Yukon mines grapple with big challenges

Yukon Territory, lauded in recent years for its mine-friendly business climate, boast three operating mines coming online in the past seven years as well as strong prospects for more than doubling that number by 2020.

Yet all three mines have hit rough patches in their operations in 2014 for distinctly different reasons.

"It's been a little bit challenging for each of the producing mines this year," observed Robert Holmes, director of the Mineral Resources Branch of Energy, Mines and Resources in the Government of Yukon in an Oct. 17 interview.

Permitting delay at Minto

Minto, the largest and oldest of Yukon's modern operating mines, appears to have fallen victim to its own success, according to Holmes.

Located 240 kilometers (149 miles) northwest of Whitehorse, Minto started producing copper concentrate with gold and silver by-products in July 2007, which is trucked to the Port of Skagway where it is loaded onto oceangoing vessels for shipment to smelters in Asia.

Milling 1,600 metric tons per day of ore at startup, the mine was projected to have a four-year mine life. Capstone, and predecessor Sherwood Copper, continued to actively explore the property and met with considerable success.

Mineralization at Minto is spread over a series of high-grade areas interspersed with large deposits of low-grade material. The highest grade deposits are mined sequentially in a series of small pits supplemented with additional ore from underground, commencing in 2013.

Successive pre-feasibility studies have been completed, labeled phase I to IV, each representing the addition of new reserves and mine life, to enter the permitting process as exploration success has been realized.

Seven years later, the Minto mill had ratcheted up output to 3,850 metric tons per day, more than double its initial capacity, resulting in production of 37.2 million pounds of concentrate with an average grade of 1.53 percent copper and gold and silver by-products. At year's end, Capstone reported proven and probable reserves totaling 9.51 million metric tons grading 1.65 percent copper, 0.68 grams per metric ton gold and 5.75 g/t silver, or contained metal of 440 million pounds copper, or enough to sustain production until 2022.

"Minto is facing a fairly optimistic future with their Phase V/VI project. They keep finding new reserves, and these new deposits have to go through assessment and the environmental assessment process. That all takes a lot of time," Holmes told Mining News.

Under the regulatory process in Yukon, new permits are required each time additional reserves are brought into the mine plan. Capstone made application to the Yukon Environmental Socio-Economic Assessment Board for all remaining identified copper reserves on the property in July 2013 and YESAB recommended in favor of the proposed continuation of operation of the Mine in April. Application was made for the amended Quartz Mining and Water Use licenses on July 2.

Juggling plans for Minto North

In September, Capstone received the amended Quartz Mining License for the Minto North Deposit as outlined in the Phase V/VI pre-feasibility study. The company has not, however, received its Water Use license amendment, which the Yukon Water Board believes is required in order to commence pre-stripping of Capstone's Minto North pit.

Capstone said underground mining and milling operations are not affected and production guidance at Minto for 2014 is unchanged. The mill will process underground ore and stockpile for the remainder of the year as planned.

The 2014 mine plan submitted in the license applications, however, calls for pre-stripping of the Minto North open pit, starting in September. The delay in starting the pre-stripping of Minto North resulted in Capstone revising its mine plan to bring forward the mining of fully permitted underground ore from Area 118. This work started in September and will enable Capstone to maintain full mill production and partially offset a projected 2015 shortfall in ore from the Minto North open pit. As a result, production in 2015 is not expected to be materially different than output in 2014; however the most significant production from Minto North will shift from 2015 to 2016.

The delay in pre-stripping, however, forced Capstone's surface mining contractor to downsize its crew at Minto by laying off about 50 people. This work force reduction comes in addition to the 44 jobs cut by the contractor in January, when Minto slowed open pit mining to better align with the expected permitting timeline. Following the downsizing by the surface mining contractor, total direct and contract employment at Minto fell to about 250 people. Capstone's 171 employees and present underground mining contract employees are not affected. Support contractor positions will be evaluated based on the reduction of personnel for the mining contractor.

