A preliminary economic assessment (PEA) of Queenston Mining’s (QMI-T) flagship Upper Beaver project in northern Ontario envisions producing 120,000 oz. gold and 5.3 million lbs. copper a year at attractive cash costs using low-cost, bulk-underground mining methods.
The company is advancing its fully owned project in Kirkland Lake to the feasibility stage and plans to sink an exploration shaft to access the deposit and collect bulk samples confirming the deposit’s continuity and mineability, Queenston says.
The PEA is based on a resource estimate from May 2011 that puts indicated resources at 3.1 million tonnes grading 6.98 grams gold per tonne for 690,000 contained oz. gold and 0.54% copper for 36.6 million lbs. copper, and 3.1 million tonnes grading 6.19 grams gold for 616,000 contained oz. gold and 0.42% copper, for 28 million inferred lbs. copper. The resource was calculated using a 2.5-gram gold per tonne cut-off grade and a 2-metre minimum width.
The resource estimate used in the PEA does not include drill results from 2011, when Queenston drilled an additional 84 drill and wedge holes totalling 41,000 metres. An updated resource estimate is anticipated for the third-quarter, which will include drill results from 2011 and the early 2012.
At a base case of US$1,275 per oz. gold and a copper price of US$3 per lb., the PEA outlines an underground operation with a 10-year lifespan processing 2,000 tonnes per day.
The study estimates that metal production over the life-of-mine will reach 1.1 million oz. gold and 50.5 million lbs. copper at average cash costs of US$386 per oz. gold net of copper credits.
At a 5% discount rate, the project’s pre-tax net present value (NPV) is estimated at $345 million, with a 26.5% internal rate of return (IRR) and payback in 2.5 years. After-tax NPV at the same discount rate would fall to $233 million and the IRR to 22.1%.
Using new metal prices of US$1,700 per oz. gold and US$3.80 per lb. copper, the pre-tax NPV rises to $688 million and the IRR to 41.6%, with payback in 1.5 years. After-tax NPV at the same prices would stand at $475 million and the IRR at 35%.
The study puts pre-production capital costs, including a 15% contingency, at $240 million, with average operating costs, including a 20% contingency, at $73 per tonne.
The deposit remains open at depth and along strike, with the company reporting new discoveries in the hanging wall towards surface that Queenston believes have potential to improve the project’s economics by cutting initial capital requirements, increasing the resource size and trimming the payback period.
For this year’s drilling Queenston has increased the number of rigs on its property from four to six.
The company says the primary mining method at Upper Beaver would be conventional long-hole with paste backfill and 35-metre sub-level intervals. The orebody’s average thickness is 6 metres.
Ore extraction and processing would start in the third year after project development, with commercial production during the fourth year.
Net positive cash flow of $76 million is projected during the fourth year.
Underground access would be through a fresh air shaft nearly 7 metres in diameter, concrete-lined and 1.3 km deep. The shaft would have a 3,000-tonne per day hoisting capacity at a 1.8-km depth, using a two-hoist configuration.
Gold and copper is expected to be processed in a 2,000-tonne-per-day expandable mill and paste backfill plant using conventional crushing, grinding, flotation and carbon-in-leach methods.
The flow sheet does not include a gravity circuit because more testing is required to determine if it is warranted. The design considerations will look at this mill as a future central milling facility for all of Queenston’s projects within the Kirkland Lake gold camp. Queenston has five other gold deposits, all of which have compliant resources, and the company believes they can provide additional feed for a central milling facility.
Metallurgical testing by SGS Lakefield Research has yielded 98% gold recoveries and 90% copper recoveries using simple flotation and cyanide.
About 80% of the gold would be recovered through flotation with the balance being recovered from carbon-in-leach. The gold-rich copper concentrate would be shipped to an off-site smelter.
The project’s power will be supplied by extending a 115-kilovolt line 2 km to a substation, then through a new 7-km-long, 44-kilovolt transmission and communications line to the Upper Beaver mine and mill complex.
The PEA estimates that power consumption for the mine and mill will be 30 to 36 megawatts.
Roughly 35% to 55% of the tailings will be converted to paste backfill and deposited underground.
Environmental baseline studies are underway, and testing suggests that the mill tailings will not generate acid, which means they can be impounded at the same place as historic tailings from the mines that previously operated on the Queenston property.
Gold was first found on the property in 1912. In 1919 Argonaut Gold Mines built a small mill with limited production until 1928.
Between 1935 and 1964 a number of companies conducted exploration on the property with no reported production. In 1964, Upper Canada Gold Mines acquired the ground and resumed production, mining to 365-metre depths until the mine closed in 1971.
Queenston purchased the Kirkland Lake assets held by Upper Canada Resources in 1977. From 2005 to 2010, Queenston completed 201 drill holes outlining multiple gold-copper zones below and adjacent to the Upper Beaver mine.
The majority of mineral resources occur in a series of breccia zones that dip steeply northwards below the old mine workings. These zones contain chalcopyrite, magnetite, pyrite and visible gold within a mineralized corridor that extends over a 500-metre horizontal length and a 1,300-metre dip length. The most prominent are the porphyry zones that contain 80% of the resource.
Queenston has $75 million in cash and short-term investments with no debt. Its exploration budget for 2012 is $25 million.
At presstime the company traded at $4.87 per share within a 52-week range of $4.12–$8.07 per share. It has nearly 83 million shares outstanding.
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