a target of producing first gold in this phase in early 2016. Mining in phase 2 is expected to continue until 2023, with a goal of producing more than 1 million open-pit oxide ounces of gold in a standalone operation at a rate of about 100,000 ounces per year.

A third and final phase is envisioned to commence in 2015 with the junior undertaking the design, permitting and construction of a mill for processing open-pit sulfide ores and the evaluation of the property's remaining gold resource for underground mining potential.

"(The three-phase mine plan) is a way for us to establish early cash flow and work our way into more production on the back side, targeting 120,000-130,000 ounces a year in phase 2, and operating essentially two mines on the property," Sheriff told reporters in early May.

Though Golden Predator controls more than 1 million acres of mining claims in the Yukon - an area roughly the size of Delaware - the junior has narrowed its focus in 2012 to pursuit of the new mine plan for Brewery Creek. Most of the C$12 million that it raised in the markets this spring will be used to advance that project.

"We will spend C$10 million on exploration at Brewery Creek and very little on everything else," Sheriff told Mining News May 22.

The company plans to carry out just enough geochemical sampling on its numerous other Yukon properties to meet legal requirements to keep them active. This includes the Grew Creek, and Cache Creek projects where the junior made impressive gold discoveries in 2011 and the Clear Creek project, which has five rich gold zones.

"We have a clear path to production and revenue, so it doesn't make sense to put more money into something else this year," Sheriff said. "By 2014, we're hoping to be producing gold in the 40,000 to 45,000 ounces a year range, and if so, with costs even in the high US$700s per ounce, we still will get quite a bit of cash flow, certainly enough to fund other projects."

He said the junior will channel the remainder of its working capital into general and administrative expenses and plans to begin construction on phase 1 of its mine plan for Brewery Creek in June.

Initial gold resource

From 1996 to 2002, Brewery Creek produced a total of 278,484 ounces gold from seven near-surface oxide deposits along the property's Reserve Trend, before the mine (then operated by Viceroy Resource Corp.) shut down due to low gold prices.

In 2009, Golden Predator gained the right to earn a 75 percent interest in the property from Alexco Resource Corp., a junior that had completed an award-winning reclamation program on the property mid-decade. Since then, Golden Predator has acquired a 100 interest in Brewery Creek, which remains subject to two underlying royalty agreements with third parties: a "sliding scale" royalty on the next 21,516 ounces of gold production, and a 5 percent net profits royalty on profits from gold production.

In May 2011 the company staked 204 claims east of the existing Brewery Creek property, increasing its land position to 997 claims covering 187 square kilometers (72.2 square miles). The new claims were staked to cover geologically favorable ground outlined by geophysical and geochemical surveys.

Golden Predator released a NI 43-101 resource estimate for Brewery Creek May 1, reporting an indicated resource of 20.4 million metric tons grading 0.89 grams per metric ton, or 581,000 ounces, gold and an inferred resource of 13 million metric tons grading 0.83 g/t, or 345,000 oz., gold, using cut-off values of 0.20 g/t gold for oxide material and 0.70 g/t gold for sulfide material.

The indicated resource includes 13.9 million tons of oxide material averaging 0.70 g/t, or 313,000 oz., gold and 6.5 million tons of sulfide material averaging 1.29 g/t, or 268,000 oz., gold.

The inferred resource includes 7.3 million tons of oxide material averaging 0.47 g/t, or 111,000 oz., gold and 5.7 million tons of sulfide material averaging 1.29 g/t, or 235,000 oz., gold.

The mineral resources for Brewery Creek were estimated by EBA, A Tetra Tech Company, using Golden Predator's drilling and sampling programs, together with independently-validated historic data conducted from previous operators including Loki Gold, Viceroy and Alexco Resource Corp. The resources were based on 106,550 meters of drilling in 1,244 holes.

Encouraging drill results

During intensive drilling between 2010 and 2012, Golden Predator continued to discover new gold zones and intercept significant mineralization in previously identified areas on the property. These include the Bohemian-Schooner, Sleeman, Classic, East Big Rock, West Big Rock and North Slope zones.

Among the best intercepts encountered during 2011 exploratory drilling:

• Hole BC11-198 - 74.0 meters of 7.08 g/t gold, including 57.5 meters of 8.90 g/t gold;

• Hole BC11-288 - 24.3 meters of 3.88 g/t gold;

• Hole BC11-271 - 23.3 meters of 5.67 g/t gold; and,

• Hole BC11-249 - 27.8 meters of 1.86 g/t gold and 116.0 g/t silver, including 6.4 meters of 4.09 g/t gold and 429.9 g/t silver.

The company May 8 also reported intercepting gold mineralization in all 16 holes that it drilled earlier this year in the West Big Rock Zone. The drill results extended known gold mineralization at least 40 meters to the southeast down dip along a strike length of about 225 meters, and mineralization encountered to date remains open.

