Huge porphyry gold-copper deposit Industry watching developments

Having drilled some 450 holes totalling in excess of 340,000 ft., no doubt remains that Continental Gold (VSE) has outlined a huge porphyry gold-copper deposit on the Mt. Milligan property over 100 miles from here. There is no question that Continental’s work has triggered a new wave of exploration activity in the province for other gold-copper or copper-gold porphyry deposits, particularly within the highly prospective Quesnel Trough.

But like a number of low-grade, bulk-tonnage projects that have gone before it, Mt. Milligan has industry observers and would-be operators busy evaluating whether it can be mined and milled at a profit and its sensitivity to metal price fluctuations.

Mark Rebagliati, chief geologist and site manager, concedes the project has roused skeptics. But he points out that it has been well over 20 years since a deposit of its size and type has been brought to production in the province.

“We have a whole generation that doesn’t understand porphyries because no one was interested when copper prices were low,” he told The Northern Miner during a recent property visit. “What’s important to understand here is that this isn’t a copper project, it’s a dual-hedge property with about 75% of the value in the gold.”

Gold may be the main commodity of interest, but Rebagliati said Mt. Milligan also has the potential to replace some of British Columbia’s copper production that will be lost over the next several decades. Current production is largely from mines discovered in the 1950s through 1970s, and many are at or near the end of their productive lives.

Continental is operator and 70% owner of the Mt. Milligan property while a unit of BP Resources (TSE) holds the remainder. A third company, Rio Algom (TSE), holds a minor interest (about 8.8%) in Continental Gold.

During our visit, The Northern Miner observed that Continental was well into a program of infill, delineation, condemnation, geotechnical and bulk-sample drilling. This work, employing a total of seven rigs, is part of a $7.1 million feasibility and government permitting program aimed at advancing the project to the final feasibility stage this fall.

Rebagliati said the program will also include additional metallurgical testing, pit design and slope stability studies, environmental and socio-economic studies, as well as mine, mill and feasibility engineering studies targeted at a daily production rate of 55,000 tons.

Although Continental estimates it has outlined a geologic reserve of some 440 million tons in two deposits on the property, current engineering is focused on the Mt. Milligan deposit where preliminary estimates of reserves are currently reported as 220 million tons grading 0.019 oz. gold and 0.23% copper, for a 0.9% copper equivalent.

Continental said this calculation is based on the average of several third-party estimates. The deposit was generally drilled on 150-ft. centres and a cutoff of 0.015 oz. gold equivalent per ton was used. The strip ratio here is estimated at 6-to-1 waste to ore.

“We expect minable reserve will increase substantially as more infill drilling is undertaken,” said Continental President Robert Dickinson.

As an interesting aside, the grade of this minable reserve isn’t far off that encountered in discovery hole 12, drilled in September of 1987, which returned 85 metres of 0.26% copper and 0.01 oz.

The nearby Southern Star deposit is estimated to contain 150 million tons of 0.01 oz. gold and 0.23% copper, or a 0.58% copper equivalent, based on more widely spaced drilling. The estimated strip ratio of 1-to-1 here is slightly lower than the main Mt. Milligan deposit and the deposit is still open to the northwest.

“When the capital costs are paid off the Southern Star would be attractive as a mining proposition,” Rebagliati said. “But I wouldn’t want to start a mine up on it.”

If a mine is to be made at Mt. Milligan, most expect it will be a major company’s doing. It has been no secret that Continental, an exploration-oriented junior whose key principals hold a substantial equity position, has been receptive to the idea of a takeover if the price was right. But industry observers aren’t expecting any developments in this regard until a contentious lawsuit between Continental and BP is resolved.

Late last year BP filed a writ against Continental, alleging breach of contract and claiming the right to a greater interest in the property. In its counterclaim and damage suit, Continental alleges that BP’s lawsuit caused a major mining company to suspend discussions involving a possible offer of all its outstanding shares at a premium to market.

(Several years ago Continental’s management team, then heading up North American Metals, vended the Golden Bear gold project in northern British Columbia to Homestake Mining through the sale of shares at a premium to market. The mine is now in production, although capital and operating costs were more than double original estimates.)

The lawsuits aren’t slowing activity on the Mt. Milligan property which can be reached by a logging road off the main highway from Prince George. The forestry activity has been fortunate for Continental as it provides good road access and because the open pit sites have largely been logged.

The topography is low to moderate by British Columbia standards with flat-lying areas well-suited for mill, waste disposal and tailings ponds sites. There is no power on the property and this would have to be brought in from a nearby source. A crew of 70 work on rotating schedules from a campsite on the property.

One of the more interesting activities on site during our visit was the drilling aimed at providing various sizes of core that will be used in a bulk-sampling program to confirm metallurgy and the deposit’s grindability and work index.

Rebagliati said six major mining companies, half of which are copper producers, independently selected and tested assay rejects during 1989 to assess the metallurgical characteristics of the deposit. While cyanide tests showed recoveries above 90%, Rebagliati said “acceptable” recoveries were achieved with straight flotation.

