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

As the scope and tenor of a long-predicted shortfall in zinc supply begins to take shape, proponents of advanced mine projects in northern Canada with substantial deposits of zinc, along with lead, copper and/or other metals, are busy refining development strategies aimed at achieving production by the end of the decade.

Near the front of the line are Tamerlane Ventures Inc., which is advancing the Pine Point Project in Northwest Territories, and Selwyn-Chihong Mining Ltd., which is working to develop the giant Selwyn Project in Yukon Territory.

Next up is China Minmetals subsidiary MMG, which recently outlined a plan to develop in tandem its Izok Lake and High Lake projects in northeastern Nunavut with significant infrastructure similar in design to the DeLong Mountain Transportation System that serves Teck Resources Ltd.'s Red Dog Mine in Northwest Alaska.

Lastly, Xstrata Zinc Canada is working to advance the Hackett River Project, which it recently purchased for C$53 million from Sabina Gold & Silver Corp. The project also is located in northeastern Nunavut.

However, just as some projects are making headway in the choppy seas of market uncertainty, others are at best treading water and at worse threatening to sink.

Overland suspends permitting

Overland Resources Ltd. is one such company. The Australia-based junior suspended permitting June 13 for the Yukon Base Metal Project, citing results of a recent economic study and current uncertainty in the global equity and financial markets.

"The company remains confident that the outlook for long-term metal prices, particularly zinc, are positive and that they will increase over the next three to five years as demand increases following the recovery in global economies and with the anticipated closure of several zinc mines, thereby reducing supply," Overland said in a statement.

"Importantly there are no expenditure obligations for the company to maintain the claims that host the Andrew and Darcy deposits in good standing until at least 2026. Hence the company can monitor the global economic situation without risk of losing an extremely valuable asset," Overland added.

Overland controls a 300-square-kilometer (116 square miles) combined land package in Yukon Territory that includes the Selous (90 percent), Junction (100 percent) and Riddell (100 percent) projects, which together comprise the Yukon Base Metal Project.

Following evaluation of the viability of developing open pit and/or underground mining operations at the project, the company said it was determined that the best investment returns can be provided by developing separate open pits at the Andrew and Darcy zinc deposits. A total of 8 million metric tons of ore at an average grade of 5 percent zinc and 1.5 percent lead would be recovered over a seven-year mine life. The average waste to ore strip ratio for these open pits would be 12.5:1 (Andrew deposit - 14.9:1; Darcy deposit - 5:1).

The mine site development would entail establishment of a 1 million metric ton per annum SAG and ball mill crushing, grinding and flotation circuit to produce separate zinc and lead concentrates. The estimated capital cost to develop such an operation is US$227 million with a further 20 percent contingency allowance of C$45 million and an estimated pre-strip cost of C$20 million.

The mining operation would be expected to produce, annually, about 95,000 wet metric tons of zinc concentrate grading 58 percent zinc and 28,000 wet metric tons of lead concentrate grading 62 percent lead for the life-of-mine. Concentrates would be transported by truck to the Port of Skagway in Alaska where they would be loaded onto bulk carriers and shipped to the customer's selected discharge port.

Estimated operating costs to deliver the concentrate to the ore loading terminal at Skagway would equate to US70 cents per pound of payable metal (zinc or lead). These operating costs include all mining and processing costs and transport charges to the port. Costs are exclusive of stevedoring, shipping, treatment and refining costs, taxes, permitting costs, government or community fees and charges.

Overland said the results of this economic evaluation indicate a sustained long-term improvement in both zinc and lead metal prices will be required to provide a suitable return to the company and its shareholders from a mine development.

Tamerlane's project has advantages

In reporting June 5 that it has initiated coverage of Tamerlane Ventures, Hallgarten & Company LLC of New York described the company Pine Point project in Northwest Territories as one of the few potentially long-life zinc-lead properties currently on the drawing board.

"Zinc mining plays are rarer than one might imagine," wrote analyst Christopher Ecclestone. "Very few independents have made it to production in recent times, and those that have tended to have been devoured rather quickly by majors. This is a sign to us that rather than the sector being blighted, it is one in which the cognoscenti (mining majors, refiners/smelters and trading houses) are positioning themselves while the general investing public and institutions remain rather blithely unaware of the space's attractions."

While the bulk of the mining sector has rebounded in recent years, zinc has only ever been able to get back to US$1.20 per pound (half its highs of last decade) and still meanders in the nether regions below $1 per pound. Despite this, the prospect for zinc to be the top-performing major metal over the next few years (with a 24-month target of at least $1.50 per pound) is very strong with a perfect storm of long under-investment in the space likely to coincide with re-activated demand and falling production from fading mega mines, Ecclestone said.

