The mega deposits of B.C.’s northwest

Vancouver – British Columbia’s northwest is rough, rugged place to work, but the area’s rich mineral endowment means effort can reap rewards. And with metal prices on the rise and plans being laid for a major new power line into the province’s north, B.C.’s northern giants are set to take centre stage.

The most well known of B.C.’s mega projects is likely Galore Creek, a 50-50 joint venture between NovaGold Resources (NG-T) and Teck Resources (TCK.B-T, TCK-N). In mid-2007 the partners started developing a mine at the project, which sits in the mountains 150 km northeast of Stewart, but work was halted after six months when expected capital costs more than doubled, to $5 billion from $2.2 billion.

Galore is undoubtedly a massive project. Measured and indicated resources stand at 786 million tonnes grading 0.29 gram gold per tonne, 4.87 grams silver per tonne, and 0.52% copper; inferred resources add 523 million tonnes averaging 0.29 gram gold, 4.79 grams silver, and 0.35% copper. Combining the resource categories, the project is home to 8.9 billion lbs. copper, 7.3 million oz. gold, and 123 million oz. silver.

The project’s capital costs are sky high because of its location. Steep mountains, deep valleys, and significant precipitation mean roads and tailings facilities are difficult to engineer and expensive to build. The original mine plan placed the mill and tailings facility near the mine, in Galore Valley itself, with the tailings pond impounded by a dam 7 km downstream from the mill. As NovaGold’s CEO Rick Van Nieuwenhuyse described it, the “God-awful” dam was a “very costly facility.” And the complex sequence of events necessary to build the dam and water management structures was the main reason the project’s costs doubled and its timeline grew by 18 to 24 months before construction was suspended.

The partners immediately kicked off a thorough project review and optimization process. The stated goal was to reduce capital costs not by designing a smaller miner but by engineering a more robust operation with lower production costs and facilities less risky to build.

A new mine plan has not yet been formally announced, but at conferences Nieuwenhuyse has discussed instead building a longer ore-conveying tunnel from the mine to the opposite side of the mountain, where the mill and tailings facility would sit. And a formal announcement is imminent: NovaGold recently said the partners are “considering a more aggressive program for 2010 to advance the project towards a construction decision” and expect to release a new mine plan soon.

If construction does re-start, the partners will benefit from their earlier work: about 80% of the 135-km access road has been cleared and 40km have been completed, including some bridges. Work on the aforementioned tunnel has also been initiated.

Galore Creek is by no means the only giant, undeveloped project in northern B.C. Another whopper is Imperial Metals‘ (III-T) Red Chris deposit, which sits 80 km south of Dease Lake and 20 km east of Highway 37, the main access route into northwest B.C.

Based on the results of a deep drilling program currently underway, the large deposit at Red Chris is set to grow considerably. The last resource estimate, completed in 2004, pegged measured and indicated resources at 446 million tonnes grading 0.36% copper and 0.29 gram gold; inferred resources add 269 million tonnes averaging 0.3% copper and 0.27 gram gold in the main zones as well as 116 million tonnes of 0.32% copper and 0.3 gram gold in two adjacent zones.

Since 2004 the scope of known mineralization at Red Chris has grown significantly. In 2007 Imperial initiated a deep drilling effort, testing for mineralization below the planned pits, and by the end of that year the effort produced a 1,024-metre intercept grading 1.01% copper, 1.26 gram gold, and 3.92 grams silver. The project saw little exploration work in 2008, as Imperial was focused on its other projects, but in 2009 the company returned and kicked off another deep exploration effort.

Results to date from the 12-hole program show there is much copper, gold, and silver yet to be found at Red Chris. Hole 346 returned 514 metres grading 0.61% copper and 0.91 gram gold, including 191 metres starting directly below the planned pit averaging 0.92% copper and 1.53 grams gold. Hole 345 cut 527 metres of 0.77% copper and 1.37 grams gold, most of it below the pit bottom.

Hole 347 cut 1,133 metres grading 0.39% copper and 0.46 gram gold; the 700 metres below the pit averaged 0.47% copper and 0.59 gram gold. Hole 349 returned 625 metres of 0.82% copper and 0.93 gram gold from 390 metres depth. Then hole 350 hit the best intercept on the property to date: 433 metres grading 2% copper and 3.8 grams gold, starting 530 metres downhole.

The deep mineralization at Red Chris lay undiscovered for years because rock at open-pittable depths in the area, which is primarily to the north and east of the planned pits, is only weakly mineralized.

A 2005 feasibility study of Red Chris estimated proven and probable reserves of 276 million tonnes grading 0.349% copper and 0.266 gram gold. The reserves support 30,000-tonne-per-day operation for 25 years. The planned pit is some 1.8 km long and up to 1 km wide, covering two zones known as the Main and East zones.

The final obstacle in Imperial’s path at Red Chris is a continuing legal battle over the validity of the project’s federal environmental assessment, which was conducted by way of a screening report. Environmental groups challenged the federal government’s authority to decide that a project can be approved through a screening rather than a full review, even though the provincial authorities conducted a full scale review and public consultation process.