Highlights of this drilling include:

• BC12-396 with 17.1 meters of 1.12 g/t gold from a depth of 70 meters;

• BC12-398 with 20.1 meters of 1.10 g/t gold from a depth of 69 meters including 2.1 meters of 3.46 g/t gold;

• BC12-402 with 22.0 meters of 0.92 g/t gold from a depth of 74.0 meters including 1.6 meters of 4.38 g/t gold;

• BC12-403 with 20.8 meters of 1.46 g/t gold from a depth of 76.0 meters; and,

• BC12-404 with 12.4 meters of 1.36 g/t gold from a depth of 75 meters.

The West Big Rock resource area is the farthest west known gold resource at Brewery Creek. Golden Predator said drilling will continue to delineate the extent of oxide mineralization in the zone.

Meanwhile, the junior has begun condemnation drilling. A recent review of historic soil sampling data revealed a gold-in-soil anomaly located close to the current camp and office site at Brewery Creek. An initial four-hole drill program was carried out in and around the existing camp to test the soil anomaly, and two holes intersected ore grade mineralization on the east end of the camp area. Holes BC12-384 and BC12-385 intersected near surface ore-grade mineralization at shallow depths, including hole BC12-384 which intersected 12.4 meters of 1.66 g/t gold at a depth of 12.2 meters. The company plans additional drilling to follow up on this newly encountered mineralization.

Golden Predator plans to complete a minimum of 20,000 meters of drilling in 2012, using up to 3 drill rigs. "The most critical thing in our 2012 program will be metallurgical testing," Sheriff said. "We'll be drilling the Foster's Deposit for confirmation and we will drill larger core on six or seven other zones for metallurgy," he said.

Path to production

Since the newly spun-out Golden Predator came on the Yukon mining scene in late 2008, the Vancouver, B.C.-based company has articulated an ambition to become a mid-tier gold producer. The Brewery Creek project, accessible year round by paved and gravel roads from the junction of the North Klondike and Dempster highways, is perhaps its clearest path to achieving this goal. The project currently holds all of the necessary permits to advance to production, though some of its licenses will require amendments to complete the first phase of its mining plan.

The project is authorized under a Type A water license with an expiry date of Dec. 31, 2021, subject to the restrictions and conditions contained in the Yukon Water Act and Regulations. The project also has a production license with the same expiry date, and the ninety-three mining leases covering mine facilities, pits, waste dumps and adjacent drill-indicated deposits have expiry dates beginning in 2016.

Operations in excess of 5.5 million metric tons new material will require amendments to the project's quartz mining license and/or its water license. The project will require the construction of a new waste rock facility because the existing site is full. Barring unforeseen complications, Sheriff said this process is expected to take three to four months to complete.

Former operator Viceroy also successfully negotiated the terms for a Socio-Economic Accord with Tr'ondek Hwech'in First Nation with respect to the Brewery Creek Project.

The existing licenses and agreements represent a significant head start that is expected to dramatically reduce the capital required to begin production.

In addition, the company enjoys the benefit of a significant royalty portfolio from gold properties it sold to others in Nevada when it came to the Yukon. That income stream generated US$800,000 in 2011 and is expected to grow substantially in the next few years as Barrick Gold Corp. and others bring online more gold and silver production, Sheriff told investors recently.

Disheartening capital markets

Rather than raising more funds in the equity markets, Sheriff said Golden Predator plans to secure a $30 million line of credit to finance phase 1 of the Brewery Creek project.

"We have three offers with various terms from financial institutions before us right now," he said.

Despite uncertainty about the future of the global economy and the keen disenchantment expressed by most investors with the junior mining sector in recent months, Sheriff said Golden Predator has been able to advance its plans for Brewery Creek.

"We were fortunate to raise 60 percent of what we wanted (in the markets). We raised C$12 million, and I think when gold prices dropped US$100 the next day, if we had tried to raise (one more dollar), we couldn't have done it," he said.

The problem, said Sheriff, is that investors don't know what a good investment is anymore in the junior mining sector.

"Nobody knows what's safe. People figured out that they have about a 3 percent chance of making any money on a junior mining venture and that NI 43-101 reports are almost meaningless because the standards are so loose," he explained. "The industry has been its own worst enemy. If there are 1,000 juniors out there with projects, only about 30 are likely to get to production. I would hate to be trying to raise money right now."

Sheriff said drill rigs are stacked up alongside roads in the Yukon this season because so many companies have been unable to mount exploration programs in 2012. Many juniors likely will fail during the current venture capital drought, "which is not necessarily a bad thing," he predicted.

"If we didn't have the luxury to restart mining at Brewery Creek with a low cap-ex, we wouldn't be able to do anything, either. Interestingly, I think the only reason we'll be able to get this financing is our royalty portfolio," he added.