Remote copper-gold projects back in play in BC

VANCOUVER — The growing list of the world’s largest “undeveloped” mineral deposits shows that most are in regions of high geopolitical risk ranging from the central African copper belt to the steppes of Mongolia, where government indecision or interference has stalled many world-class projects. Mining investment in Central and South America has been curtailed by nationalization threats, while opposition from non-governmental organizations is taking its toll on projects in Indonesia, the Philippines and Europe.

With so many new projects failing to get off the ground in the developing world, companies are taking another look at known undeveloped resources in remote regions of the Canadian Cordillera that were never developed because of the lack of infrastructure. As an example, NovaGold Resources (NG-T, NG-X) and partner Teck Cominco (TCK. B-T, TCK-N) are back at the drawing board reviewing new development options for the Galore Creek copper-gold project, which was placed on hold last year after capital costs jumped to $5 billion from $2.2 billion.

Galore Creek tops the list of undeveloped copper-gold deposits in British Columbia, and is also one of the largest in the world with a measured and indicated resource of

785.7 million tonnes grading 0.52% copper, 0.29 gram

gold and 4.87 grams silver per tonne, plus another 522.5 million tonnes at 0.35% copper, 0.29 gram gold and 4.79 grams silver in the inferred category.

NovaGold received permits to build a mine at Galore Creek in early 2007, and started construction in June of that year. Camp facilities were built and infrastructure development was well under way when the project came to a screeching halt in late 2007, after the partners experienced a burn rate more than twice their original estimates.

“There is huge cost inflation in our industry,” president Rick Van Nieuwenhuyse told shareholders during the company’s recent annual meeting. “I think we were one of the first companies to come out and admit it publicly.”

Along with the problem of soaring capital costs, Van Nieuwenhuyse says pre-development companies are feeling the pinch of the credit crunch triggered by the meltdown of asset-backed commercial paper. But unlike many of its peers, NovaGold has deep-pocketed producers as partners at most of its key projects, which include the Donlin Creek and Rock Creek gold mine projects in Alaska.

In the case of Galore Creek, 50/50 partners NovaGold and Teck Cominco appointed a new management team to review the project early this year. The team reviewed more than a dozen potential mine plans in order to select two or three options for further study. The best plan will be used to advance the project to feasibility. The goals are to reduce capital costs, not by designing a smaller mine, but rather a more robust one with lower unit production costs for both copper and gold.

The revised mine plan will focus on ways to reduce the costs and risks associated with building a massive tailings facility for the proposed mine, which was expected to produce 430 million lbs. copper, 340,000 oz. gold and 4 million oz. silver annually in the first five years of its 20-plus-year mine life. The tailings storage facility was to be built in the Galore Creek Valley, which is noted for its high rain and snowfall.

One option being considered is to move the tailings facility to one of two nearby valleys with lower precipitation, which would require infrastructure adjustments and reentering the permitting process for this aspect of the project. Another option is to retain the existing site, but alter the water management plan by digging ditches and tunnels to drain away the excess water. These options would allow construction of a lower tailings dam than the 292-metre structure proposed in the feasibility study.

About 80% of the 135-km access road was cleared for construction before the project was suspended, with 66 km of pioneer road completed, along with some bridges and the start of tunnel access into the Galore Creek Valley. The partners have permits to build a 138- kilovolt line to bring power to the mine, but also have the option to contribute toward the proposed 287-kilovolt Northwest Transmission Line with provincial government utilities at no additional cost.

Galore Creek is a flagship project for northwestern B. C., a mountainous mineral-rich region with few roads, power lines or service centres. The project has the support of local First Nations and faces no serious opposition from environmental groups. Van Nieuwenhuyse says the project also has the advantage of being situated in North America, an important factor given rising geopolitical risk in other parts of the world.

“There is no shortage of press on the woes companies are having in places like Venezuela and Ecuador,” Van Nieuwenhuyse adds. “North America is not easy and permitting is time-consuming, but once you have (the permits), the government is not going to do a switcheroo and decide it needs new mining laws or a new tax regime. This is very important for us going forward.”

Other projects

News that NovaGold and Teck Cominco are redrafting mine plans for Galore Creek is giving a boost to other companies active in the region, notably Copper Fox Metals (CUU-V, CPFXF-O), which is advancing the Schaft Creek deposit toward final feasibility. Discovered in 1957 and worked by a series of major mining companies, Schaft Creek hosts a measured and indicated resource of 1.4 billion tonnes containing 7.7 billion lbs. copper, 8.1 million oz. gold, 69.4 million oz. silver and 584 million lbs. molybdenum, with potential for expansion through additional drilling.

Copper Fox aims to develop an open-pit mine sized at 65,000 tonnes per day that could produce for more than 35 years. The company has earned a 70% interest in Schaft Creek through required expenditures of $15 million and can increase this to 93.4% by delivering a positive feasibility study, at which point Teck Cominco can exercise back-in rights to participate in the project.