"In our hunt for 'fresh meat' in the zinc and lead space, a lot of effort is expended for the discovery of precious few candidates for investment. In itself this is a sign that there is a much more severe supply shortage coming down the pike in these two metals than in copper, where there is no dearth of junior and mid-tier names," he added.

Ecclestone said Tamerlane's Pine Point property includes 72 of the 97 resource areas in the historic Pine Point district, including 42 of the 45 known resource areas in the district which have not been mined.

The Pine Point properties are located about 800 kilometers north of Edmonton, south of Great Slave Lake, in the Mackenzie Mining Division of Northwest Territories.

The properties lie north of Territorial Highway 5 connecting Hay River and Pine Point town site, and extend intermittently from 25-80 kilometers (16-50 miles) east of Hay River.

Pine Point consists of 40 mining claims, owned 100 percent by Tamerlane covering 43,340 acres (17,540 hectares).

The claims cover the geological feature known as the Great Slave Reef (or the Pine Point Barrier Reef).

Tamerlane is focused on two deposits at Pine Point, the R190, which is a delineated deposit with NI 43-101-compliant proven and probable reserves of 1 million metric tons grading 10.98 percent zinc and 5.28 percent lead and 1.6 million metric tons of measured and indicated resources grading 2.72 percent zinc and 1.37 percent lead and 0.3 million metric tons of inferred resources grading 2.86 percent zinc and 1.08 percent lead. The R190 deposit lies within the main trend of the Pine Point mineralized trends.

"It is important to note that while the company is focused on first production from the R-190 deposit this is actually seen as a stepping stone to bring other neighboring deposits into production," said Ecclestone. "In (Tamerlane's) opinion around six million metric tons of resources from five different deposits are accessible after mining of the initial deposit is completed."

He said a revised feasibility study in April produced a major difference in the capital requirements of the Pine Point Project from the feasibility study of 2008. This change included that five satellite deposits would each be accessed by separate surface declines, sized for underground truck haulage, as opposed to having one production shaft at the R-190 deposit and extensive connecting underground development and infrastructure to the five satellite deposits.

Tamerlane is also pursuing development of the N204 deposit as a shallow open pit mine. N204 has a diluted probable reserve of 12.6 million metric tons grading 2.6 percent zinc and 0.7 percent lead and a diluted in-pit inferred resource of 1.5 million metric tons grading 2.3 percent zinc and 0.6 percent lead.

The company's latest feasibility study posits that the price of zinc can fall as low as US49 cents per pound before Pine Point would become unprofitable, according to Ecclestone.

Selwyn eyes smaller mine, other options

Selwyn Resources Ltd. May 28 told its investors that Selwyn Chihong Mining Ltd., the joint venture company formed by Selwyn and Chihong Canada Mining Ltd. in August 2010 to advance the giant Selwyn Project located in eastern Yukon Territory to production, is evaluating a 3,500-metric-ton-per-day development concept focused on underground mining of the higher grade sections in the XY Central and Don deposits. The development plan under consideration uses selective mining methods, and has relied on detailed mine development and costing information from feasibility-level work completed to date.

This recent analysis suggests that a smaller mine has a good probability of providing a satisfactory economic return.

The JV is expected to present a detailed implementation plan and budget for the preparation of an updated economic evaluation of this new development plan to its management committee later this quarter. Until the economic evaluation has been completed, and reviewed by external experts, anticipated economic results derived from the new development concept should be considered speculative and should not be relied upon.

A 2007 preliminary economic assessment for the Selwyn Project had considered an open-pit plan of mining 20,000 metric tons daily. Since the initial PEA was prepared, there have been significant movement in exchange rate, metal prices and capital and operating cost assumptions that would make the development plan described in the PEA no longer viable, and investors should not rely on the findings of that economic evaluation, Selwyn said.

Tetra Tech Wardrop (Tetra Tech) was engaged by the JV in January 2010 to complete a feasibility study for the Selwyn Project to NI 43-101 standards. The mining plan in the feasibility study focused on the development of the Selwyn Project as an 8,000-metric-ton-per-day underground mine operation, initially focused on the XY Central and Don deposits. In current market conditions and with the technical and engineering data consolidated to date, the JV has reported to Selwyn and Chihong that an 8,000-metric-ton-per-day development concept will not provide an economic return.

In March, Selwyn said it hired advisors Cutfield Freeman & Co. Ltd. to assist the company in evaluating its financing and strategic options in relation to the Selwyn Project and its ScoZinc Mine in Nova Scotia. Cutfield Freeman was to consider all financing alternatives including debt, equity and other financial instruments, as well as concentrate on off-take finance, partnership arrangements, corporate restructuring and sale alternatives for Selwyn and its mineral projects. Among others things, the advisors intended to enter into discussions with industrial groups that may have an interest in purchasing Selwyn.

