Tagish aims to revive historic mining district

Journalists and analysts at Tagish Lake Gold's Skukum Creek gold-silver project during a recent site visit.

Journalists and analysts at Tagish Lake Gold's Skukum Creek gold-silver project during a recent site visit.

Whitehorse, Yukon — With known resources in three deposits and a 300-tonne-per-day mill in place, Tagish Lake Gold (TLG-V) believes it is “30 months and $30 million” from production at the Skukum gold-silver project in the Wheaton River Valley, 80 km south of the territorial capital.

Over the past few years the company has quietly focused its efforts on reviving a prospective district with an exploration history dating back to the early 1890s, when prospectors bound for the Klondike first stumbled on gold and silver showings. In more recent times, several deposits were developed and in one case mined, but activity has tended to occur in sporadic, short-lived bursts as gold prices rose and fell and companies came and went.

Gregory Hawkins, chairman of Tagish, says the region hasn’t received the attention it deserves partly because it’s associated with vein-type deposits, which aren’t easy to market in today’s investment climate. “People want millions of ounces up front, and while we see potential for that in the geology, it’s expensive to define those kinds of resources with the type of deposits we have here.”

The rocky history of the past-producing Mount Skukum mine doesn’t help either. Subsidiaries of French and Italian oil companies opened the mine with great fanfare in 1986, only to close it in 1988 after reserves (hosted in quartz carbonate veins) were downgraded and deemed uneconomic. The mine produced 77,790 oz. gold during that period.

Tagish isn’t looking to revive the past-producing Mount Skukum deposit anytime soon, but instead has focused on developing the Skukum Creek deposit, 5.2 km to the southeast.

While six main zones have been identified to date, work has focused on the Rainbow, Kuhn and newly discovered Rainbow Two zones, which have been confirmed by extensive underground workings and diamond drilling from surface and underground.

Based on past and recent work programs, the Skukum Creek deposit hosts measured and indicated resources of 793,000 tonnes grading 6.77 grams gold and 214 grams silver per tonne, plus an additional inferred resource of 93,000 tonnes at 6.52 grams gold and 224 grams silver.

For comparison purposes, the past-producing Mount Skukum deposit hosts an inferred resource of 109,200 tonnes grading 13.4 grams gold.

A third deposit, Goddell Gully, is situated about 10.5 km east of Mount Skukum. The fault-controlled gold-antimony deposit contains an indicated resource of 320,000 tonnes grading 11.02 grams gold per tonne, plus an inferred resource of 280,000 tonnes at 9.21 grams gold. Previous operators obtained some spectacular high-grade intercepts from this deposit and nearby exploration targets.

The Skukum project includes the mill, which requires refurbishment and has a replacement value of $8 million, ancillary buildings, and 987 mineral claims covering 178 sq. km. The land package covers numerous exploration targets identified by previous operators that are yet to be systematically tested. Many of the targets are connected by an extensive system of roads that would cost millions of dollars and years of permitting-hours to duplicate today.

Exclusive of the estimated $10 million spent in the mid-1980s to build the Mount Skukum mine, previous operators spent more than $20 million on exploration in the camp. This includes funds spent by Omni Resources and Trumpeter Yukon Gold, which merged in 2001 to form Tagish.

“This is the first time the district has been consolidated since 1902,” Hawkins said. “The project, related infrastructure and exploration data are now wholly owned by Tagish, with no royalties or partners.”

District is an appropriate word in this case, as the consolidated Skukum project is now larger in size than the famous Kirkland Lake or Val d’Or mining camps in Ontario and Quebec.

“We thought it was important to consolidate the district because we’re not here for the five years of production that we’ve defined so far,” Hawkins said. “We’re here for the long term. These are the kinds of deposits that can be mined for one hundred years.”

Tagish is pursuing a two-track strategy and views the project as an exploration play and as a property moving to production. On the production front, the company is looking at innovative financing methods in order to reduce dilution of equity and preserve its interest in the project.

“We’ve looked at income trusts, royalties and debentures, whatever allows us to secure financing and the company’s future,” Hawkins said.

The company recently launched a silver-denominated convertible debenture offering against one year of future production from known resources, and says overall response has been “positive.”

The $3.5-million program to advance the project to feasibility is well under way, with more than $2 million spent to date. At this stage, the company envisages an initial annual production rate of 865,000 oz. silver and 49,000 oz. gold.

The company has rehabilitated and extended underground workings to access and drill test the known zones, including the high-grade Rainbow Two zone, discovered in late 2003. The new zone is projected to have a strike length of more than 300 metres, whereas the Rainbow zone has a strike length of 265 metres and extends 360 metres downdip. The Kuhn zone has a strike length of 200 metres and extends 350 metres downdip from surface. Accordingly, Rainbow Two is considered to have good potential to expand existing resources along strike and at depth.

Recent drilling to test the Rainbow Two zone has returned encouraging results. Highlights include: 2.65 metres grading 17.95 grams gold and 140.5 grams silver; 8.39 metres of 5.43 grams gold and 78.5 grams silver; and 1.59 metres of 32.31 grams gold and 277.2 grams silver.

Zones within the Skukum Creek deposit consist of polymetallic veins in fault zones that pinch and swell from widths of 1 metre to 10 metres, but occasionally reach widths up to 20 metres. The quartz-sulphide veins often surround a rhyolite core, and propylitic and phyllic alteration is common adjacent to and within the veins.

The Goddell Gully deposit and related trend offer good potential for high-grade gold, albeit typically associated with antimony and arsenic.

Mount Skukum also has exploration potential, notwithstanding its short-lived production run. It wasn’t uncommon in the 1980s for companies to develop vein-type deposits on the premise of “drill for structure, drive for grade,” only to discover, once underground, that the grade wasn’t as good as hoped. Yet in many other cases, vein-type mines have operated successfully and profitably for decades, even though only a year or two of reserves were defined in advance of production.

Tagish has too many interesting regional occurrences to mention, but the Charleston trend stands out for the high-grade gold and silver values obtained from previous sampling and trenching on the aptly named Watusi, Twist, Rumba and Charleston veins.

“The (core) Charleston lease dates back to 1902,” Hawkins said. “When it expired it 2002, we staked it.”

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