Westmin to operate Premier gold mine

When the Granduc Copper mine closed al most four years ago followed by Scottie Gold the town of Stewart prepared for the worst. But the last thing anybody should do is write off an historic mining town — at least for long.

Two Vancouver companies, Westmin Resources and Silbak Premier Mines, together with minority interest holder Toronto-based Can acord Resources, have announced plans to develop an $80.4-million gold-silver mine near Stewart, the last stop on the Portland Canal. Indeed, it will represent one of the largest capital mining projects in British Columbia in many years and the No 2 primary gold producer after the Mascot mine at Hedley.

To facilitate development, the three companies have “unitized” their respective interests in the two separate land holdings which comprise the project: the Silbak Premier and Big Missouri properties. The over-all development will be known as the Premier Gold Project with Westmin holding a 50.1% working interest, Silbak Premier 40%, and Canacord 9.9%.

Vancouver-based Pioneer Metals, which currently has a 42% interest in Silbak Premier Mines and a 2-year warrant outstanding to raise its equity position to 55%, has offered to purchase Canacord’s interest for an undisclosed amount. The offer is believed to include cash and stock and, if accepted, would further rationalize the joint venture’s respective holdings at Stewart. Tournigan Mining Explorations holds a 30% net profits interest in the Big Missouri after payback. Until then, the company will receive 5% but it won’t have to put up any capital.

Bruce K. McKnight, vice-president corporate planning for West min, says his company effectively gave up a 10% royalty on the Silbak property in exchange for “other considerations” which apparently includes some cash from Silbak Premier. But he declined to elaborate on this part of the deal.

Before unitization, Westmin and Silbak each had a 50% working interest in the Silbak property; so Silbak Premier ended up with 40% of Big Missouri by giving up 10% of Silbak and agreeing to the other considerations.

McKnight says the obvious benefit of unitization is that Silbak becomes a partner in both proper ties. “So we can take production from whatever source is best and we don’t have to worry where it’s coming from,” he notes. With two different ownerships for both parts of the operation he says it would have required much more control in terms of reporting where production was coming from during any given week. “It’s also a lot easier for the analysts to figure out,” he adds.

Westmin will probably end up funding it’s participation in the project with a bullion loan and apparently Silbak Premier is considering this option too. “Until we get that tied up we will just be using existing corporate lines,” McKnight confirms. Both companies have gold production elsewhere which should weigh favorably in negotiating the bullion loan, The Northern Miner gathers.

Westmin of course produces gold as a by-product from its Buttle Lake operation (lead-zinc-silver) on Vancouver Island and Silbak’s controlling shareholder, Pioneer Metals, produces gold at Puffy Lake in Manitoba and from a heap leach operation in Idaho. Canacord on the other hand has no production so presumably any gold loan it negotiated would have to be guaranteed, possibly by Westmin and Pioneer.

Commenting on the purchase of Westmin’s net profits royalty in the Silbak property, Pioneer President Robert Willis concedes there were about six things renegotiated in the joint venture agreement. “It’s a very clean deal now,” he states, noting the deal includes a “very large area of interest clause.” He feels this is very important and says they will be looking seriously at the underground potential as well. “We have got some really exciting intercepts below the open pit design. I’m talking grades that are well in excess of 1 oz per ton, similar to what we saw in the early 1900s when the Premier mine was in production.”

“We are very excited about it and we at Pioneer feel we made the right decision a year ago to start negotiating our participation in the project.” Willis expects to have something definitive on the Cana cord offer in the next week. Separate open pit mines will be developed on the near surface portions of the famous Silbak Premier underground mine which operated from 1918-68, and on several deposits at Big Missouri. However, initial production will come from the higher grade portion of the Silbak Premier pit.

Production is scheduled for early 1989 at a rate of 2,000 tonnes per day and final feasibility studies indicate an annual output of approximately 77,000 oz gold and 890,000 oz silver over the first four years of operation; the average cash cost for gold is expected to be $164(US) and $2.66 for silver.

Based on current precious metals’ prices and exchange rates, average annual cash flow (before financing and taxes) is anticipated to be approximately $30 million with a payback of approximately 2.5 years. Total employment during the construction period is expected to be 220 but it will drop to 160 afterwards.

Site preparation has already been completed and $5 million has been spent for this work and also for various environmental and regulatory studies. (That money is included in the over-all cost). McKnight says the plant will be built on bedrock and the contractor should be on site March 7. “We should be ready to pour concrete the first week in April. We have ordered the steel and part of the mill components already.”

The plant will be built and installed by year-end and commissioning should take place next January, he predicts. In conjunction with the development work, an additional $3.1 million will be spent upgrading existing geological re serves to the mineable category. An effort will also be made to expand reserves both from open pit and underground mining environments.

Evaluation of historical drill hole data and the extensive underground workings at Silbak are in progress to locate drill targets for the program. Diamond drilling is planned for the deeper parts of the open pit zones and also at Big Missouri.

Open pit mineable reserves at Silbak Premier are currently 5.9 million tonnes grading 0.063 oz gold and 2.3 oz silver. At the Big Missouri reserves are 1.6 million tonnes grading 0.11 oz gold and 0.86 oz silver, the two of which constitute a mine life of 10.5 years.