North of 60 Mining News - The mining newspaper for Alaska and Canada's North

The open pit Minto mine in the Yukon produced its first copper-gold concentrates in late May as part of the equipment commissioning process. Production is forecast to ramp up to full capacity during the third quarter of 2007, Vancouver-based Sherwood Copper announced May 31.

"This is an exciting day for Sherwood and everyone involved in the rapid transformation of the company to producer status," said Sherwood's president and CEO, Stephen Quin. "In less than two years we acquired the partially constructed but dormant Minto project, re-drilled the resources to reserve standards, completed a bankable feasibility study, arranged project financing, built a brand new mine and staffed it for production."

At almost the same time as the concentrates were produced, Sherwood received another dose of good news from the Yukon Utilities Board, which approved an amended power purchase agreement which could enable Minto to have access to grid power by the end of 2008, replacing diesel and significantly reducing mine operating costs.

Yukon stepped in on power purchase agreement

The Yukon government earlier stepped in to help rewrite the power purchase agreement after the Yukon Utilities Board expressed some doubts about it. Minto Explorations, a subsidiary of Sherwood, signed the agreement with Yukon Energy Corp., but the Yukon Utilities Board raised a number of unexpected concerns.

"Sherwood is appreciative of Yukon Government's progressive approach to the power purchase agreement," Stephen Quin said May 15. "The result of the amendment to the PPA is that Sherwood obtains the certainty with respect to capital and operating costs that it needs, allowing its shareholders to benefit from reduced energy costs at an acceptable level of risk, while Yukon stakeholders gain significant benefits from incremental energy sales, infrastructure development and taxes, while at the same time reducing the generation of greenhouse gases in the Yukon."

One of the issues raised by the Yukon Utilities Board about the power plan was that Minto Explorations' proposed $7.2 million contribution to the construction of a 138 kilovolt transmission line extension and $3.8 million payment for the construction of a transmission spur line to the mine site should not be fixed amounts, but instead should be based on a percentage of the project costs. "The board is concerned about the level of risk associated with this financing," it said in its decision.

The board also questioned Yukon Energy's plan to purchase Minto's four 1.6 megawatt diesel generators for $2.24 million. "YEC has not demonstrated a need for the units nor provided an adequate business case supporting this option," the board said. This is particularly true in light of the Yukon government's decision to provide funding for the Aishihik hydroelectric power station's third turbine, a 7 megawatt generator that could be in service by 2009, the board noted.

Key modifications to the original PPA are a fixed rate to the end of 2012 of 10 cents per kilowatt hour, a rate that would escalate on an annual basis in accordance with an inflation measure; and a guarantee by the Yukon Development Corp. of the financing risks related to the Minto capital contribution payments, including responsibility for any risk that the amount of Minto's contribution for the main line may increase beyond $7.2 million.

Phase 2 mill expansion to be accelerated

In other developments at Minto, Sherwood announced April 11 that it would accelerate the Phase 2 mill expansion using funds from a recently completed convertible debenture financing. "We will be able to maintain our current construction momentum by rolling straight from Phase 1 mine construction into Phase 2 mill expansion utilizing our existing contractors," Quin said.

Minto's feasibility study assumed that the Phase 2 mill expansion from 1,563 metric tons per day to 2,400 tons per day would take place during the first year of operations and would be funded from cash flow, once available. Sherwood now aims to complete the Phase 2 expansion by the end of 2007, six to nine months ahead of previous forecasts. The layout and design of the mill expansion will be adjusted to allow for future increases, beyond 2,400 tons per day.

The construction managers at Minto are JDS Energy & Mining; engineering and procurement for the mine is being done by Hatch Ltd.; and construction by Clark Builders. All major equipment has already been installed and the remaining work principally consists of piping, electrical and instrumentation tie-ins. High grade copper-gold ore is a few meters from being exposed, with pre-stripping more than 85 percent complete.

On April 24 Sherwood announced that the Yukon government's Department of Economic Development had awarded Minto Explorations up to $200,000 in funding to support the advancement of the Area 2 discovery towards a production decision. "The discovery of the adjacent Area 2 deposit provides an opportunity to extend the mine life and/or increase production to the benefit of all stakeholders in the project," Quin said. "I am appreciative of the proactive and supportive role of Yukon government in assisting in the development of the mining industry in Yukon," he added.