Tagish Says Skukum Creek Still on Track

SITE VISIT

Whitehorse, Yukon — Tagish Lake Gold (TLG-V) has been working away in the Skukum mineral district for seven years, gradually outlining the resources at Skukum Creek and moving the underground gold project towards development.

In June, when Oslo-based Wega Mining announced plans to invest $10 million in Tagish, it looked like Tagish finally had the boost it needed and the company put the first $2 million to work immediately. But after a new resource estimate for Skukum Creek came out near the end of August, Wega pulled the rest of the money.

Already having purchased 10 million common share units, each consisting of one share and one warrant, for $2 million, Wega was to have purchased another 40 million units for $8 million. After asking for a 3-week extension of its due-diligence period, Wega elected on the last day not to proceed with the second investment.

In a news release, the Norwegian public company said it had decided Skukum Creek did not meet the size criteria set for its investment. According to Tagish president and CEO Robert Rodger, Wega was more concerned that the proposed mining rate is too high, requiring more capital spending than the financier was comfortable with. Wega specifically stated that it did not withdraw due to legal or financial issues or because of problems with the recent resource estimate.

Rodger is optimistic the financial hiccup will not significantly impede development plans at the project.

“It’s more a stumbling block in terms of time than in terms of permanent damage,” he says. “We were kind of counting on their investment and our work program was geared to that, so we’re slowed a bit more while we look at alternatives. But we still have resources at a good grade with facilities, and there does seem to be money out there, so fundamentally, nothing has changed.”

With about $500,000 available as working capital, the company’s financial picture is “not particularly bright,” Rodgers says. While looking for new financing possibilities, the company will use its remaining cash to continue with selected work in the remaining short summer season in the Yukon, including the installation of additional camp facilities, which has already begun.

But permitting is the current critical issue in terms of keeping the project on schedule. Rodger says the company still plans to submit the environmental assessment report this fall, which, if approved, would permit the project to production. Work also continues on the feasibility study, due out in November.

Underground exploration takes money, however, and Rodger is the first to admit that Tagish will not be able to continue drilling a new exploration adit until new financing is in place.

“It’s going to be hard to work through the winter without money,” he says. “But while it would be nice to get the adit in, and we need it for production and to explore the downward extensions of our deposits, it’s not part of the critical schedule. As long as it’s not too long, a bit of a delay won’t hamper us too severely.”

Rodger is taking the setback in stride: “As I now like to say, there was life before Wega and there will be life after.”

Work to date

The Skukum mineral district, just 80 km west of Whitehorse, has seen gold mining before: Mt. Skukum hosted an underground mine from 1986 to 1987, producing almost 80,000 oz. gold. The Skukum properties bounced through a few hands before Tagish picked them up in 2001.

“Management worked really hard to find the money back when it was purchased,” says Tagish exploration manager Barry Way. “And from 2001 to 2005, the exploration programs were pretty small. It wasn’t until 2006 that we really geared up.”

Of the three known gold-silver deposits, Skukum Creek is the current focus with one major exploration adit and numerous drifts and raises complete and another adit just begun. But the project also encompasses Mt. Skukum and Goddell Gully deposits, both of which Tagish plans to explore once Skukum Creek development is more firmly in hand. The Mt. Skukum deposit hosts an inferred resource of 109,000 tonnes grading 13.4 grams gold per tonne, while Goddell Gully has an indicated resource of about 320,000 tonnes at 11 grams gold, plus 280,000 inferred tonnes averaging 9.2 grams gold.

Skukum Gold, defunct since 1994, spent some $20 million exploring Mt Skukum and Skukum Creek in the 1980s. The data was well preserved, which Way says helped considerably when Tagish took over the property.

“We knew the stratigraphy fairly well coming in,” he says.

The property hosts quartz veins in a volcanic sediment package from a massive volcanic event 40 to 90 million years ago. At Skukum Creek, there is a significant west-east Reidel shear, the flectures of which are associated with mineralized zones.

