Mining to be conventional at Pegasus’ U.S. project

The Montana Tunnels project will be the first conventional mining operation for Pegasus Gold which has built a solid reputation for processing low grade gold ores by heap leach methods.

Located about 23 miles south of here, the project will be among the lowest grade of its type anywhere — 0.027 oz gold per ton with credits for zinc, lead and silver. Factoring in these credits will boost the gold equivalent grade up to 0.043 oz per ton. The mine should be fully operational in the second quarter of 1987 and cost about $52 million(US) to bring into production, says Pegasus.

That cost is sharply lower than the original $98 million (later reduced to $81 million) proposed by Centennial Minerals which left the door open f or further cost reductions prior to its takeover by Pegasus. The economics of the low grade orebody improved considerably with contract mining (which Pegasus uses at all its operations) and a “no frills” approach to mine and plant development.

Reserves were established by a geostatistical method which addresses local variation in an orebody, something he contends increases the tonnage but drops the grade. A study by Wright Engineers indicates that Montana Tunnels has mineable proven ore reserves of approximately 41 million tons grading 0.027 oz gold, 0.524 oz silver, 0.27% lead and 0.72% zinc.

At full production the mine is expected to produce annually 106,000 oz gold, 1.7 million oz silver, 60,000 tons of zinc concentrate and 11,000 tons of lead concentrate. The lead will be going to the nearby East Helena smelter (Asarco) and discussions have been held with several companies, including Cominco at Trail, B.C., which is the closest, to sell the zinc concentrate.

Pegasus has incurred a substantial amount of debt to bring this mine and also two Nevada heap leach operations (N.M., Dec 1/86) into production. But according to Douglas Belanger, vice-president corporate affairs, the company will be able to service that $100-million debt even if gold drops to the $300(US) level.

About half of it is a convertible- to-gold loan and the remainder involves convertible bonds at an average interest rate of 6%. If the stock performs, these could be converted by the end of 1987 or before, he states.

The company has long-term gold delivery commitments which are based on the price of gold. Up to 67,000 oz gold is deliverable at the bondholders option at a conversion price of $376.36 per oz between May 20, 1987, and maturity. Another involves 20,000 oz at $331.25 per oz prior to maturity and a recent gold loan with Citibank, N.A., constitutes an obligation of 43,000 oz over two years ending in 1989. There are rights attached to that bond which could see another 58,646 oz delivered by 1996.

Pegasus went this route because it says such financing is “generally available at lower interest rates than would apply to conventional debt financing.” They also represent a hedge against lower gold prices but in the event of higher prices naturally Pegasus would not be able to capitalize on them.

Because there is always a certain amount of risk associated with any type of borrowings, keeping the capital cost of the project at a reasonable level was important.

About $15 million was chiseled off plant construction work and, combined with an acceptable mine plan, the project offered a good return on investment, says Pegasus.

According to Alan Richardson, Montana Tunnels general manager, contract mining saved them about $16 million and he doubts whether Pegasus could have done things cheaper by purchasing its own equipment. Following the lead of Placer Development at its Golden Sunlight operation in Montana, Pegasus was its own project manager. But it retained Wright Engineers and Commonwealth Pacific Construction as construction managers.

Wright retained consultants, many based in the state, for specific items like access roads, water supply and geotechnical test work. Wright, which has built an enviable reputation both in Canada and overseas for this type of work, did the final feasibility study although it “piggy-backed” on an excellent one done earlier by Kilborn Engineering.

The mine employs a sub-aerial technique for tailings disposal, similar to that used at Westmin Resources’ Buttle Lake operation on Vancouver Island and also in the Key Lake area of Saskatchewan. Ground conditions were perfect for this type system and it eliminated the need to put in an expensive grout curtain to prevent leakage. A bentonite layer was sufficient to contain the tailings. Water is drawn off through a filter medium and the principle is analogous to depositing sand on a beach. The water runs into a huge reservoir which will be kept topped up for dry periods.

As far as the economics of the mine are concerned, Pegasus is projecting an internal rate of return of 29.2% and a payback period of approximately two years — possibly even less with higher metal prices.

Mill construction is almost 70% complete and SAG mill (semi autogenous grinding) and ball mill shells are now in transit from Korea, he points out. The major components are in the plant except the grinding mills; piping and electrical work is well advanced and full production is expected by May 1, 1987, he adds.

Approximately 3.5 million tons of pre-production stripping has been completed and about 200,000 tons of ore will be stockpiled for initial production. Both oxide and waste material are being removed and the ore exposed to date is looking better than anticipated, he claims. Altogether, about 5.2 million tons of stripping will have to be done prior to production.

The bulk mineable deposit is located in the central part of a diatreme, a volcanic vent or pipe which has intruded older rocks. Sulphide minerals occur as disseminations and they include pyrite, sphalerite, galena, minor chalcopyrite and rare electrum accompanied by gangue minerals.

Haulage distance to the plant is approximately 2,500 ft and the contractor, N. A. Degerstrom, will be using 85-ton-capacity dump trucks to transport ore to the crusher where it will be conveyed to the mill. Barry Skeldon, a project engineer for Wright Engineers, notes that a jaw crusher was chosen over a gyratory type because the ore is so soft. He estimates the work index will be around seven or roughly half what other producers average. There was a saving of $2 million-$3 million using this type crusher, he confirms. A bulk sample was taken for metallurgical test purposes a few years ago and only a few large chunks have been found in pre-production stripping, suggesting initial assumptions about ore hardness are correct.

The initial plant design was 15,000 tons per day but its size was reduced to 12,500 tons to keep the project within an acceptable budget. All the mill equipment was sized on that basis and Mr Skeldon admits there is “no oversize allowance” for the plant. Nor did they double up on equipment which would have also increased costs. “It’s a slim, economically-planned facility,” he argues, which is why the operation will be developed so cheaply.

All sulphides will be floated in huge Outokumpu flotation cells which take less space than an equivalent capacity of smaller units. Basically, it’s a bulk sulphide float with an agitated leach which is slightly different than the norm. The gold and silver come out in the sulphide concentrate which is sent to a regrind mill and reduced in size to 400 mesh or less.

After regrinding, the concentrate is mixed with sodium cyanide and water which dissolves the gold and silver leaving behind the lead, zinc and iron sulphides. Two separate concentrates (zinc and lead) are made from these.

Gold recovery is anticipated to be 97% in concentrate form but 90% ultimately. Final silver recoveries are estimated to be 72% with 83% for zinc and 50% for lead. About half the silver will go out in dore bullion with the remainder split between the zinc and lead concentrates. They will get paid for the silver in concentrates but the gold content is so low there won’t be any credit for that. Mr Richardson says it’s “not a complicated process” but he adds that reagent consumption is high. Filtration liquor will be tr eated by the Merrill-Crowe process which was chosen over carbon in pulp (CIP) because “studies showed it to be the best.”