Arauco completes George Lake study

The George Lake gold project in the Northwest Territories is shaping up for a possible 1998 production start.

Arauco Resources (ARU-T) has released a prefeasibility study that indicates production of 1,500 tonnes per day could be achieved with $63 million in preproduction spending and $105 per tonne in operating costs.

The operating cost per ounce of gold would be US$242, and the internal rate of return (including property purchase) would be 18.2%.

The study was based on a minable resource of 5.3 million tonnes grading 10.6 grams gold per tonne.

Initial production would be from a series of small, shallow open pits (14% of total production), allowing for a quicker startup and lower initial development costs.

Ore would be trucked 160 km over winter roads to the Lupin mine of Echo Bay Mines (ECO-T) (though no custom milling deal with Echo Bay has been made), reducing capital costs and removing the main obstacle to environmental permitting. Gold recovery is estimated at 92% provided a gravity circuit is added to the Lupin mill.

Arauco is still examining the possibility of building its own mill. To build one would cost Arauco $50 million, though it could save the company more than US$40 per oz. in operating costs.

Ideally, Arauco would begin construction in spring 1998, commence open-pit mining by the end of the year and start milling gold by January 1999.

“It’ll be the next major mine built in Canada,” says Kerry Knoll, Arauco’s vice-president of corporate affairs.

While a recent $29-million financing gives Arauco plenty of cash for exploration and development at George Lake, Knoll says the company does not have sufficient funds for production. “We’ll be going back to the market at the end of the year for that.”

The company is considering the possibility of having fuel and supplies brought into nearby Bathurst Inlet (which connects to the Arctic Ocean via Coronation Gulf) by ocean-going vessel. This proposal was not included in the study, though it would lower operating costs.

Arauco acquired an option to buy a 100% interest in the George Lake project last year for $20 million, 6 million shares and a variable royalty. The current owners are Homestake Mining (HM-N), Kerr-McGee Canada and the MacLab group of companies.

The George Lake project comprises a group of properties 480 km northeast of Yellowknife. The area is part of the Nunavut land claim settlement with the Inuit, and mineral rights are grandfathered under federal government laws, with the surface rights administered partially by the federal government and partially by the local Inuit association.

Geologically speaking, the properties overlie Archean-age iron formation of the Slave province. All of the properties have either drill-indicated gold resources or gold anomalies which merit further exploration.

Geology

The George Lake gold occurrences are hosted by tightly folded and faulted thick oxide iron formations of the Beechey Lake Sedimentary basin. The gold mineralization occurs in iron formations where the rocks have been mineralized by pyrite, pyrrhotite, minor chalcopyrite and arsenopyrite, usually accompanied by quartz veining and wallrock alteration. The gold occurs largely in native form, often visible, always intimately associated with sulphides.

About $37 million has been spent on the properties to date, including 128,469 metres of diamond drilling in 737 holes.

An internal prefeasibility study was prepared by the previous operators, in 1992, concluding that the George Lake property alone could be developed into a profitable long-term mine, provided that underground development be carried out to confirm reserves. This study was reviewed by Flour Daniel Wright, which had no access to the original data or to the site. Flour Daniel Wright’s main concerns were that capital and operating costs would be somewhat higher than the original estimates, and, as a result, the project would be only marginally profitable. A further study was conducted by the operators in 1994, the first to combine George Lake and Goose Lake projects into a single operating mine.

Arauco has budgeted $500,000 for a final feasibility study conducted by an independent engineering firm, and $5 million for this year’s drill program.

Arauco has planned a 20,000-metre program, including both infill and exploration drilling (only 15-20% of the prospective iron formation on the company’s claims has been explored). The exploration will include testing of 12 high-priority targets that are expected to result in an increase in the resource.