Producer clears hurdles at Meadowbank

The story of the Meadowbank Mine in central Nunavut continues to be a tale of challenges met and obstacles conquered.

From the hour that its development was conceptualized in the middle of the past decade, the gold at Meadowbank has delivered a succession of hurdles for its developers - first Cumberland Resources and then Agnico-Eagle Mines Ltd. - to clear. Agnico-Eagle acquired Cumberland in April 2007 in an all-share acquisition valued at C$710 million. In 2010, the gold producer brought Meadowbank into commercial production.

Located in the Kivalliq region of Nunavut, about 2,600 kilometers (1,612 miles) northwest of Toronto and near Baker Lake, NU, the low-lying gold deposits at Meadowbank are surrounded by and/or situated on the bottom of nearby lakes.

Success story

Three years after startup, Meadowbank is Agnico-Eagle's only Arctic mine. Mined from a system of open pits with the aid of water retention dykes, it has emerged as Agnico Eagle's largest gold producer, and is gaining recognition for innovations in water management.

Meadowbank reported record production of 366,000 ounces at average cash costs of US$913 per ounce in 2012, along with higher sustained mill throughput of 11,000 metric tons per day and growth in reserves at higher grades that could have a positive impact on mine life, which currently extends six years to 2018. The mine is located on a large property (49,000 hectares or 121,079 acres) that has additional exploration potential for gold.

The 25-kilometer Meadowbank gold trend currently has three deposits - Goose Island, Portage and Vault - which together have 2.3 million ounces of gold in reserves (25 million metric tons at 2.8 grams per metric ton.

Meadowbank also enjoys the distinction of being the first operating gold mine to be constructed on Inuit Owned Land since Nunavut settled its land claims with its aboriginal residents. Consequently, mineral royalties for the gold extracted ultimately flow to the Inuit through an umbrella organization, the Nunavut Tunngavik Inc. The mine's Portage and Goose pits are sited on mineral claims that pre-date the NLCA and thus the royalties are set under the Canada Mining Regulations, while the Vault pit royalties are established by a production lease with NTI.

Commitment to Nunavut

Meadowbank is also one of the largest private employers in Nunavut with about 780 workers, of which 249 are Inuit.

Moreover, Inuit-owned companies are gaining a growing share of contracts let by Agnico-Eagle to supply the mine with goods and services. In 2012, Agnico-Eagle spent C$391.45 million on goods and services to operate the mine, of which C$230.32 million, 58.8 percent, went to Nunavut-based companies, including C$127.17 million, or 32.5 percent, to NTI-registered firms.

The gold producer also paid roughly C$28 million in federal, territorial and municipal taxes in 2012.

For 2013, Agnico-Eagle has projected spending C$364.84 million to run Meadowbank, including some C$124 million on payroll.

The company is also developing the high-grade Meliadine gold project located 290 kilometers (180 miles) southeast of Meadowbank as a larger open pit and underground mine with an initial mine life of 10-15 years.

In addition, the miner is advancing a new labor force development plan in partnership with Nunavut's Department of Education to stimulate the interest and capacity of the territory's future labor force.

The plan includes developing an earth sciences curriculum for Nunavut's schools and providing multi-year support for a "mining matters" program, an in-schools early apprenticeship program, and a new upward mobility program at Meadowbank to advance the mine's core Inuit labor force with a career path.

Further, the company is providing up to C$7 million over two years to support the Kivalliq Mine Training Society; expanding the Arviat Driller Training program with the Hamlet of Arviat; and launching a new effort with the Socio-Economic Monitoring Committee to consider community-based supports and networks to help its employees and their families be successful with employment.

"Our plan is a step in the right direction, but Agnico Eagle does not have all of the answers, the mandate or resources to develop a labor force and address social impacts," said Denis Gourde, corporate director of regulatory and external affairs at Agnico-Eagle.

Gourde told delegates to the 2013 Nunavut Mining Symposium in April that "industry, governments, Inuit organizations, Hamlet leaders and educational organizations need to come together to develop a long-term plan to develop the interest and capacity of the Nunavut's labor force."

"Collaboration and shared investment will bring significant economic benefit," he added.

Mining in a lake

Still, Agnico-Eagle has come a long way in just six years. Among the early challenges met and overcome at Meadowbank were the company's limited arctic experience, the logistical headaches of a limited shipping season and the remoteness of the mine site, difficulties of fuel storage and management and the need to train such a large staff, including an Inuit work force.

But the most intriguing hurdle that the company was required to clear was the challenge of mining in a lake.

Meadowbank was designed as a series of open pits, with initial ore taken from the Portage pit, with the waters of Second Portage Lake kept away from the pit area by a containment dike, a structure modeled after those built at the Diavik diamond mine in Northwest Territories.

The enclosure was then pumped dry and prepared for mining. Containment dikes also were erected around the Goose Island pit, which began production in 2011.

To protect the arctic char and lake trout living in the area of the future Portage pit, Agnico-Eagle conducted a "fish-out" process, which involved removing and transporting about 550 kilograms of live fish to nearby lakes at an average cost of C$400 per fish.

