Forest fire threatens Kirkland Lake gold country

VANCOUVER — A raging forest fire that ignited on May 20 near the town of Kirkland Lake in north-eastern Ontario has forced residents from their homes, and impacted two active gold operations, as fire crews and the Ministry of Natural Resources combat the seasonal blaze.

Authorities evacuated roughly 300 people from homes and cottages located in the Goodfish and Nettle Lake areas earlier this week, as provincial police closed Highway 144 southwest of Timmins, and limited westbound traffic on Highway 101.

Crews continue to fight the fire with helicopter water dumps and pumper trucks, though Joe Oliver, the Minister of National Resources, reported late Tuesday that 40 fires covering 210 sq.km reportedly continue to burn in an area 3 km north of Kirkland Lake.

The region has a long history of gold mining, having been founded during Teck Resources (TCK.B-T, TCK-N) historic development of its Teck-Hughes gold mine way back in 1919. Kirkland Lake is now home to two producing gold mines, AuRico Gold (AUQ-T, AUQ-N) operates its Young-Davidson mine roughly 70 km west of town, while Kirkland Lake Gold’s (KGI-T, KGI-L) flagship Macassa facilities lie on the western edge of the township.

AuRico announced on May 21 that a power disruption at Young-Davidson had impacted ongoing operations.

The fire passed within 70 km of AuRico’s mine site, and reportedly damaged several power poles feeding its main 115-kilovolt (kV) power supply. The company is currently using an unaffected 44-kV construction line, and Ontario Hydro One is attempting to have full services up and running within the week. AuRico reported no adverse affects to its open pit operations, which continue at normal levels, but ore processing has been suspended.

The company expects Young-Davidson to hit commercial production in the third quarter, with a 2012 production guidance of between 65,000 and 75,000 oz. gold at average costs of $450 to $550 per oz. The mine poured first gold at the end of April, and its mill has exceeded operating expectations with a throughput rate of 5,300 tonnes per day through the first two weeks of May.

With Young-Davidson being an early-stage production asset, AuRico’s share prices have been unaffected by the power delays. Company shares gained 3% during the May 23 trading session, closing at $7.96 at presstime on below-average 654,000 share volumes.

Kirkland Lake Gold suspended production activities at its Macassa gold mine on May 21. The fire reportedly passed close to the company’s property and mill, though no infrastructure was affected outside of a power line feeding the mill and damages to the three-shaft complex. Kirkland subsequently closed down mining operations and evacuated its facilities, leaving behind a skeleton crew “to keep the site secure, monitor the situation, and assist government and utility efforts as required.”

Kirkland’s regional gold operations have current throughput levels of 1,450 tonnes per day, and the company expects its mine to produce between 105,000 and 200,000 oz. of gold this year. Kirkland is also in the process of a US$20 million expansion program that would increase milling capacity to 2,200 tonnes per day and pump up gold production to 250,000 to 300,000 oz. per year by 2014.

The company released an update on May 23, indicating that operations would be down for at least a week, citing May 30 as the earliest date it could expect production workers to be back on the job.

Kirkland is taking the unexpected shut-down in stride, using the production delay to complete maintenance and project work that require electrical shutdowns, including a priority three-day hoist motor maintenance job.

Like many gold producers, Kirkland has had a bit of a rough May, with company shares down 11% or $1.35 in the past three weeks. The company’s stock briefly dipped to the $10 per share level during the May 23 trading session, but rebounded to end the day up 32¢ to a $10.79 presstime close on average 286,000 share volumes.

Neither AuRico nor Kirkland have commented on potential impacts to production guidance estimates or development projects, with both companies likely waiting to see the extremity and duration of the delay.

The Canadian Press reported late May 23 that residents of Kirkland Lake were being advised to prepare for evacuation, and that “80 firefighters and a 19-person incident management team will be arriving from British Columbia on May 24.”

With both Environment Canada and AccuWeather forecasting above-average temperatures across the country this summer, the 2012 forest fire season could be an unfortunately active one.