Chelsea plans to double production by year-end

Only 1,000 oz of the yellow metal have been poured at the Spotted Horse mine in Montana. But already, the managers of Chelsea Resources, the Vancouver-based company that owns and runs the mine, is planning to double production by year-end from the current pace of 1,000 oz per month.

Plans are also afoot to have the company’s shares listed in Toronto, President Brian McAlister announced. In Vancouver the company’s shares traded this week at about $2.55. Chelsea has about five million shares outstanding.

Speaking to a full house of brokers, investors and analysts at Harry’s Steakhouse in Toronto this week, general manager Charlie Bauer admitted he no longer has any doubts about gold reserves in the mine. Eleven months ago he was of the opinion that reserves were the major risk for investors investing in the project.

Bauer and Dr Neil Westoll, the company’s geological consultant, estimate reserves are about 55,000 tons at a grade of 1 oz per ton. That’s enough for about three years of production at a rate of 50 tons per day.

“The biggest risk now is showing that we can produce at higher and higher rates,” Bauer says.

The company has eight working faces in the mine, all in narrow shrinkage stopes where miners use jacklegs for production drills.

Ore is being hoisted from depths of less than 525 ft in a one-ton skip rather than mine cars. This allows them to take about 40 tons of waste rock out of the small mine every day and about 60 tons of ore.

A new, 300-hp hoist, which can lift 22,500 lb will replace the existing hoist by April, Bauer reports. A new 60-cu-ft skip will be used on this hoist.

“We hope to escalate our mining rate to 100 tons per day,” Bauer says, “so hopefully we will get 2,000 oz a month by the end of the year.”

To bring the company’s mill up to the higher rate, minimal expenditures in the order of a couple of hundred thousand dollars will be necessary for additional drum filters and leach tanks. A new ball mill may, or may not be necessary.

Total production costs, which includes all on-going development costs are slightly over $100(US) per oz. This allows the company to make profits of about $250,000 a month, according to Bauer. “Our break-even point is about 450 oz per month.”

“I think we have a remarkably low cost,” Bauer adds.

What makes exploration so difficult on the property is the weak nature of the ore which makes core recoveries very low. A new, reverse circulation drill is now being used to drill for surface exploration. Gold on the property is found in a contact zone between a porphyry and a local limestone rock unit. Maginnis potential

The company already has underground access to about one quarter of mine reserves and a new drift, to be driven out under an adjacent old mine, the Maginnis mine, is expected to give the company additional ground to explore.

When the deposit was mined with picks and shovels in the 1880s, ore was removed from stopes down to a depth of about 500 ft. Results from that work indicate there were 400-600 oz per vertical foot. So, Westoll reasons, there should be 400,000-600,000 oz between each 100-ft level as the mine is developed at depth.

The only other area in North America known to have mineralization identical to that at the Spotted Horse mine is in Colorado. Mines there have been mined successfully to depths of 3,300 ft. So Westoll is optimistic Chelsea will have reserves for many years to come although he has no direct proof of this.

A development plan is being devised to explore and develop the mine to greater depths.