“This means a savings in capital and operating costs and on environmental permitting,” he said. “When we start crunching the numbers, flotation appears to be the most attractive alternative.”

Based on the latest metallurgical tests, Continental is projecting 80% recovery for gold and 88% recovery for copper, slightly lower than its initial estimates but still above industry average.

The company believes this could be achieved by a relatively coarse grind (55% minus 200 mesh), if a bulk sulphide float in a conventional circuit is used. The company expects this would produce a clean concentrate, one with no deleterious elements that would bring about a smelter penalty, averaging two ounces gold and 25% copper.

“We found we could increase our recoveries by using a finer grind, but the costs of doing so were not sufficient to make it more attractive,” Rebagliati said.

The company is examining both avenues, and is investigating the compromise of regrinding only the bulk sulphide concentrate. The metallurgical testwork is under the direction of Melis Engineering, and optimization tests are continuing in order to achieve the best possible gold recoveries.

Rebagliati also noted that work will continue to determine the grindability and work index of the deposit at various depths, rock units and alteration assemblages — plus the relative ratio of all these factors. Based on tests to date, the company estimates the work index will be moderate: between 11 and 12.

One of the rigs on the property is turning out 6-inch core that will be used with small amounts of 47.6- mm and 63.5-mm diameter core to simulate run-of-mine muck at Lakefield Research’s test SAG mill. The bulk of the 47.6-mm and 63.5-mm diameter core will be used to do a final pilot plant grinding and flotation run.

The company elected to take this route as it was viewed as being less expensive than taking an underground bulk sample, and more representati
ve of the deposit as a whole because of the zonation effect (certain portions of the deposit are higher in gold than others). About 200 tons will be collected to be used for these tests.

The company isn’t expecting a problem with copper oxide levels that would impact negatively on copper recoveries because of the percentage of carbonate in the high- sulphide deposit. Rebagliati said a very small and shallow copper oxide zone does exist, “but it has enough gold to carry it so we aren’t worried about losing some of the copper.”

And based on tests to date, Continental doesn’t anticipate problems with acid mine drainage as the bulk of the rock is acid-consuming. But limestone deposits exist in the area should any be needed for neutralizing.

Continental estimates that its starter pit will consist of about 80 million tons grading 0.024 oz. gold and 0.22% copper for a 1.2% copper equivalent. The objective, of course, is to accelerate payback of the $300 million that is estimated for capital costs. The company expects payback could be achieved in about three years, although this will be more stringently defined in the final feasibility study.

If the project is found to be viable, and assuming all goes as planned, Continental projects that Mt. Milligan could produce an average of 400,000 oz. gold and 80 million lb. of copper per year. On the basis of current minable reserves, Continental foresees a 11-12 year mine life, and up to 20 years in total reserves.

If a mine of this magnitude is developed, much of the credit will have to go to the exploration team that made the initial “blind” discovery. The deposits are all covered by a layer of overburden and during our visit we viewed one of the few mineralized showings on the property — a small amount of copper staining exposed in a roadcut.

Mt. Milligan is described as an alkaline intrusive associated gold- copper deposit within the central volcanic core of the Quesnel Belt. The volcanic strata, dominated by alkalic flows and coarse pyroclastics, are intruded by four monzonite porphyry plutons. Disseminated gold-copper mineralization is associated with each of the plutons, the largest being the Mt. Milligan deposit.

Mt. Milligan is considered an “integrated discovery,” where a number of individuals applied prospecting, geological detective work, and geophysical and geochemical methods to arrive at discovery. It was made even though the exploration group was initially sidetracked by high-grade gold veins and despite some early setbacks and disappointments.

Key individuals include Rebagliati, local prospector Richard Haslinger and geochemist Stan Hoffman. Rebagliati, who first set out on the trail of gold-rich porphyries in the Quesnel Trough in the early 1970s, did the early geological work at Mt. Milligan with Randy Farmer.

“After our trenching program we analyzed the Selco, BP and Lincoln geology and I saw we had this very broad propylitic alteration zone that was geochemically anomalous and we had a little patch of potassic alteration,” said Rebagliati. “If you look at the classical model for an alkaline porphyry copper, you have the propylitic alteration zone encompassing the potassic alteration zone.

“Most frequently, but not always, copper mineralization is associated with the potassic alteration,” he explained. “But no one had enough experience to know where to expect to find the gold, although we knew it occurs both in the propylitic and/or the potassic zones.”

Rebagliati then focused in on a mag anomaly which he hoped would be magnetite-related. And that’s when discovery hole 12 hit the magnetite breccia zone, or MBX zone contained within the Mt. Milligan deposit. Encouraged by the results of drilling in this area, Continental then greatly expanded its geophysical survey program.

“By this time we had already discovered 80-100 million tons in the Mt. Milligan deposit and we had the courage to go ahead with the larger global surveys,” Rebagliati said, adding that this program, combined with more prospecting and geochemical work, led to the discovery of the Southern Star.