Fort Nelson, B.C. — Vancouver-based
In the 1980s, the project, under different owners, was financed to within months of startup. It was aborted when funding dried up and the price of silver collapsed.
Canadian Zinc has received the first of a series of permits that allows it to re-develop the existing mine and mill, as well as carry out exploration. The property is 338 km north of Fort Nelson in a remote area of the eastern Mackenzie Mountains, 17 km from the northern boundary of the Nahanni National Park Reserve.
The wholly owned mine contains more than $100 million worth of unused mine site infrastructure, including the mill, which has a daily capacity of 1,000 tonnes.
“The Northwest Territories has got to streamline its permitting process,” says Canadian Zinc Chairman John MacPherson, who met with The Northern Miner on the property. “It’s going to take us about 18 months to get permitted.”
The junior has set its sights on making the project bankable by the end of next year, with startup slated for 2003.
The latest permit gives Canadian Zinc the right to perform a 6-hole program of infill drilling on the high-grade zinc-lead-silver deposit. The current resource, hosted in Zone 3, is pegged at 11.8 million tonnes grading 12.5% zinc, 10.1% lead, 0.4% copper and 161 grams silver per tonne. The measured and indicated portion of the resource is set at 3.6 million tonnes grading 11.8% zinc, 9.7% lead, 0.3% copper and 142 grams silver. The resource was calculated by Mineral Resource Development in 1998 and was based on 32,000 metres of diamond drilling in more than 60 holes.
Zone 3 represents a portion of a sub-vertical, high-grade vein structure that has been tested over a strike length of 2.2 km. More recent drilling, in 1992, identified deeper stratiform mineralization, about 200 metres below the current mine workings. The vein deposit remains open to the north and south, within a 16-km corridor of prospective ground. Canadian Zinc hopes to find additional vein and stratabound mineralization.
This season, drilling will initially target mineralization in Zone 3 in an attempt to expand the resource.
Environmental permits are awaited. If granted, they will allow the company to drill a further 50-60 drill holes, as well as operate a 1-tonne-per-hour pilot plant within the existing mill and allow for development of an underground decline. The decline will provide a fresh sample of mineralization underneath the existing 2.5 km of underground workings, while serving as a platform for additional drilling.
Since the implementation of the Mackenzie Valley Resource Management Act in 1998, permitting in the region has become more complicated and time-consuming. Any substantive work on the mine site requires a permit application to the Mackenzie Valley Land and Water Board (MVLWB). This board, in turn, refers the application to the Mackenzie Valley Environmental Impact Review Board for further review. It is then sent back to the MVLWB, which decides whether or not to issue the permit.
MacPherson concedes that no mine in the Northwest Territories has ever been turned down. “The problem is not that you don’t get permits; it’s that you don’t get them in an orderly fashion.”
History
Prairie Creek, formerly known as the Cadillac property, was financed 20 years ago to within months of startup, largely by Procan Exploration, a private company owned by the Hunt Brothers of Texas. The operator, Cadillac Exploration, suspended construction activities in May 1982 after it ran out of money following a collapse of the silver price. Silver had hit a short-lived high of US$50 per oz. in late 1979 and early 1980, when the project was given the green light. Cadillac was forced into bankruptcy after incurring about $64 million in expenditures on the property.
Existing facilities at the site include: a lined tailings pond; camp accommodation for 200 personnel; maintenance, office and warehouse shops; four 1.1-MW diesel-powered generators; two smaller, stand-by generators; and 250 million gallons of diesel fuel.
When the project was halted, more than 4,000 ft. of underground drifting and crosscutting had been performed on three levels. The project, including all the assets of Procan, were tied up in litigation until 1990. The company San Andreas optioned the property in 1991 from Nanisivik Mines. San Andreas was renamed Canadian Zinc in 1999, and now holds a 100% interest in the property, subject to a 2% net smelter return royalty held by Titan Pacific Resources.
Under a 1996 development co-operation agreement, the Nahanni Butte Dene Indian band will receive a 5% after-tax net profits interest in the mine. The band will also have the one-time right to buy either a 10% or 15% stake in the project within three months of receiving permitting approval, in return for a cash payment of either $6 million or $9 million.
In the agreement, the Nahanni Butte Dene band proclaimed their support for the mine and the establishment of an access road in recognition of the significant benefits to the Nahanni community, as well as the Deh Cho First Nations.
