Copied and pasted from The Northern Miner
Site visit: AuRico nears construction decision at Kemess
POSTED BY: MATTHEW KEEVIL SEPTEMBER 29, 2017
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PRINCE GEORGE, B.C. — There’s a certain sense of momentum at the historic Kemess mine site in north-central British Columbia. AuRico Metals (TSX: AMI; US-OTC: ARCTF) has hit numerous milestones this past year, and could be positioned to make a construction decision on the project within the next eighteen months.
The past-producing property sits in a spruce-lined valley nestled between sub-alpine plateaus and rugged-incised peaks, west of B.C.’s Swannell Ranges.
President and CEO Chris Richter explains during the 430-km, northbound flight from Prince George that he often uses 40-km long Thutade Lake as a map marker to reference the project location within the Omenica Mining Division.
Kemess’ history in B.C. mining lexicon incorporates joint success and failure. Northgate Minerals ran a highly-profitable mine at the Kemess South (KS) open pit between 1998 and 2011, which produced around 3 million oz. gold and 750 million lbs. copper.
When Northgate attempted to permit an extension at the Kemess North deposit in 2007, however, it was rejected after a federal review panel cited concerns over “significant adverse environmental, social and cultural effects.”
The main issues reportedly involved consultation with First Nations and plans to dispose of tailings and waste rock in nearby Duncan Lake.
AuRico Metals President and CEO, Chris Richter. Credit: AuRico Metals
AuRico Metals President and CEO, Chris Richter. Credit: AuRico Metals
“In many ways, I think there was a failure in building relationships,” Richter elaborates during a presentation at the Kemess site. “That was obviously a different time in the industry, and we recognized potential here that could be unlocked if approached the right way. So we’ve collaborated on a mine plan that’s really been supported by government and stakeholders.”
AuRico re-imagined the project as an exclusively underground operation leveraging panel-cave mining and existing infrastructure, which includes a 300-person camp footprint and 52,000-tonnes-per-day plant facility. The site is connected to the BC Hydro grid via 380-km power lines running to the town of Mackenzie, B.C.
Panel caving differs from block caving in that it does not require “all footprint development to be completed ahead of cave initiation.”
The company filed a feasibility study (FS) on the Kemess Underground (KUG) calc-alkaline porphyry deposit in mid-July.
The production schedule targets proven and probable reserves of 107 million tonnes at a head grade of 0.27% copper, 0.54 gram gold per tonne and 1.99 gram silver per tonne, which equate to roughly 630 million lbs. contained copper, 1.9 million oz. contained gold, and 6.9 million oz. contained silver. The project’s measured and indicated resources total 246 million tonnes at 0.22% copper, 0.42 gram gold and 1.75 grams silver.
AuRico intends to deposit waste rock and tailings in the old KS pit.
“The project obviously had some issues with waste management in the past,” says COO John Fitzgerald, who served as director of mining at Northgate, while standing under the vaulted ceilings of Kemess’ mechanical bay.
“We’ve designed a mine plan that’s backed by First Nation communities, and the government has also given us a green light,” he continues.
AuRico received approval from the Canadian Environmental Assessment Agency (CEAA) and British Columbia Environmental Assessment Office (EAO) in mid-March. Furthermore, the Tsay Keh Dene, Kwadacha, and Takla Lake First Nations provided letters of support for the project. The company expects to have permits in hand by the second quarter of 2018.
“We were obviously very happy to have our environmental approval in place before a change in government because it’s never a sure thing,” Richter comments when asked about B.C.’s recently-elected New Democratic Party (NDP) government.
“But we regularly speak with the regulators and our First Nation partners, and the message we’re getting is that the new government remains friendly in terms of Kemess, and mining generally,” he continues.
AuRico figures it will need around $524 million in pre-production expenditures to restart the mine. The cave operation is expected to produce 106,000 oz. gold and 47 million lbs. copper annually over a 12-year mine life.