"We are pleased to have received our Quartz Mining License amendment, however we believe the most prudent course of action is to delay the Minto North pre-stripping until we receive our WUL," Capstone's President and CEO Darren Pylot said in a statement Sept 22. "There is no change to our copper production guidance at Minto for 2014 and no material difference expected in 2015."

"The most regrettable result is job losses at our surface mining contractor. We will continue to work closely with the Water Board staff in order to be in a position to recall our surface mining contractor as quickly as possible," Pylot added.

Holmes said Capstone's difficulty in getting through the regulatory process this year is related to timing.

"The government portion of the process can be more definitive about a timeline, but water is regulated by a quasi-judicial independent board," he said. "YESAB can take eight months and it takes another six to eight months for the water license."

Holmes said the mine plan for Minto North required a six-month stripping program before actual mining of the deposit could begin. The project needed this lead time and hasn't been able to get it.

"Minto would be going great guns now, if it weren't for the stripping program at Minto North," Holmes said. "Capstone was surprised by that Water Board decision to require an amendment to its existing water license.

He said Yukon officials are considering potential regulatory changes that might help to ease similar bottlenecks for future applicants. At least five other proposed mines - Victoria Gold Corp.'s Eagle Gold; Kaminak Gold Corp.'s Coffee Gold; Western Copper & Gold Corp.'s Casino; Copper North Mining Ltd.'s Carmacks Copper and North American Tungsten Mines Ltd.'s Mactung - are currently in various stages of Yukon's environmental assessment process.

"The logistics of getting around the regulatory process requires a lot of time and attention," Holmes observed. "These are open-ended regulations, and getting through the process takes a lot of management and strategy.

"Capstone is hoping to get through the regulatory process by early next year so (the delay) won't have to affect the mill," he added.

Throttling back output

At Wolverine, Yukon's second-largest mine, Chinese-owned Yukon Zinc Corp. focused on cutting costs in 2014.

A volcanogenic massive sulfide deposit, Wolverine produces lead, zinc and copper concentrates with gold and silver by-products that are trucked to tidewater at Stewart, B.C. The mine is located in southeastern Yukon, about 282 kilometers (175 miles) northeast of Whitehorse. Wolverine is a 1,700 tpd underground mine with conventional flotation mill.

After two years of construction, Wolverine began operations in 2011. By early 2012, the mine achieved commercial production (1,200 tpd) and about a year later, output climbed to full design capacity (1,700 tpd), a milestone that mine officials say was overshadowed by a dismal economic environment.

Decreasing metal prices, in particular silver, along with uncertain market conditions created major economic challenges for Yukon Zinc during 2013 and into early 2014. In order to responsibly manage the operation, the company reduced output to 60 percent during the third quarter of 2013 and increased it to the current level of 75 percent in the fourth quarter.

In early 2014, the company secured an additional financing arrangement, which increases its economic stability going forward, according to Floyd Varley, Yukon Zinc's vice president operations and mine general manager.

Focus areas for 2014 include safety; continuing to maximize head grades, recovery and concentrate quality, which has resulted in improved recovery rates; increasing the mine's resources with underground drilling during the summer aimed at better defining the mineable area of the deposit and Wolverine's ongoing mine life.

Yukon Zinc completed the underground drilling program at Wolverine this summer and remains focused on maintaining production while maximizing head grades, recovery and concentrate quality, according to company spokesman Shae Dalphond.

At the end of September, the Wolverine Mine employed 293 workers (including contractors). Of this total, 28 percent, or 82 employees, are Yukon residents and 21 percent, or about 62 workers, are First Nation members. Yukon Zinc employs 64 Yukon staff who hold positions ranging from entry level to supervisory roles in key departments including the mine, mill and surface operations. The company continues to recruit locally for various trades, technical and site positions as they come available.

Surviving low prices

Varley told a reporter recently that the most significant challenge faced by the company today is the prices of zinc and silver, which dropped in 2013 due to a surplus on the market and has remained at low levels through the beginning of this year.

"It's caused us to change our approach to try to conserve capital, and we run a fairly lean operation, manpower-wise," he said.

