Gold-Ore taking control of Bjorkdal

SITE VISIT

SKELLEFTEA, SWEDEN — Robert Wasylyshyn is on a safari. As president and COO of Gold-Ore (GOZ-T), he is on the hunt for major cost savings, or what he calls elephants, at the company’s operating Bjorkdal gold mine in northern Sweden.

“My priority is to shoot those big elephants,” says the animated Wasylyshyn. He spoke at length during a recent site visit of significant savings achieved by adjusting mining methods, switching contractors, and generally having a better control on operations at the mine.

Wasylyshyn is hard at work hunting those elephants because he is well aware that a cash cost of US$723 per ounce — the three-month average ending in May — is too high.

If he can bring cash cost per ounce down to the low US$600 range, where it was before increased underground work and other factors caused it to go up, then the company will be on much more solid footing going forward in Sweden.

Improved financials will also give Glen Dickson, company chair and CEO, more room to explore elsewhere on the company’s property and extend the life of the operation with more gold discoveries, which is what the company first came to Sweden to do.

Gold-Ore, led by long-time colleagues Wasylyshyn and Dickson, had been a pure exploration company focused on Central America before optioning into Bjorkdal in 2006 and acquiring it at the end of 2007.

“We came into this as an explo-ration play with a gold plant,” says Wasylyshyn. “We started with no equipment, no money, no employees.” Instead, the heads of Gold-Ore came in with a vision to find higher grades and optimize operations at Bjorkdal while also discovering more deposits.

In many ways the company has already succeeded, establishing a productive operation and numerous exploration targets, but its long-term success is not assured.

Bjorkdal

Bjorkdal, which comes from the Swedish word for “birch tree” and not the Icelandic singer, is located near the town of Skelleftea in northeast Sweden.

The area around Bjorkdal is hardly discernable from parts of northern Ontario or Quebec, with evergreen forests punctuated by tracts of rolling farmland. The abundance of Saabs and Volvos in the parking lots help remind you where you are, as does the distinct deep red-painted buildings.

Mineralization at Bjorkdal comes in the form of sub-vertical quartz veins, ranging from a centimetre to a metre wide, within a biotite-altered granodiorite.

The quartz veins are visible in the open pit, but pop out brightly on the dark damp walls underground, looking like zebra stripes. Wasylyshyn points out that the contrast can make tracking the gold fairly straightforward.

“It’s really easy to follow; white rock is good, dark rock is bad,” quips Wasylyshyn.

For much of the mine’s 20-year life it has been an open-pit operation. The sizable hole in the ground at the site testifies to this. But due to a large limestone wedge that would have cost upwards of $100 million to pre-strip, the mine has now gone underground.

It now has the questionable distinction of being one of the lowest-grade underground mines in the world, while still maintaining the open-pit component. Underground ore comes in at around 1.8 grams gold per tonne, while the open pit runs around 0.9 gram gold.

That is not to say the mine is not productive. Gold-Ore recently celebrated the production of one million gold ounces at Bjorkdal since it opened in 1988. The millionth ounce has been framed and encased in glass to be displayed at the company’s head office.

But the mine has also run into difficulties. The mine was shut in 1999 after then-operator William Resources was forced into bankruptcy by cost overruns and low gold prices. Ireland-based Minmet (MNT-L) took it on in 2003 but inconsistent grades in the open pit mine led to a major write-down in 2005, and had the company looking to sell.

Gold-Ore acquired the mine with plans to both better control the grades in the open pit and drive mining underground. At first the company processed stockpiles as it worked to better understand the nature of Bjorkdal, but Gold-Ore has since worked to expand the mine underground. In 2009, the company declared commercial production at the mine.

Production

Gold production has fluctuated somewhat since the company acquired the project, but Gold-Ore now looks like it has generally stabilized gold output. In the third quarter, the company produced 11,021 oz. gold, an increase over the 8,348 oz. produced in the same quarter last year thanks to higher grades and higher throughput.

The latest quarter also marked the fourth consecutive quarter that Gold-Ore produced over 10,000 oz. gold, in line with its target output of 40,000 to 45,000 oz. gold per year. Production is expected to decrease somewhat in the last quarter of 2010, but that is due to planned contract changes, not mine plan issues, and Gold-Ore still expects to meet annual targets.

Recovery at the 3,200-tonne-per-day mill is also fairly predictable, with Gold-Ore achieving average recoveries of 88-90% for the past two years. Mill feed is split evenly between the underground and open pit, with an average head grade of 1.3 grams gold.

