Omni’s Mt. Skukum soon to begin production

Most people are surprised to learn that hardrock mining is a recent addition to the Yukon’s gold mining history. Indeed, names like Mt Skukum and Ketza River are all part of the new “hardrock generation” that has emerged in recent years, one that has been personified to some extent by junior companies like Vancouver-based Omni Resources (VSE).

With total contained reserves of 219,000 oz gold and 8.0 million oz silver, Omni’s Skukum Creek project is expected to be a gold producer later this year; and it may well be the only one in the Wheaton River area 55 miles south of Whitehorse now that the AGIP/ Erickson Mt Skukum gold mine has ceased operations.

With feed initially going to United Keno’s Venus mill about 65 road miles from the mine site, Omni and its joint venture partner, Vancouver-based Skukum Gold (VSE), expect to begin production at Skukum Creek in the fourth quarter.

During the first two years of operation, higher grade sections of the orebody orebody will be mined to generate a rapid payback, Michael Stoner, a consultant for the project told The Northern Miner on a recent visit to the property and mill site. To do this, a somewhat novel resuing method will be employed which will see higher grade vein material extracted first.

This material will be mucked into a mill hole and drawn off. Then lower grade but still economic ore in the hanging and footwalls will be blasted down for mining purposes and it will sit in the stope until required at a later date. Eventually, a long hole stoping method will be utilized along with conventional shrinkage stope mining.

Skukum Gold was formed as Skukum Ventures last fall after the market crash and its primary issue was placed at 35 cents . When Omni concluded its present agreement with Skukum Gold in the spring, several investors vehemently opposed the deal because they felt Omni didn’t have to give up 40% to finance the project.

Ernest Bergvinson, who is president of both Omni and Skukum, sees things from a somewhat different perspective, however. He said that Omni tried to finance the project after the market crash but was unsuccessful. This left the company with several alternatives, one of which was a 50/50 offer from Total Erickson which included its Mt Skukum gold mill. “That was basically a lease deal and did not include ownership of the mill,” he noted.

After Skukum spent about $600,000 to “take quite a bit of the gamble out of it,” Bergvinson said Total Erickson proposed another deal that was roughly the equivalent of the agreement Omni/ Skukum has with United Keno which was rejected. “Then we had a choice of various financings from Europe and one from a major, a large $2 million financing at $3,” he added.

“So we looked at it and saw that we would dilute the company out by greater than 50% and there were other good properties in Omni. Instead we opted for a 40% dilution of one of Omni’s properties rather than a 50% dilution in all of them.”

Three drills are presently working on the Skukum Creek property, two on surface and one underground; their present effort is geared towards doubling reserves to optimize production in the future. The Venus mill will be operated at 250 tons-per-day and optimization of mine production would involve a new mill on the mine site, probably rated at 500-1,000 tons per day. Skukum will recover its costs out of cash flow based on a pre-arranged formula and Omni will also recover its costs on the same basis. It’s Skukum Gold’s responsibility to finance construction of the larger mill at Skukum Creek.

Test mining (approximately 4,000 tons) from the No 2 crosscut in the Rainbow zone earlier this year indicated an 18% increase in grade and a 22% rise in tonnage over that established from drilling. Sub-level drifting in the Kuhn zone has thus far indicated higher grades. Dilution was minimal and despite wide mining openings, ground conditions appeared to be excellent, The Northern Miner observed.

Omni discovered the Skukum Creek orebody in 1985 on the fourth drill hole. The orebody doesn’t outcrop and early indications were from geochemical work and sulphide-bearing float. An aggressive surface drilling program was mounted in 1986 which led to the discovery of the Upper Kuhn orebody. Omni collared the 1300 m portal in Jan 1987 and drove a 9 ft by 11 ft production- sized adit. During that year, 2,850 ft of drifting and crosscutting was completed in the Rainbow and Kuhn zones and 24,440 ft of drilling. At t hat point proven tonnages and grades were established.

A high grade ore shoot was discovered earlier this year on the Lower Kuhn 1350 level which was partially delineated. Channel samples from 120 ft of subdrift averaged 0.86 oz gold and 6 oz silver over an average of 6.5 ft. The zone is still open to the northeast.