Holmes said Wolverine also faced an unexpected challenge when it lost its trucking contractor recently and had to scramble to find another company to haul its concentrates to tidewater.

"Wolverine hasn't had any problems with permitting. It got its licenses years ago and hasn't needed any amendments," Holmes aid. "It's a relatively high-cost operation though. It's a long way from port."

Yukon Zinc's primary focus currently is keeping the Wolverine Mine in production so that it can capitalize on a rebound in zinc prices in the future. To achieve this, Varley said the mine has been placed on a schedule that includes a week each month when the mine goes idle to conserve power. By running at about 75 percent of its full capacity, the mine has been able to remain in production without exceeding its revenues. That approach allows the operation to run at the same cost as if it were running at full production, according to Varley.

Through these continuous improvement efforts, Yukon Zinc was able to reduce its operating costs by as much as 40 percent.

The company's continuous improvement efforts also have contributed to Yukon Zinc's exemplary environmental stewardship and social responsibility record. In two of the last three years, the company has been honored with the Robert E. Leckie Award by the Yukon Government for its environmental and social commitments, which include socio-economic opportunities for local Yukon communities and the Kaska First Nation.

The company's continuous improvement efforts also have contributed to Yukon Zinc's exemplary environmental stewardship and social responsibility record. In two of the last three years, the company has been honored with the Robert E. Leckie Award by the Yukon Government for its environmental and social commitments, which include socio-economic opportunities for local Yukon communities and the Kaska First Nation.

The Wolverine Mine site is self-contained, with zero discharge into the surrounding environment and a very small footprint in the wilderness.

Yukon Zinc has taken additional steps to further reduce that impact, including using waste heat from its diesel generators to heat workers' areas. Now, the company is looking into the use of liquefied natural gas for power generation to reduce emissions and further cut costs, according to Varley.

Reigning in costs

At the Keno Hill Silver District Operation, Alexco Resource Corp. brought into production Canada's sole primary silver mine in early 2011. The district, which Alexco acquired in 2006, is located 354 kilometers (219.5 miles) north of Whitehorse in central Yukon. This year, Alexco is attempting to rebound after shutting down production in 2013 at its 400-metric-ton-per-day Bellekeno underground silver-lead-zinc mine in response to low silver prices and high costs.

Alexco's mining subsidiary, Alexco Keno Hill Mining Corp., began producing ore from long-hole stopes at Bellekeno in 2011, which was the first time this mining method was attempted in the history of the Keno Hill district.

Mining and milling operations at Bellekeno and at the nearby mill in Keno City were suspended in early September 2013 in light of decreased silver prices. The last concentrate shipments from the mine were delivered last fall, and the final settlements of concentrate sales were completed in April.

Alexco, meanwhile, has focused on surface exploration in 2014, spending about C$5 million to drill some 14,000 meters primarily on the Flame & Moth southwest area. A January 2013 NI 43-101-compliant mineral resource estimate for the Flame & Moth deposit is 1.38 million metric tons grading 516 g/t silver, 0.42 g/t gold, 1.72 percent lead and 5.70 percent zinc in indicated resources and 107,000 metric tons grading 313 g/t silver, 0.27 g/t gold, 0.86 percent lead and 4.21 percent zinc in inferred resources.

The Flame & Moth deposit occurs in two zones separated by a fault, and while the current potentially mineable portion has a strike length of about 600 meters, results from drilling in 2013 show the mineralization extends for at least 900 meters.

The deposit averages four to five meters in thickness, with some areas up to 11 meters thick.

Drilling results released last year included 28 ounces per ton silver over 5.6 meters true thickness at the southwest extent of the deposit.

The Flame & Moth deposit remains open, and just as important, the general area around the deposit remains open for satellite discoveries such as Flame West where there have been intercepts of up to 28.7 oz/t silver over a true thickness of 0.85 meters.