The case was heard recently in the Supreme Court. A decision is expected in early 2010.

A third significant prospect in B.C.’s northwest is Seabridge Gold‘s (SEA-T) Kerr-Sulphurets-Mitchell project. The components in the project’s name, which is often shortened to just KSM, refer to the project’s three main deposits, which are spread across two valleys 65 km northwest of Stewart.

The three deposits at KSM host 2.14 billion measured and indicated tonnes grading 0.57 gram gold and 0.21% copper as well as 759 million inferred tonnes averaging 0.43 gram gold and 0.16% copper. Combining the resource categories, KSM contains 49.4 million oz. gold and 12.7 billion lbs. copper. The Mitchell deposit now contains 33.7 million measured and indicated gold oz., making it the largest gold deposit ever found in Canada.

A preliminary economic analysis (PEA) of KSM, completed in late 2008, assessed an operation churning through 120,000 tonnes of ore daily. Over the mine’s 30-year lifespan, annual production would average 648,000 oz. gold, 183 million lbs. copper, 2.2 million oz. silver, and 1.3 million lbs. molybdenum annually, with production levels slightly higher in the first eight years.

Similarly to Galore Creek, the challenge at KSM is its steep, mountainous location. The mine and mill site would be connected with a 23-km long tunnel through the mountains. A 25-km long road would connect the mine site to the Eskay Creek Mine road, while another road of similar length would connect the mill site to the town and port of Stewart. Hydro power would come in by a third route – the proposed Northwest Transmission line would extend power along Highway 37 and Seabridge would build a line in from there.

Three separate deposits across two valleys would require three waste rock storage locations, a two-stage tailings pond involving three dams, and considerable water diversion infrastructure.

The price tag for the project is pegged at US$3.4 billion. Using base-case metal prices of US$710 per oz. gold, US$3.17 per lb. copper, US$13.23 per oz. silver, and US$29.62 per lb. molybdenum, the project would be expected to generate a 13% inter
nal rate of return, allowing capital payback in roughly seven years.

Seabridge is currently preparing a preliminary feasibility study, which is expected in March. Key changes from the previous study include modifications to the pit designs, a move to two small-diameter tunnels rather than one large-diameter tunnel, and incorporation of the Northwest Transmission Line. Seabridge has already spent $55 million at KSM.

Directly beside Seabridge’s KSM project is another massive deposit. Silver Standard Resources’ (SSO-T) Snowfield-Brucejack project is still in the exploration stage, having not yet been subject to any economic studies, but a recent resource update brought the measured and indicated gold count alone to almost 24 million oz. gold.

Specifically, the Snowfield deposit is now home to 862 million measured and indicated tonnes grading 0.71 gram gold, 1.8 grams silver, 0.12% copper, and 0.092% molybdenum, as well as 949 million inferred tonnes averaging 0.33 gram gold, 1.4 grams silver, 0.07% copper, and 0.081% moly. Brucejack adds 120 million measured and indicated tonnes grading 1.04 grams gold and 16.9 grams silver, plus 198 million inferred tonnes averaging 0.76 gram gold and 11.2 grams silver.

The western edge of the Snowfield zone is within a few hundred metres of the Mitchell zone at KSM.

And the last mega project in northwest B.C. that might soon see development is Schaft Creek. Owner Teck Resources signed an option agreement with Copper Fox Metals (CUU-V) in 2002 and since then the junior has earned a 70% interest in the project by spending $32 million. Copper Fox can earn a further 23.4% interest, giving it 93.4% ownership, by completing a feasibility study.

Copper Fox is much of the way there, having completed a pre-feasibility study in late 2008. The study looked at a 100,000-tonne-per-day operation tapping into proven and probable reserve totalling 812 million tonnes grading 0.3% copper, 0.21 grams gold, 0.02% molybdenum, and 1.76 grams silver. The deposit conforms to an open pit with an average strip ratio of 1.9 to 1.

Capital costs to develop the operation came in at US$2.95 billion.

Over a 22.6-year lifespan a Schaft Creek mine would produce 4.76 billion lbs. copper, 255 million lbs. molybdenum, 4.5 million oz. gold, and 32.5 million oz. silver. Rhenium is also recovered, in the moly concentrate, though the economic benefits of rhenium as a by-product have not yet been assessed.

Using metal prices of US$3.12 per lb. copper, US$33 per lbs. molybdenum, US$693 per oz. gold, and US$13.09 per oz silver, Schaft Creek carries a pre-tax net present value of US$2.76 billion, using an 8% discount rate, and should produce a 18.6% internal rate of return. Payback would be achieved in less than five years.

If Copper Fox does complete the feasibility study and earn itself 93.4% of the project, Teck has 120 days to decide whether to exercise its back-in right. The major could buy back 20%, 40%, or 75% of Schaft Creek by matching one, three, or four times Copper Fox’s expenditures. In the case of a 75% buy-back, Teck assumes responsibility for arranging all production financing.