Colomac mine prepares to call it a day

The troubled life of the Colomac gold mine in the Northwest Territories will soon come to an end.

Owner Royal Oak Mines (ryo-t) has decided to shut down the mine in October, citing a feeble gold price and dwindling reserves. The company plans to wind down the operation by completing the milling of stockpiled ore.

The company had already recorded a US$39.7-million writedown of its Colomac assets, which contributed to its steep net loss of US$52.1 million (38 cents per share) in the second quarter of 1996, and a net loss of US$60.2 million (43 cents per share) for the first half of the year. In the same periods of 1996, net income was US$3.7 million (3 cents per share) and US$5.1 million (4 cents per share), respectively.

Royal Oak President Margaret (Peggy) Witte’s first junior mining company, Neptune Resources, acquired and advanced the Colomac project in the late 1980s. However, Neptune lost control of the project to Northgate Exploration, which brought the mine into production — only to close it again within a year because of operational and financial problems.

Royal Oak acquired the mine and reopened it in 1994, but there were problems from the outset. Mill startup was delayed by a fire, and fundamental changes had to be made to the grinding circuit in order to improve mill throughput and recovery. Gold recovery that first year was just over 40,000 oz., and 46% below forecast. Colomac produced 117,646 oz. in 1995 and 122,416 oz. in 1996.

Exploration drilling in the lower part of the orebody was completed that year in order to reconcile reserves with actual production, and, as a result, the mine’s reserves were lowered by 188,000 oz. Production this year had been forecast at 125,000 oz., at an estimated cash cost of US$365 per oz., though the October closing will diminish that total.

Royal Oak’s average cash cost of production in the second quarter of this year was US$351 per oz. gold — an increase of 11% over the same period in 1996. But improved operating performance enabled the company to improve upon the first-quarter cash cost of US$372 per oz.

Royal Oak has set US$330 per oz. as the minimum gold price for its mines to produce positive cash flow, which left out Colomac and the Hope Brook gold mine in Newfoundland (now winding down production).

By closing Colomac and Hope Brook, Royal Oak expects to reduce cash costs at its Timmins and Yellowknife operations to US$300-310 per oz.

The company projects total 1997 gold production of 325,000 oz. at an estimated cash cost of US$338 per oz. And as a result of its hedging program, Royal Oak expects to receive an average realized price for that gold in excess of US$400 per oz.

Royal Oak expects to produce 343,000 oz. gold in 1998 at an estimated cash cost of US$240 per oz. The estimate includes forecast production from the Kemess gold-copper mine in British Columbia.

Kemess is proceeding on schedule for startup in April 1998 and is 55% complete. The estimated average life-of-mine production at Kemess is 250,000 oz. gold and 60 million lb. copper per year. Average life-of-mine cash costs are estimated at US$205 per oz. gold and 52 cents per lb. copper.

“Low-cost production and long reserve life at Kemess are the keys to our future growth and improved profitability,” Witte stated in a Royal Oak release. “We are excited about the opportunities that we will be able to pursue based on the cash flow that Kemess will generate.”