The Portage and Goose Island pits are expected to be depleted in 2014 when the Vault pit will begin production. Under the current mine plan, Vault will provide most of the ore to be produced at Meadowbank after 2015.

To win approval for its mine plan for Meadowbank from federal and territorial regulators, Agnico-Eagle agreed to 202 conditions to obtain its water license, and 86 conditions to gain a project certificate from the Nunavut Impact Review Board. It also had to ante up nearly C$91 million to meet security requirements for the mine's closure.

With mine closure, the containment dikes will be breached and the pits allowed to flood.

Production woes

After the mine commenced commercial production in 2010, the challenges kept coming. Among them:

Mining in blizzards and cold temperatures, which led to temporary shutdowns and equipment issues; Mining in permafrost and the need to dewater the mine;

Boosting throughput to 8,500 tpd capacity in the processing plant;

Storing the ore and dealing with frozen stockpiles;

Managing dilution of grade due to narrow mining widths, ore zone angle and ore dispersion from blasting;

Coping with high turnover, including 229 departures among Inuit workers (permanent and temporary) in 2011; and,

Recovering from a devastating kitchen fire in 2011.

Payable gold production at Meadowbank in 2011 totaled a disappointing 270,801 ounces with average cash costs per ounce of US$1,000. That compares unfavorably with the mine's full-year 2010 output of 265,659 ounces at total cash costs per ounce of US$693.

The higher operating costs at Meadowbank directly impacted the gold grade that the producer could mine economically.

"Simply put, some of what was previously considered ore is now considered waste," a company spokesman said in announcing the writedown

As a result, Agnico-Eagle pared Meadowbank's ore reserves to reflect its belief that it could no longer economically mine some of the lower grade ore in the deposits.

The company also adopted a new optimized mine plan for Meadowbank that shortened the mine's life and resulted in an associated reduction in the carrying value of the operation. Meadowbank's value was reduced to about US$762 million from a previous property, plant and mine development book value of roughly US$1.7 billion.

Brighter outlook

Agnico-Eagle said Meadowbank was the biggest contributor to its strong performance in 2012.

The Meadowbank mill processed an average of 11,193 tpd in the fourth quarter of 2012, up 26 percent from the 8,866 tpd achieved in the same period a year earlier. The improved mill throughput was due to significant improvements in equipment availability and maintenance.

The company believes this level of throughput is sustainable, given the mine's initial design rate of 8,500 tpd has been consistently exceeded since the startup of a permanent secondary crusher in June 2011.

Mine site costs per metric ton averaged C$90 in the fourth quarter and C$88 for the full year of 2012, down from C$98 and C$91 in the fourth quarter and full year of 2011, respectively. The improvement in costs per metric ton was primarily driven by less waste being moved in the new mine plan and overall productivity gains.

The mine is expected to produce 360,000 ounces of gold in 2013 at costs of US$985/oz, and about 358,000 ounces of gold annually in 2014 and 2015.

"Following two difficult startup years, Meadowbank exceeded expectations in 2012 primarily due to improved operating efficiencies, higher sustained throughput, better equipment availability and improvements in dilution. The currently expected mine life now extends partially into 2018. This is a slight extension of the previously disclosed mine life, in spite of the plan for much higher throughput rates, due to optimization of the mine plan largely at the Vault orebody," the company said.

Ongoing challenges

But Agnico-Eagle continues to encounter new challenges at Meadowbank. One of its latest hurdles is the mine's thirst for increasing amounts of water.

The company applied to the Nunavut Water Board in April for an amendment to its water license to permit the withdrawal of 1.87 million cubic meters per year of fresh water in 2013, and 1.15 million cubic meters per year thereafter, for domestic camp use, mining, milling, and associated uses.

Since gold production commenced at Meadowbank in 2010, Agnico-Eagle has re-used water from the tailings slurry for mill processing. This reclaimed water has accounted for the majority of the mill's water intake (73 percent in 2012), with the balance obtained from ore water (1 percent in 2012) and fresh water (26 percent in 2012).

Meadowbank's current water license permits Agnico-Eagle to obtain 700,000 cubic meters per year of fresh water for domestic camp use, mining, milling and associated uses. But the company has exceeded the license limit for the past three years.

Despite significant success at engineering solutions to optimize fresh water use, the mine's requirements are projected to continue to exceed the permitted rate. Increased fresh water use is due to higher than anticipated rates of ore processing, and an adjustment of the initial water balance model, resulting in a deficit of reclaimed water.

Following inspections in March and July, Aboriginal Affairs and Northern Development Canada recommended that the company apply for a license amendment to permit an increase to the allowable usage of fresh water.

No significant impacts to the local aquatic ecosystem are anticipated as a result of the requested increase in fresh water use, because the total volume withdrawn for mining under maximum use for 2010 - 2018 would be less than 2.5 percent of the volume of Third Portage Lake.

Agnico-Eagle told the Water Board that it is developing an action plan to further reduce fresh water withdrawal by using attenuation pond water for mill processing and tailings deposition. The requested fresh water withdrawal rates are therefore considered to represent a conservative worst-case scenario, in the case that the planned reductions are not successful.