Cullaton Lake: crisis after crisis

On a fall day in 1960, two prospectors were tracking an iron formation through dense, soupy fog on the undulating barren lands near Henik Lakes in the Northwest Territories, about 200 km inland from Eskimo Point on Hudson Bay. The pair, Thomas Skimming and Huntley (Red) MacDonald, working for Selco Exploration, noted several outcrops as they walked the formation along strike. Finally, at an especially attractive showing that was heavily altered with a high percentage of sulphides, they halted and marked the spot with a cairn of rocks, flagging an upper stone in red for visibility.

A beacon for explorationists, the red flag would have better served as a warning, for this outcrop would become the Cullaton Lake property, a virtual sinkhole for the money that would be lost trying to turn this piece of forbidding tundra into the site of a money-making gold mine.

The story of Cullaton Lake is a tale of woe from begining to end. The geology was misread, technical problems intruded at the worst possible time, the price of gold sagged, fuel costs soared; in short, the mine staggered from crisis to crisis. What it needed was a helping hand from Lady Luck. What it got was a heavy dose of bad luck.

Serious exploration on the Cullaton Lake B zone didn’t begin until 1973, when O’Brien Gold Mines and Consolidated Durham Resources entered the picture, each picking up a 40% interest (the old Royex/Sturgex company retained another 20%). The property was mothballed in 1975 after a decline was driven about 300 vertical ft. Higher gold prices were needed before development could begin.

The fall of the Shah of Iran and the Soviet invasion of Afghanistan saw to that in late 1979 and early 1980, when quotes for the yellow metal went through the roof. At $750(us) an ounce, Cullaton Lake suddenly looked like a no-lose situation.

On Sept 23, 1980, the Cullaton board of directors acted on a feasibility study completed a month earlier, announcing that the property was ripe for production. Estimated capital costs were set at $24.6 million. Cullaton Lake was to start operating a year later at 200 to 300 tons per day. At the time of the production decision, ore reserves to the 400-ft level had been set at 306,500 tons averaging 0.74 oz gold per ton.

By late 1980, most of the development above the 300-ft level had confirmed the results of surface drilling and underground exploration; the orebody was indeed rich and continuous. And Cullaton Lake shareholders were assured in a 1981 annual report that diamond drilling “has indicated vertical continuity of the structure to at least the 700-foot vertical horizon.”

And it had. According to the company’s interpretation of geological results, the orebody extended to that level. No one guessed that the interpretation was wrong, that the drills had intersected noses in the folded rock. In effect, the cores were cutting through a single zone that had doubled over on itself, like a single slice of bread that had been folded over. The readings from the core were almost double the actual width of the mineralized zones. And that wouldn’t be learned until later, when development went below 400 ft.

“This nose business was a real surprise because you couldn’t see it in the drill core,” says William Hill, whose company, Prospection Ltd., conducted the feasibility study. “That deep ore fooled everybody.”

Charles Page, Cullaton’s project geologist, says that in hindsight Cullaton probably would have been wiser to defer production until underground development had confirmed continuity at depth. But with gold at about $500 and with those “hot,” but misleading, intersections at depth, production seemed a logical next step.

Besides, cash flow was a must at the time. About $4 million had been raised through a rights offering and another $25-million production loan was secured through the Inuit Development Corp. The debt was to be repaid by 1987.

Former Cullaton president Noble Harbinson recalls that, at the time, mine production had reached the tonnage called for in the feasibility study. But the problem lay with the grade of ore going into the mill. It was well below expectations, the result of those misleading fold interpretations.

“The problem was structural. It was also very difficult to eyeball. You’d have to do continual assays to determine where to mine next,” Harbinson says.

On surface, milling went awry as well. A semiautogenous (sag) mill proved to be a bottleneck. The ore was harder than bulk sampling had revealed, so that the sag mill actually slowed production.

And then there was the carbon-in-pulp extraction process, at the time a technological innovation in Canadian mills. The carbon simply wasn’t being stripped of its gold as quickly as had been projected. In fact, Hill recalls that it was eating up six hours for the elution of a one-column volume that should have taken a half hour.

