Sherritt sells MacLellan mine

One of the few mines in North America to actually lose money mining gold in 1987 has been purchased by Hayes Resources. For $17 million cash and 2.4 million common shares from treasury, Hayes is getting a 58% interest in Sherritt Gordon Mines’ troubled affiliate SherrGold Inc — a company Hayes believes it can turn around. SherrGold operates the MacLellan gold mine northeast of Lynn Lake, Man., which began operations in early 1987.

In that same year, the company racked up losses of $11.1 million or $1.07 per share. During the fourth quarter of last year, the story of the MacLellan operation is clearly spelled out in the first two lines of the earnings statement. Revenue was $6.29 million whereas the cost to get the rock out of the ground and milled exceeded $6.7 million. The project is also burdened by a hefty 7% gross production royalty held by Agassiz Resources.

Management at Hayes feels the operation can be turned around by implementing a new mining method and increasing the tonnage milled. Overseeing this transformation project is Peter Goodwin, who will become president of SherrGold. Formerly the general manager of Sherritt’s mining division, Goodwin is credited with lowering costs at Sherritt’s Ruttan copper mine, also in Manitoba.

“We intend to cut costs to $55 per ton,” Stephen Dattels, president of Hayes explained to The Northern Miner. This costcutting will come from the implementation of long hole stoping as opposed to the currently used cut and fill method. Also, additional mill feed will come from the nearby Nisku and Rainbow deposits, which host reserves of 180,000 tons grading 0.19 oz and 263,000 tons grading 0.49 oz gold per ton respectively. In May, 1987, the main zone at the mine hosted reserves of 1.68 million tons grading 0.2 oz.

Problems have plagued the operation from day one. These included erratic gold grades in the main zone and an abundance of coarse gold which was being lost during the milling process. The addition of a gravity circuit, a third mining level and stricter assaying for grade control, were supposed to be the solutions to the mine’s problems, shareholders of SherrGold were told at a meeting on May 14, 1987.

During that same meeting, Goodwin also said that “the mining method has proven successful and well suited to the orebody.” However, the 1987 financial results, especially those of the fourth quarter, speak otherwise.

The 1987 recovery plan outlined by SherrGold management was supposed to see mine output increase to 5,000 oz per month. By the end of the year, however, gold production was averaging 3,750 oz per month. Also, operating costs, which were hovering around $66 per ton in March, 1987, went even higher. Dattels says costs reached $75 per ton.

“The grade is not as good as in the feasibility study,” Goodwin says. Heads grades are actually closer to 0.17 oz gold per ton as opposed to the 0.2 oz originally published. As a result, “mechanized cut and fill is not as selective as we thought.”

Milling has reached the rated 900 tonnes per day (tpd) which combined with 200 tpd from the Nisku deposit, will boost the daily rate to 1,100 tpd. Mill recoveries have reached 87%, Goodwin adds. The question remaining, as Goodwin says, is “can the mine get the tonnage it is supposed to and at the price?”

Within six months the mine should be converted to the new mining method and, combined with the higher rate of production, is expected to yield 65,000 oz of gold this year — a big improvement from the 40,000 oz produced last year.

Higher grading feed is expected to come from the Rainbow deposit in 1989. This year, SherrGold plans to drift to the deposit, located west of the mine, and prepare it for production.