In 2006, Tagish completed a 6,500-metre drill program at Skukum Creek while driving most of the 1,200 metres of the first exploration adit. The idea was to better outline the Rainbow Two and Kuhn zones, but that plan was slightly diverted when the company discovered the Berg zone a short distance to the west.

Focus shifted to Rainbow Two and Berg. In 2007, Tagish moved on to excavating drifts and raises on the Rainbow and Berg zones in order to test horizontal and vertical continuity of mineralization, necessary to upgrade resources to the measured and indicated categories. Cross-cuts were also driven to provide platforms for additional drilling on the Rainbow and Berg zone extensions.

By May, another new zone had been discovered. In extending a drift past Rainbow Two, geologists encountered a narrow rhyolite dyke followed by a new mineralized zone they named Rainbow Three. It has been exposed over a length of 25 metres and chip samples across the face of the zone have returned good grades, including 5.57 grams gold per tonne and 70.3 grams silver over 1.7 metres, and 10 grams gold and 144 grams silver over 0.7 metre.

Rainbow Two is returning stronger grades, including 87 grams gold and 212 grams silver over 0.4 metre as well as 30.6 grams gold and 212 grams silver over 0.95 metre.

In May, the company also started to prepare for the second adit. The first adit enters the hill from the north side; the second adit comes in from the southeast side and lies 100 metres deeper, a depth that has not yet been explored. Aside from exploration, the second adit will be used for ventilation, drainage, and haulage. It is also expected to extend to a length of 1,200 metres.

Future development

In late August, Tagish released a National Instrument 43-101-compliant resource estimate, the first estimate since 2001. Resources had increased because of the new zones and a lower cutoff grade. Tagish reduced the cutoff grade for the new estimate to 4 grams gold from 5 grams gold after metallurgical testing showed 95% of gold and 88% of silver is recovered in a flotation concentrate, and leaching of the concentrates extracts up to 90% of the gold and 87% of the silver.

Skukum Creek holds measured and indicated resources of 1.07 million tonnes averaging 6.39 grams gold per tonne and 187 grams silver, plus inferred resources of 206,000 tonnes at 6.8 grams gold and 155 grams silver. All of the zones remain open in several directions, and Tagish has plans for another 5,000-metre underground drill program.

Ore from the underground exploration work is low-grade, but being stockpiled nonetheless to be used as initial feed for the mill. The rock around Skukum Creek contains significant carbonate, so ore stockpiles are and tailings piles will be acid-consuming.

Useful remnants from mining 20 years ago remain on the property, the biggest of which is a 300-tonne-per-day mill. Though it hasn’t been run since 1987, Way says the machinery is still in working order. To upgrade the mill to 1,000 tonnes per day, the old crushing and grinding mills would become the secondary circuit, and a new primary crusher would be installed.

Since metallur
gical testing found the ore amenable to flotation, that would also be added to the mill. The feasibility study will determine if concentrates will be cyanide-leached on-site; if so, a cyanide destruction plant already exists. There is also still space in the old tailings pond, and a large equipment storage building on the property.

The feasibility study, now under way, is based on an annual plant throughput of 300,000 tonnes and a cutoff grade of 4 grams gold per tonne, which would produce 50,000 oz. gold and 1.2 million oz. silver annually.

The feasibility study is also based on diesel-power generation, but Tagish management is lobbying the Yukon government and Yukon Energy to agree to install grid power. The closest high-voltage transmission line is 48 km away, but a right-of-way with a low-voltage line to the project already exists.

In discussing permitting, Way is honest that Skukum Creek is fairly active in terms of wildlife. Herds of caribou and mountain sheep live in the area, and bears are a common sight. Because the project is underground, Way is optimistic the impact on wildlife will be minimal.

The Yukon government settled all native land claims a few years ago, and the Tagish property was not part of a land claim settlement. It sits on Crown land that is, however, considered traditional territory for the Carcross/Tagish First Nation. The company has worked with the Carcross/Tagish First Nation since it started work in the area and in January, the two signed an agreement outlining a co-operative approach to project development along shared principles. The First Nation does not stand to receive a financial return from the project, but some 15% of the Tagish exploration team is native.