“If I had to do it over again,” says Harbinson, “I would go for a more conventional mill.” In essence, it wasn’t the fault of the carbon-in- pulp (cip) system as much as it was the lack of technical expertise to get it operating smoothly, he added.

“We were only about the second or third mine to put a cip in Canada. What a place to put it.”

That “place,” Cullaton Lake, is isolated. By air (the only way to bring in workers, machinery, and equipment), Cullaton is 640 km north of Thompson, Man., and 400 km northwest of Churchill. In the dead of winter at sub-zero temperatures and with blizzards grounding airplanes for a week or more, technical experts weren’t exactly lining up for a chance to freeze at Cullaton Lake. Only big bucks could entice them north, and that was money the operation sorely needed to pay down debt and keep the operation running.

Meanwhile, the price of gold was slipping while the cost of diesel fuel, to run the mine generator and all the equipment, was soaring. By early 1982, Harbinson was casting about for help. He found it in the form of a wholly-owned subsidiary of Campbell Resources. The Campbell company took over the responsibility of running the mine in mid-1982; and by September of that year, most of the glitches in the mill had been resolved.

In fact, by that fall, Campbell President Richard Lister could confidently state that, because the grade was running at about half an ounce per ton, “with a mine like Cullaton, you don’t have to worry about the price of gold every morning.”

Unfortunately, Cullaton Lake was subject not only to the laws of the physical universe and economics but also to Murphy’s Law, and, apparently, all its subsections and clauses. So the price of gold fell, and fell some more. It bottomed at less than $300(us) an ounce. Campbell struggled gamely to make a profit. In September, 1983, after its first full year of production, Cullaton posted net income of $1.6 million. The company also found a new area of mineralization nearby. But as promising as the new Shear Lake zone seemed, it couldn’t save the mine. At slightly better than 0.2 oz, the grade was too low to profitably mine the material.

In an interview with The Northern Miner Magazine, Lister said the mill problems were overcome fairly quickly. Falling gold prices and difficulty in delineating the orebody finally did it in. “It was an uphill economic battle all the way,” he said.

In July, 1984, Campbell transferred to Royex its management contracts with Cullaton Lake. Earlier, it had exchanged its 5.6 million Cullaton common shares for 3.2 million shares of Royex. So by 1984, Campbell had effectively washed its hands of Cullaton Lake, turning it over to the newly-formed Royex Gold Corp.

Royex President Peter Steen finally put Cullaton out of its misery in 1985, declaring that “the operating criterion for low-cost production could not be readily achieved.”

Officially, Cullaton was in commercial production from January, 1983, to August, 1985, although the operation was yielding gold as early as October, 1981. In its first year of operation to Sept 30, 1982, the B zone yielded 15,749 oz of gold. In 1983, it produced 34,998 oz and in 1984 a furthe
r 27,875 oz. Through those three years of production, average mill recoveries improved to 92.9% from the first year’s recoveries of 80%. Mill head grades declined to 0.33 oz gold per ton from 0.42 oz over the same period. In July, 1984 the B zone operation was put on care and maintenance.

And although an attempt was made to mine Shear Lake, it too proved costly. From a study done in 1984, Shear Lake had proven, probable, and drill-indicated reserves of about one million tons grading 0.21 oz gold per ton. There was talk of pre-concentrating the ore, but those plans were shelved. According to a 1985 prospectus, which cited a study by an independent mining engineer who used a cutoff grade of 0.2 oz gold per ton and a minimum mining width of 5 ft, the reserves were as follows: crown pillar, 41,048 tons averaging 0.29 oz; proven, 185,371 tons averaging 0.30 oz; probable, 125,442 tons averaging 0.32 oz; and possible, 107,044 tons averaging 0.25.

The Cullaton Lake story may yet have a happy ending. Says Steen: “I think that the area’s real potential is in exploration. There’s a lot of gold in that area. If that property were down in Arizona, it would be one big open pit.”

Royex has clung to its 24,000-acre tract of Cullaton Lake land, and Steen says that once the company has cash flow available to spend on the area, exploration will begin.