Cross Lake’s QR gold mine in full production

Vancouver — Production is finally in full swing at Cross Lake Minerals’ (CRN-T, CRNKF-O) QR gold mine, near Quesnel, B.C.

Cross Lake started commissioning the QR mine in mid-September. After dealing with the usual commissioning hiccups as well as an unexpected problem with power supply distribution, the company marked the start of full operations with a gold pour on Nov. 24.

The QR mill is rated to operate at 900 tonnes per day. Initially, ore will come from the Northwest zone, an open pit where mining has been under way for weeks. The Northwest zone is expected to produce roughly 91,000 tonnes of ore averaging 3.5 grams gold per tonne, according to current reserve estimates.

Underground development is under way at two other zones in preparation for mining. The West zone, which consists of two lobes, is already home to a small open pit, but Cross Lake is developing a 970-metre ramp to access the downdip extension of the steeply dipping, high-grade north lobe. At the Midwest zone, an old underground operation left behind a decline and several large open stopes. The decline is being lengthened and new drifts blasted to access the pods of ore that make up the deposit.

In the longer term, the North zone, which is the only deposit for which a resource has not been calculated, is expected to contribute to production significantly. The zone is a faulted extension of the Main Zone, which was previously mined by open pit. To date, the zone has been traced over a 1-km strike length, still open, making it by far the largest deposit on the project. An underground decline is being advanced in order to carry out delineation drilling.

Based on the current average grade of 4 grams gold per tonne from the Northwest open pit, monthly gold production will be around 2,800 oz. As underground development of the Midwest and West zones progresses, the head grade and monthly production will increase.

A feasibility study that did not include the North zone gave the project a net present value of $8.1 million at a 10% discount rate and an internal rate of return of 142%, based on a gold price of US$520 per oz. The study estimated the initial three zones would produce a total of 72,500 oz. gold.

The QR project, located 60 km southeast of Quesnel, was explored and drilled by several owners up to 1994, when Kinross Gold (k-t, kgc-n) began construction of a mine and 800-tonne-per-day mill. Kinross mined the Main, Midwest, and West zones through open-pit operations until 1998, processing over 1 million tonnes of ore averaging 4 grams gold to produce 118,000 oz. gold.

Cross Lake signed an option agreement to acquire the mine in 2001, in a gamble that the price of gold would increase. By April 2004, Cross Lake owned the project outright.

The deposits are propylite gold skarns, with the majority of the gold associated with sulphide mineralization. Sulphide mineralization varies from 1% to 15% and consists of pyrite and pyrrhotite with minor amounts of chalcopyrite, galena, and sphalerite. Initially occurring in an alteration halo around the QR stock, the mineralization has been displaced by faulting into the five zones outlined today.

One major change from Kinross’s days at QR, aside from a significantly higher gold price, is the presence of hydropower. In June, B.C. Hydro began construction on a now-complete, $2.1-million power line from the Gavin Lake substation. Grid power reduces operating costs considerably, especially considering the current price of diesel.

In addition, the company closed an arm’s length transaction with Quest Capital (QC-T, QCC-X) for a bridge loan of $1.5 million, repayable by September 2008.

Cross Lake has traded in a 52-week window of 39-74 and has 62.7 million shares issued.