Mining for all cycles

Part of Alexco's strategy for returning the Keno Hill operation to production is to bring the Flame and Moth deposit into development and production in order to supplement the existing underground mines (Bellekeno, Lucky Queen and Onek).

The new Flame and Moth ore deposit sits directly below the Keno Hill District Mill and will be processed either as standalone mill feed or in combination with Bellekeno, Lucky Queen or Onek.

Alexco proposes to advance the Flame and Moth mine development and operations in two phases. Phase 1 requires an advanced underground exploration program to further delineate and infill drill the ore zones within the Flame and Moth deposit. The program includes the development of 500 meters of primary ramp access, associated underground safety bays, sumps, remuck bays and underground drill platforms.

The Flame and Moth project completed an environmental assessment under YESAB for phase 1 development.

Following the completion of Phase 1 and assuming positive results and other economic considerations, phase 2 would advance, including construction of the remaining decline to reach the ore mineralization, developing ore accesses and levels and constructing a ventilation/secondary escape raise.

Following Phase 2 and a positive production decision, ore mining and processing would then commence.

An amendment to Alexco's permit would be expected to allow phase 2 to commence.

This Flame and Moth Decline Development and Advanced Exploration Plan outlines the scope of work associated with Phase 1 only.

YESAB recommended approval of the Flame and Moth project in early October, and Alexco is awaiting a decision by the Yukon government on the assessment board's recommendation, which came with various terms and conditions, and to learn what conditions the government will require for the project.

"Alexco is a little bit like Minto. They made a strategic decision to get their costs in line before re-starting production. They just came out of YESAB" with their application, Holmes said. "We're looking at it now, and we've got 30 days. Alexco is hopeful to start Flame and Moth development in the next couple of months."

Alexco President Clynton Nauman said the company could make a decision to begin development of the Flame and Moth deposit as early as December.

He told reporters recently that preparing the Flame and Moth property for production would not be a huge undertaking and would involve a crew of 15 to 25 working for several months beginning early next year.

Getting the deposit ready would put Alexco in a position to bring the deposit into production relatively quickly when conditions are right.

Alexco plans to blend ore from the Flame and Moth deposit with ore from the Bellekeno mine, while increasing daily processing at the mill from an average of 270 tpd to 400 tpd.

Many of the conditions involve the potential impact of the proposed mine on the community of some 25 to 30 permanent residents near the Keno Hill operation. Not only is the company required to address the standard concerns surrounding noise, dust and ground water quality, it's also being told to retain a neutral third-party mediator to help develop a Keno City Socio-economic Mitigation Plan with the local residents.

The plan would include identifying and implementing methods to offset the impact of mining activity on the local economy, such as any decrease in property values or lost tourism revenue.

The company hopes to resume production after re-positioning the operation to withstand commodity price fluctuations and other variables.

During the past year, Alexco has re-adjusted its work plan to reduce the cost of production, and re-negotiated its agreement with Silver Wheaton for silver sales to better absorb the effects of market fluctuations.

The amended silver-streaming agreement, which provides downside protection in softer silver markets while also retaining upside leverage in stronger markets, will allow Alexco to achieve its objective of sustained silver production during normal commodity cycles.

Implementation of the amended silver streaming agreement is subject to Alexco paying Silver Wheaton US$20 million, of which US$5 million will be contributed by Silver Wheaton through participation in a primary financing to raise this capital.

Alexco also raised funds this year to finance its 2014 activities, increasing the flexibility to continue exploration and initiate development of the Flame & Moth deposit. At June 30, the company reported cash and cash equivalents of C$6.3 million and working capital of C$11.7 million. In July Alexco announced a bought deal financing for C$7 million that closed in late August with aggregate gross proceeds of roughly C$8.07 million due to a substantial over-allotment.

"We've made solid progress since last fall toward our goal of restoring our position as Canada's only primary silver producer, and I'm excited to have the company positioned to restart mine development following completion of the bought-deal offering," Nauman said in June. "… Our 2014 exploration program has focused primarily on expanding mineralization in the Flame & Moth deposit area as well as further testing on the Bermingham deposit."