The Kuhn and Rainbow zones lie within the Berney Creek fault in which seven additional mineralized zones and geochemical anomalies have been identified as splits or parallel zones to the main structure. Precious metals values are associated with galena, sphalerite, chalcopyrite, pyrite, arsenopyrite, and minor stibnite.

A 25,000 ft surface drilling program is currently under way to extend reserves in the Kuhn, Rainbow and Sterling zones and test six less-explored zones. In addition, about 5,000 ft of underground drilling is planned from the new 1350 adit level plus extensive raising and drifting; this will provide a minimum 10,000 ton bulk sample for metallurgical test purposes.

Coincident with this work, Omni is also mounting an aggressive surface exploration program, all of which is designed to double existing geological reserves of 821,000 tons (drill proven) grading 0.23 oz gold and 8.9 oz silver or a gold equivalent of about 0.37 oz. Drill indicated reserves total some 131,000 tons averaging 0.26 oz gold and 4.9 oz silver. Significant base metal credits (lead and zinc) will be recovered in flotation concentrate.

The bulk test will be processed at the Venus mill which incidentally is actually two miles into British Columbia. (This no doubt will make for some interesting tax implications). The mothballed plant, which is owned by United Keno Hill Mines, is being retrofitted for startup in Oct of this year. The plant has a capacity of 100 tons-per- day (flotation) and 200 tons for cyanidation but the retrofitting program will raise that capacity to 250 tons or more. The joint venture will also look at locating high grade material within easy trucking distance of the Venus mill. Trucking costs are estimated at $10 per ton from the mine to the mill and all inclusive costs are estimated at $125 per ton.

The plant is in excellent shape and there has been virtually no vandalism despite easy access from Carcross, Yukon to the site. The jaw crusher will have to be refurbished and it was hardly ever used because of mechanical problems from the onset. It’s oversized and will be sufficient for the higher throughput, The Northern Miner was told. The cone crusher will have to be stripped and refurbished and the liners replaced.

There is still fresh paint on the conveyor idlers and all motor control centres are brand new; rumours of serious structural problems in the mill appear to be unfounded. The mill floor is cracked in spots but the footings under the ball mill appear to be fine.

Omni’s joint venture partner, Skukum Gold, has the mill under lease and will be responsible for retrofitting the plant. The exact cost is still unknown as is the final flow sheet. The filtering aspects of the Skukum Creek ore still must be established and they could end up with a CIP plant.

In any event, 100% of the ore will have to be cyanided. Flow sheet design should be known in the next few weeks and initial estimates place the cost of retrofitting the mill at about $2 million. Skukum Gold can earn a 40% interest in the Skukum Creek gold project by incurring all costs associated with placing the property into production. This will include installation of a permanent mill on the minesite by 1990.

In the meantime, ore will be custom-milled at the Venus plant, reducing over
all development costs and enabling the joint venture to fully develop the property from cash flow. The mill is already permitted and they are also permitted for their water discharge at the mine site.

Skukum has a $2 million financing under way with CMP, varying from $4.20 per share to a value that at press time was still being priced. Another $1.8 million financing is being arranged with NIM, which has closed. Skukum is also working on a major financing of approximately $15 million which will probably be a gold loan. This year’s program at Skukum Creek will cost around $7 million most of it flow- through.

The Venus lease is for two years and it’s extendable for another two at Omni/Skukum’s option. United Keno’s Venus orebody has metallurgical problems which to date has prevented its development. But the Omni/Skukum joint venture has agreed to run some Venus ore through the mill for a one week period. (Perhaps in the future the companies may consider some sort of joint venture agreement for the Venus orebody).

Omni says its ore is much simpler metallurgically and the company claims that laboratory test work has indicated excellent recoveries, both for silver and gold. Vance Thornsberry, vice president exploration, feels the gold is not associated with arsenopyrite which, if it was the case, would reduce recoveries. In any event, the bulk test program will tell one way or another. According to Thornsberry, the joint venture expects “a return of its investment and positive cash flow in the first year.”