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

The Kensington gold mine in Southeast Alaska is set to produce more gold at lower costs in the coming years, according to a new plan published by owner Coeur Mining Inc.

"Our recent success identifying high-grade mineralization near existing Kensington infrastructure has added higher-margin production to our mine plan and significantly improved the expected economics of the mine," Coeur Mining President and CEO Mitchell Krebs explained.

The highest grade portion of this newly found gold is located in the area of the historic Jualin Mine, which is situated about 8,250 feet from current mining in the Kensington Mine area. Since late 2013, Coeur has outlined a deposit at Jualin with gold grades that are more than triple the ore currently reporting to reserves.

Coeur hopes to begin recovering this higher grade gold by 2017. In the meantime, the new mine plan relies on Raven, another deposit with grades that exceed what has been mined at Kensington so far.

This higher margin plan for Kensington is one component of the restructuring of not only the Southeast Alaska mine, but the entire company in recent years.

"Kensington's new mine plan is expected to be a key component of the company's overall strategic repositioning that is expected to increase overall production levels by approximately 30 percent, reduce overall unit costs by approximately 25 percent, and boost the company's free cash flow to US$190 million-US$200 million in 2017."

Two mines

The Kensington property, situated some 45 miles (72 kilometers) north of Juneau, hosts two historical mines that date back to the dawn of the 20th Century - Jualin and Kensington.

Jualin operated for roughly 30 years beginning in 1896 and Kensington produced gold for about four decades, starting in 1897. Together, these bygone mines produced some 40,500 ounces of gold from 75,200 short tons of ore, or about 0.54 ounces per ton.

At the end of 2014, the main Kensington deposit had 3.24 million tons of proven and probable reserves averaging 0.181 ounces per short ton (584,000 ozs) gold, or about one-third the grades historically mined.

Recent exploration, however, has discovered a deposit on the Jualin side of the property that bests the historic average and is set to change the production profile of the contemporary Kensington Mine.

Since discovered late in 2013, the Vein 4 area at Jualin has been a primary focus of surface drilling completed at Kensington.

At the end of 2014, Jualin had 289,000 tons of inferred resource averaging 0.619 oz/t (179,000 oz) gold. Not yet elevated to reserve status, only about 1.3 million tons of this inferred resource is included in the new mine plan for Kensington.

The higher grade Jualin resources that are currently anticipated to be mined is expected to boost Kensington's gold production to 149,000 oz in 2018, followed by 137,000 oz in 2019 and 123,000 oz in 2020.

Though the Kensington and Jualin areas are about 1.6 miles apart, the mill sits between these historic mines. The portal and deposit currently being outlined at Jualin is actually closer to the mill than the reserves being mined on the Kensington side.

Development of a decline to Jualin is planned to begin in July.

If all goes according to the mine plan, mining will begin a Jualin in mid-2017 at a mining rate of about 250 tons per day, and increase to 500 tons per day in early 2018, accounting for about 27 percent of the average daily mill feed.

"Importantly, the required capital to place Jualin into production is estimated to be US$30 million and has an expected rate of return of around 70 percent," Krebs pointed out.

Raven steps up

Until Jualin begins providing feedstock to the mill in 2017, higher grade ore from the Raven deposit on the Kensington side of the property is bolstering grades at Kensington.

The neighboring Raven deposit has another 179,000 tons of reserves averaging 0.257 oz/ton (46,000 ounces) gold.

According to the new mine plan, ore feeding the mill at Kensington is expected to average roughly 0.2 oz/t gold over the next three years. This ore will primarily be mined from reserves in the main Kensington deposit, supplemented by higher grade reserves sourced from Raven.

This combination of Kensington Main and Raven ore resulted in the production of 33,909 oz of gold during the first quarter of 2015, a 33 percent increase over the 25,428 oz recovered during the same period last year.

This substantial rise in production is due to mill feed that averaged 0.24 oz per ton, up roughly 41 percent from 0.17 oz/t for the first three months of 2014.

According to the new mine plan, this year's gold production is expected to be about 118,000 oz, or roughly the same as in 2014, dipping to 115,000 oz next year and climbing to a record 125,000 oz in 2017.

The costs per ounce of gold produced over these first three years of the new mine plan is forecast to be roughly US$885 per oz., about a 7 percent improvement over the US$951 per oz in 2014.

Coeur anticipates investing roughly US$16 million per year on underground development through 2018 when production from the newly discovered high-grade gold deposits is expected to be fully ramped up.

The company also plans substantial drilling aimed at upgrading inferred resources to the higher confidence measured and indicated categories, which can in turn be converted to reserves. To accomplish this, the company plans to invest roughly US$9.1 million into 44,000 feet of underground drilling over the next two years.

Future upside

If recent drilling is any indication, Jualin and the other zones at Kensington will likely continue to deliver high-grade gold to the mill at Kensington beyond the new mine plan.

"Incorporating a portion of expected production from Kensington's high-grade zones and the Jualin ore-body has quadrupled our expected net cash flow at Kensington through 2022, and we believe considerable upside exists based on recent drill results," said Krebs. "Through continued drilling, our goal is to expand these sources of high-grade resources and extend the 2018 profile."

The inferred resource at Jualin is found in an area known as Vein 4. A number of recent holes drilled from the surface have intersected this vein over an area that extends roughly 1,000 feet away from the current deposit, pointing to the potential to expand the high-grade gold found there. Highlights from these holes drilled beyond the inferred resource include: 4.3 feet of 2.69 oz/t gold and 2.6 feet of 1.83 oz/t in hole JU14-X045; 1.3 feet of 1.33 oz/t gold in hole JU15-X002; and 4.4 feet of 0.56 oz/t gold in JU15-X006.

Beyond expanding Vein 4, Coeur said "planned drilling in Veins 1, 2, 3, and 5 at Jualin suggest considerable upside exists to increase the size of the overall Jualin zone and bring additional high-margin production into the mine plan as drilling continues."

Drilling on the Kensington side of the mine also is finding additional relatively high-grade gold.

Highlights from recent exploration drilling at Raven include: 5.4 feet of 0.71 oz/t gold in R14-1042-261-X03; 2.8 feet of 1.85 oz/t gold in R14-1042-261-X04; and 4.2 feet of 1.14 oz/t gold in R14-1042-261-X05.

Highlights from recent exploration drilling at Zone 10 area of Kensington Main include: 1.8 feet of 1.03 oz/t gold, 2.2 feet of 0.94 oz/t gold and 2.2 feet of 1.26 oz/t gold in hole K14-0520-095-X07; and 2.2 feet of 4.3 oz/t gold in hole K14-1170-110-X08.

With Coeur focused on supplementing the reserves at Kensington with the newly found high-grade inferred resources at Jualin and Raven, the new mine plan does not include the measured and indicated resources already identified in the Kensington Main and Raven deposits.

The company said these 1.6 million tons of resources averaging 0.24 oz/t (382,000 oz) gold could add future upside to Kensington with added drilling or higher gold prices.

Author Bio

Shane Lasley, Publisher

Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.

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