Dynatec to operate Keno Hill mine — Production of silver-lead-zinc to resume by year-end.

Following a successful stint as operator of the Shebandowan nickel mine, Dynatec (DY-T) is taking its talents to the Yukon.

Under an agreement with United Keno Hill Mines (UKH-T), Dynatec will take over operatorship at the Keno Hill silver-lead-zinc mines near Elsa, Y.T. The area has produced silver since 1914, but the Keno Hill mines, which opened in 1947, went out of production in 1989 when silver prices fell.

A program of drilling, conducted between 1994 and 1996, defined a minable reserve of 418,000 tonnes grading 1,234 grams silver per tonne, with 8% lead and 5% zinc. An additional 491,000 tonnes grading 1,028 grams silver, 4.5% lead and 3.75% zinc are classified as resources. There are open pits and underground workings on the property, and a mill that can process 450 tonnes per day.

Dynatec proposed the arrangement following a study that concluded the mines could be returned to production at a cost of about $22 million. The agreement obliges Dynatec to provide, or arrange for, half that amount in preproduction and working capital.

United Keno Hill is to finance its share through a $3-million share issue, with Dynatec subscribing for $1.5 million. Regulatory approval has to be obtained for the share issue.

The agreement allows each company to recover its capital investment before profits are taken. Dynatec’s share of the operating earnings will depend on the profitability of the project.

United Keno received its production licence in January, and intends to return the operation to production before year-end. Dynatec has estimated that the preproduction work will take four to six months and has told United Keno it wants to start work as soon as possible.

Dynatec’s last venture as an operator was at the Shebandowan nickel mine, west of Thunder Bay, Ont., which had been closed by owner Inco (N-T) in 1992.

Dynatec reopened the mine in 1995 under an innovative operating agreement that paid a fixed price for the nickel Shebandowan produced.

The mine had to produce a minimum of 9,070 tonnes per year at a specified quality, giving Dynatec the benefit of any operating efficiencies it could squeeze out of the project. Production costs declined steadily during this period of operation, and were soon among the lowest of the world’s nickel producers. The company also managed to locate new minable reserves in a mine that was near exhaustion.

Dynatec’s contract expired at the end of 1997, and Inco has again closed down Shebandowan.