Several exploration-focused juniors are also active in the region. Toronto-based Romios Gold Resources (RG-V, RMIOF-O) holds nine properties in the general Galore Creek area, and plans to spend $5 million to explore the most prospective areas this year. The junior company has completed airborne and geophysical surveys over the North West zone to identify zones of conductive sulphide mineralization and refine targets for ongoing drilling programs.

The North West zone is part of the Newmont Lake property, situated about 10 km from a completed section of the access road to the Galore Creek project. The zone hosts an inferred resource of 1.4 million tonnes grading 0.22% copper, 4.43 grams gold and 6.4 grams silver. The recently completed ground geophysical surveys have identified anomalies north, east and northeast of the North West Zone that will be targets of drilling programs.

Rather than develop one of the last “undeveloped” projects in northwestern B. C., Bell Copper (BCU-V, BCUFF-O) opted to explore one of its few historic mines. The Granduc mine is much less remote than the Galore Creek region, at just 40 km northwest of a year-round tidewater port at Stewart, but lies in a mountainous, glaciated region noted for its heavy snowfall and rain.

Bell Copper president Glen Zinn secured rights to the project dur- ing the last industry downturn, believing it had potential for more significant resources than envisioned in the past. Granduc produced 420 million lbs. copper and 4 million oz. silver plus minor gold from 1968 to 1984, when low metal prices forced its closure.

Granduc still has a historic resource of about 10 million tonnes grading 1.84% copper that is not compliant with National Instrument (NI) 43-101 standards, but it was the exploration potential that captured Zinn’s interest. The Besshi-type volcanogenic massive sulphide copper deposit was only mined
across about 750 metres of strike length. Helped by receding glaciers that have exposed more mineralization, Bell Copper has made new discoveries beyond the known zones and extended the known strike length to more than 4 km.

The goal of ongoing exploration programs is to discover new large massive sulphide deposits similar to the Windy Craggy deposit in northwestern B. C. — the largest Besshi deposit in the world with a historic resource ranging from 210-320 million tonnes grading about 1.66% copper, 0.09% cobalt, 3.5 grams silver and 0.2 gram gold. This historic estimate pre-dates NI 43-101 standards, a moot point as Windy Craggy is now part of a park.

Bell Copper believes that the Granduc deposit has strong geological similarities to Windy Craggy, and has designed its exploration programs to search for similar deposits. Should the company achieve its goal, it will likely have an easier time developing the project because of the relative proximity of roads, power and infrastructure, which includes an 18-km tunnel connecting the mine’s underground workings to the former mill site near Summit Lake. A 35-km all-weather road then connects Summit Lake to the nearby deepwater port of Stewart, which also has a paved airstrip.

In the event of a new deposit and mine at Granduc, Bell Copper would have the option of rehabilitating the Granduc Tunnel and Summit Lake road access to Stewart, or it could extend the Eskay Creek mine road, which originates on Highway 37 at Bob Quinn Lake. The Eskay Creek mine road ends at the headwaters of the Unuk River, about 30 km north of the Granduc property.

British Columbia has other large undeveloped copper-gold projects in the development stage, notably the Mt. Milligan deposit near Fort St. James. Terrane Metals (TRX-V, TRXOF-O) is proposing to build an open-pit mine and 60,000-tonne-per-day mill at Mt. Milligan, which was explored and developed in the late 1980s. The low-grade project was put on the back burner in the early 1990s during a period of weak metal prices.

Mt. Milligan is expected to produce an average of 88 million lbs. copper and 217,000 oz. gold annually over a 15.3-year mine life, starting in early 2012. Capital costs are estimated at about $917 million, as the project has road access and is near existing infrastructure, including power.

Farther south still, Taseko Mines (TKO-T, TGB-X) is reviving the Prosperity project near Williams Lake, one of the largest undeveloped copper-gold deposits in Canada. The project has proven and probable reserves of 487 million tonnes grading 0.22% copper and 0.43 gram gold within a measured and indicated resource of 1 million tonnes grading 0.24% copper and 0.41 gram gold per tonne. First discovered in the 1930s, the deposit was brought to feasibility in the late 1990s, only to be placed on hold because of weak metal prices. Capital costs to develop a 70,000-tonne-per-day mine capable of producing 247,000 oz. gold and 108 million lbs. copper are estimated at $807 million. Because of the pine beetle’s devastating effects on the forestry industry, the project is being welcomed by local residents and First Nations, including many of those ambivalent about the project in the 1990s.

Even southern B. C. has a large undeveloped project — the Harper Creek copper project being advanced by privately held Yellowhead Mining. Situated near Kamloops, the road-accessible, strataform volcanogenic sulphide project was extensively drilled by two major companies in the 1970s, but was never developed and had a low profile until it was revived by Yellowhead in 2005.

Based on historical data and recent drilling, Harper Creek hosts an NI 43-101-compliant indicated resource of 583.4 million tonnes grading 0.322% copper, plus another 64.7 million tonnes at 0.342% copper in the inferred category. With a positive scoping study in hand, the company’s next step is to advance the project to feasibility at proposed rates of between 50,000 and 90,000 tonnes per day, at respective capital costs of between $468 and $656.8 million. –The author is a Vancouver-based freelance writer specializing in mining issues, and a former editor of The Northern Miner.