Underground infrastructure additions include four single-toggle jaw crushers, while ore would be transferred to an overland conveyor for delivery to the existing process plant. The operation is expected to average steady-state production of 25,000 tonnes per day.
In addition, Fitzgerald explains, during a tour through the dimly-lit Kemess mill facility, that “minor mineralogical differences” in underground ores will require a finer grind. AuRico has assumed metallurgical recoveries of 91% copper, 72% gold and 65% silver.
The KUG deposit is visible during a picturesque helicopter flight 6.5 km due north of the camp.
The ore body lies in a range between 200 metres and 550 metres below surface, beneath two north-facing alpine cirques marked by rust-coloured slopes. Fitzgerald points out the planned position of triple declines, and explains that material would travel over a 4.9-km surface conveyor to the forest-green process plant in the distance.
AuRico’s base case for KUG assumes long-term metal prices of US$1,250 per oz. gold and US$2.50 per lb. copper. The current study features a 12.6% after-tax internal rate of return (IRR) and a $289-million net present value at a 5% discount rate. The company estimates co-product all-in sustaining costs (AISC) over first five years of US$682 per oz. gold and US$1.36 per lb. copper.
“It’s clearly pretty rugged topography, to say the least, but we’ve really worked that into the way we’ve designed the declines and access for the underground. Plus we have a much lower ratio of waste to ore than a lot of underground operations,” Fitzgerald comments.
“That’s allowed us to design a tailing management plan that takes advantage of what we have on site. It’s really one of the benefits of panel-cave mining. I guess our challenge now revolves around how we can expand this project and incorporate future growth,” he adds.
AuRico is currently contemplating ways to include the nearby Kemess East (KE) deposit into its underground design. The expansion opportunity is underpinned by measured and indicated resources of 113 million tonnes grading 0.38% copper, 0.46 gram gold and 19.4 grams silver. The resource lies between 800 metres and 1,140 metres below surface.
The company unveiled a stand-alone preliminary economic assessment (PEA) on KE in May, and intends to release a combined prefeasibility study (PFS) on both underground deposits next year to assess “integrated development.”
The PEA assumes the KUG project is advanced ahead, however, and therefore leverages pre-existing components, including an access corridor connecting KUG to the process plant and water treatment plants.
AuRico estimates that KE would require $327 million in additional pre-production capital and a five-year construction period. Richter points out that the technical team has not assessed potential “economies of scale” or mine sequencing that could involve production overlap between the two deposits.
The stand-alone KE mine plan has a 16.7% after-tax IRR and $670 million NPV at a 5% discount rate. The expansion would crank out 80,000 oz. gold and 57 million lbs. copper annually, and extend Kemess’ life by 12 years. AuRico estimates co-product AISC of US$744 per oz. gold and US$1.79 per lb. copper.
“We’re very comfortable with our off-take discussions and financing the project,” Richter says during the flight back to Prince George. “We’ve met with a number of parties in Asia and Europe, and we’re pretty confident that a good portion of the project capital will be available without a hedging requirement, or much else outside of an off-take arrangement. There’s obviously excess smelter capacity, and that gives us the confidence.”
AuRico also holds a royalty portfolio that it expects will generate between US$10.5 million and US$11 million in revenue this year.
Richter adds that the company could monetize the royalties and has had “numerous inbound calls” on the opportunity, which includes a 1.5% net smelter returns (NSR) royalty on Alamos Gold‘s (TSX: AGI; NYSE: AGI) Young-Davidson gold mine in Ontario, and a 2% NSR interest in Kirkland Lake Gold‘s (TSX: KLG) Fosterville gold mine in Australia.
AuRico has moved within a 52-week trading range of 82¢ and $1.43, and closed at $1.21 per share at the time of writing. The company maintains 162 million shares outstanding for a $196 million press-time market capitalization, and reported a $21 million cash balance at the end of June.
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