MMG pursues infrastructure of Izok, High Lake

A subsidiary of Chinese-controlled Mineral and Metals Group has embarked on an ambitious plan to develop its Izok Lake zinc-copper deposit located in western Nunavut about 350 miles southeast of a proposed port on Coronation Gulf and another, smaller mine at its High Lake zinc-copper deposit, which lies about 50 kilometers south of the Grays Bay port site.

MMG aims to build two mines: an open pit operation at Izok Lake, and another mine at High Lake.

Charlotte Mougeot, MMG's environmental approvals manager, told a Nunavut audience in April that the key element, and the most expensive one, of her company's plan is to construct a 350-kilometer all-weather road and port.

This road will head east until it hits the company's Gondor property, then turn north just past the Lupin mine, through the mothballed Jericho mine and through the High Lake property. From High Lake, the road will continue on to Grays Bay on Coronation Gulf, which lies east of Kugluktuk, Nunavut and just west of Bathurst Inlet.

MMG's road-port project will be similar to the one used at Teck's Red Dog mine near Kotzebue, Alaska, Mougeot said. Big trucks will haul zinc concentrate from the Izok milling plant to Grays Bay, where it will be stored until the summer shipping season. On their return trip, the trucks will pick up crushed ore from High Lake and backhaul it to Izok for milling.

At Grays Bay, MMG intends to build a port that for three months of the year will ship ore in two directions through both ends of the Northwest Passage.

Five shipments would head eastwards and, on their return voyage, head west toward the Pacific, Mougeot said.

MMG's board must still approve a feasibility study that won't be completed until early 2013.

"It's basically a big infrastructure project that happens to have two mines along the way," Mougeot said April 19 while addressing participants in the Nunavut Mining Symposium in Iqaluit.

With global demand for zinc and copper on the rise, MMG believes development of the Nunavut projects will be timely.

"If you've been following some of the predictions for the use of zinc and copper, it's being driven by development in China and India and the growth of middle-class construction projects," Mougeot said.

One existing producer, the Century mine in Australia, which MMG acquired from Oz Minerals Ltd., is expected to close around 2016, while Xstrata's Brunswick mine in Canada will likely shut down in 2013.

So MMG hopes that its Izok corridor project and another property, the Dugal mine in Australia, will replace that lost production.

Xstrata chases port plan for Hackett River

Meanwhile, Xstrata and Sabina are working to revive the Bathurst Road and Port project, which would provide access to Xstrata's planned silver-zinc mine at Hackett River and Sabina's Back River gold mine, which has up to a 6-million-ounce gold resource.

The vast and unexplored Hackett River silver-zinc property is located in the West Kitikmeot region of Nunavut, about 480 kilometers (298 miles) northeast of Yellowknife. It covers 10,637 hectares (26,285 acres) of mineral leases. In a 2009 preliminary economic assessment, the Hackett River deposit was estimated to contain total inferred and open pit resources of nearly 16 million metric tons averaging 3.53 percent zinc, 110.6 grams per metric ton silver, 0.24 percent copper, 0.46 percent lead and 0.25 g/t gold.

The advanced exploration stage project currently is estimated to contain a resource of 60 million metric tons diluted, with drilling in 2012-13 aimed at increasing the resource to allow a future mine production rate of up to 15,000 metric tons per day and more, if possible over an expected mine life of more than 15 years. Zinc, copper and lead concentrate will be produced, and to sustain the expected production rate, three to four deposits would be in production at all times.

Sabina reported March 30 that it bought the BIPR project from the Kitikmeot Corp. and other Inuit promoters in late 2011, and is now looking, along with Xstrata, at building a deepwater port in Bathurst Inlet (about 70 kilometers (43 miles) to the north of Sabina's Back River project) and an all-weather road connecting the port to existing ice roads which service the Ekati and Diavik mines from Yellowknife.

The port facility, located 35 kilometers (22 miles) to the south of the community of Bathurst Inlet, would include the construction of a dock, 18 large fuel storage tanks, the 211-kilometer (130 miles) road to Contwoyto Lake, a 1,200-meter airstrip and two camps for about 200 workers.

"The main change we envision to the revised BIPR project will be the schedule relating to staging for construction," the companies told the Nunavut Impact Review Board in a March 30 letter. "All the port facilities as well as the first 85 kilometers (53 miles) of all-weather road will be built in the first phase of the project. However, the western portion of the road and the camp as Contwoyto Lake will be built during the second phase once users have been confirmed, the companies added.

The project's cost was estimated at $270 million several years ago.

"Although not critical to the development of Back River, (BIPR) presents opportunities for synergies and potential economic benefits to Sabina," wrote Sabina and Xstrata.

Now Sabina and Xstrata have agreed "to work together to push the project forward and will look to engage local communities and businesses and explore opportunities for direct Inuit participation in BIPR." the companies added.