Scoping study
Canadian Zinc performed a $400,000, in-house scoping study using independent consultants and contractors. The study, which was assessed by Micon International in early January, envisages a 1,500 tonne-per-day operation capable of producing 95 million lbs. zinc annually over 18 years, based on current resources.
The base-case financial model indicates that, with a capital investment of $40.5 million, the pretax cash flow would be $106.5 million and the internal rate of return, 45.7%. The net present value of this cash flow, using a 10% discount rate, was calculated to be $56.7 million. These calculations were based on long-term metal prices of US90 per lb. copper, US50 per lb. zinc, US25 per lb. lead and US$5.50 per oz. silver.
Micon proposed an alternate financial case using US80 per lb. copper, US20 per lb. lead and US$5 per oz. silver and came up with a cash flow of $40.4 million, an internal rate of return of 18.5%, and a net present value of $13 million at a 10% discount rate.
Micon and Canadian Zinc both report that the project’s cash flow is most sensitive to changes in head-grade, mill recovery, zinc price and operating costs.
“The trigger price for this mine will be somewhere around US50 per lb. of zinc,” said MacPherson.
The base case model in the scoping study suggests a break-even cash cost of production around US$0.34 per lb. of saleable zinc, after by-product credits but before financing and taxation.
The scoping study states that additions and improvements to the existing infrastructure will include: a camp overhaul; inspection and repair of the sewage treatment plant; reconditioning of the diesel generators; an upgrade of the power house controls and distribution system; a new generator waste heat recovery system; the installation of a gravity pre-concentration circuit; construction of an all-weather road; and new concentrate handling, storage and shipping facilities. The all-weather road will be the largest budgeted capital cost.
Canadian Zinc plans to use open stoping mining method as opposed to the shrinkage stoping previously employed in development. The estimated average mining operating costs are pegged at $35.31 per tonne of ore with an overall cost of $61.99 per tonne.
The junior has also proposed using the tailings as a paste backfill underground. This method is preferred, from an environmental point of view, and will significantly reduce the surface tailings dam requirements. Tests performed in 1994 indicated that acid mine drainage is not expected to be of any concern. Canadian Zinc plans to initiate a pilot plant study to test the feasibility of the paste backfill option.
Geology
The project is in the southern portion of the Mackenzie Mountains, which are underlain by Paleozoic-aged carbonat
es and associated limestones, dolostones and shales. The dominant orientation of structural features in the region is north-south.
Prairie Creek occupies the eastern margin of the Prairie Creek Embayment, which consists of dolostones and shales of the Whittaker, Road River and Cadillac formations. Faulting and folding in the area have exposed windows of the older Road River and Whittaker formation rocks along the core of the main anticline.
Most of the mineralized zones at Prairie Creek are hosted in the Road River formation shales and tend to occur close to the axial plane of a tight north-south plunging anticline.
Three types of mineralization have been discovered on the property: quartz-vein sulphide, stratiform and Mississippi Valley type.
Quartz-vein was the first type of mineralization discovered on the property. The veins strike north-south and dip steeply to the west and east. Mineralization consists of galena, sphalerite, minor pyrite and tennantite-tetrahedrite. Silver is found in both the galena and tennantite-tetrahedrite. The most extensive vein occurrence is in Zone 3, where underground development has followed the vein for 940 metres of strike length. Diamond drilling has traced the vein for an additional 1.2 km.
Stratiform mineralization was discovered in 1992, while the vein resource was being drill-tested at depth. This mineralization hosts a resource of 1.4 million tonnes grading 10.3% zinc, 5% lead and 53 grams silver. The sphalerite/galena/ pyrite-bearing sulphides occur wholly within the Whittaker formation dolostones. The stratiform mineralization is up to 28 metres thick.
The cavity-infilling Mississippi Valley type mineralization has been discovered at the Zebra showing, about 8 km northwest of the mine site. Colliform bands of sphalerite and pyrite have been discovered in the Root River formation, though only limited exploration has been performed in this area.
The Gate Showing is 10 km northeast of the mine site, near the northern margin of the Gate claims. Assays from the showing returned 10.6% zinc, 16.6% lead and 820 grams silver. The area also hosts a strong geochemical anomaly. The Whittaker and Road River formations underlie most of the claims and are bisected by a north-south series of reverse faults.
At last report, Canadian Zinc had 30.9 million shares fully diluted.
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