Most of the gold is recovered through coarse crushing, milling and gravity concentration. The mine can be fairly nuggety, as is evident by the big flakes of gold visible on the large, laser-guided shaker tables. The gravity circuits produce both a high-and mediumgrade concentrate, with roughly 98% of the high-grade concentrate payable and 92% of the mediumgrade.

To ensure as much recovery as possible, Gold-Ore also has a flotation circuit after the gravity. The flotation concentrate, running around 100 grams gold per tonne, is shipped to Boliden’s Ronnskar smelter down the road and pays about 70% of the metal content.

As a bonus, the tailings are quite benign, and have been declared to be non-toxic. When the mine shut down for a time, local farmers even raised crops on part of the flat, sandy expanse.

The only real issue with the plant is that the company has already maxed-out throughput and production, so a serious cash injection would be required to increase capacity if deemed necessary. For now Gold-Ore has limited itself to smaller upgrades, such as a recent $1-million investment in a computerized control system to update the one installed in 1988.

A new direction

With production limited by the mill, the company has gone after cost savings to improve the bottom line, with contract work being by far the biggest cost at Bjorkdal.

To tackle contract costs, Gold- Ore made the long-term decision to start moving operations in-house. Not long ago, the shift would have been much more difficult.

“Last year wasn’t a great time,” says Wasylyshyn. “We were digging out a hole, literally. Now we’re looking at the bigger picture. . . we’ve got people and money.”

For instance, the company has ordered equipment that will allow it to bring stoping in-house. Mining at Bjorkdal involves massive long-hole stopes that continue into the darkness past the throw of the headlamps. With so much rock being brought down at such low grades, dilution is a major problem. Wasylyshyn is hoping that with more control of the actual mining, dilution will be reduced and the company will save money on contract work at the same time.

Wasylyshyn is also excited about bringing bolting techniques to Bjorkdal, to again reduce dilution. He explained that while bolting is quite common elsewhere, Sweden has very little experience with narrow-veined mining and the associated techniques. He sent his underground mining engineer to Canada to learn more about it, and a recent trial run on a stope showed promise.

Where contract labour still makes the most sense, Gold-Ore has looked for new contractors to save money. The company recently reached a deal with a new underground transport team at a much better price. A
nd even then, Gold- Ore keeps full control of what is going on underground, giving the contractors a weekly breakdown of what they should work on.

Exploration

All the work Wasylyshyn and others are doing to improve operations, however, only really makes sense if Bjorkdal still has a decent mine-life ahead of it.

Current reserves stand at about 166,000 contained oz. gold between the open pit and underground for roughly 4 years of mine life. More specifically, the open pit contains 497,000 proven tonnes grading 1.15 grams gold and 3.1 million probable tonnes of 1.13 grams gold. Underground there are 170,000 proven tonnes of 2.39 grams gold and 287,000 probable tonnes of 2.5 grams gold.

Measured and indicated resources, meanwhile, stand at 4.46 million tonnes of 1.83 grams gold in the open pit and 3.77 million tonnes of 2.86 grams gold underground, for 262,839 contained oz. and 347,153 contained oz., respectively.

Wasylyshyn is confident that Gold-Ore will be able to add to its reserves over time as it develops the mine further, like many narrow-veined mines before it. The company has already identified dozens of veins to follow up on.

“The neat thing is we’ve got over 50 veins to work with,” says Wasylyshyn, “and we haven’t even touched half of them.”

Just how long the mine itself will continue to produce, however, is difficult to estimate. To ensure its long-term health, the company wants to find more gold elsewhere in the area, which falls to the responsibility of Dickson.

Gold-Ore’s CEO, who has extensive past experience as a field geologist, is leading the exploration effort on the company’s 72 sq. kms of exploration concessions surrounding Bjorkdal. Or as Wasylyshyn puts it: “Glen (Dickson) is looking for beasts out there… he’s prospecting out on the hinterland.”

Thanks to its producing gold mine, the company can conduct the exploration without diluting shares. Currently the company has about 83 million shares outstanding and recently closed at 72¢, near its 52- week high. Wasylyshyn proudly points out that the company has not raised money in nine quarters and looks to be self-supportive.

Earlier this year, Gold-Ore conducted an airborne magnetic survey in the area and did some exploratory drilling along the contact of dominantly metavolcanic rocks and metasediments that defines Bjorkdal.

Wasylyshyn describes the contact as being “magical,” with lots of promising targets.

“If we did find a place that was blank,” says Wasylyshyn, “we still have a lot of other targets.”

It is still early days in the regional program, with most drilling to date underground and around the pit walls. But now that the company seems to be getting a handle on operations at Bjorkdal, look to see more exploration progress in the future.