10,000 tons per day Colomac nears production

Northgate Exploration (TSE) affiliate ABM Gold (AMEX) appears to be winning a battle with the elements as it puts the finishing touches to its ambitious Colomac gold project, 137 miles north of here. Despite temperatures that have dipped this winter to a frigid -60 degrees C, work crews have almost completed the new 10,000-tons-per-day carbon-in-pulp milling facility and the first ore is scheduled to be running through the system by mid- March.

As The Northern Miner noted during a recent site visit, an open pit mine that will rank as Canada’s largest gold producer, in terms of tons treated per day, should be operating at its 200,000-oz.-a-year capacity in September.

Barring any last-minute hitches, ABM executive Vice-President Ken Hill expects to bring the project into production on budget just two years after former owner Neptune Resources announced that it was planning to build a mine.

As Colomac is in one of Canada’s most remote and inhospitable regions and 100 miles from the nearest infrastructure, the brief period between production decision and scheduled plant completion is a remarkable achievement.

Even the financial problems experienced by Margaret Witte, Neptune’s former president, and the subsequent amalgamation of Neptune with Northgate’s 50% owned affiliate ABM Gold, appear not to have hampered the overall construction process.

When a Northern Miner reporter was driven from the project’s 5,000-ft. airstrip to Colomac’s mobile offices, the site resembled a winter wonderland as work entered the critical tune-up phase. With about 182 employees on site, Colomac is very much a Northgate- controlled operation. Northgate moved in to take control after Witte failed narrowly to secure an $18- million loan guarantee from the federal government.

Former Neptune vice-president Ross Burns and project engineer Bill Witte have since been succeeded by a team led by John Rogers, ABM’s vice-president of operations, and new general manager Jim Johnstone. Responsibility for administering site services, including air transportation, has also shifted from contractor PCL Industrial Constructors to ABM.

“I’m very pleased with the progress we have made so far,” said Hill after a routine meeting with representatives of PCL and the Colomac management team. “There have been no surprises and we should be able to bring the project in on time and on budget,” he said.

While analysts and industry watchers are extremely skeptical about Colomac’s ability to operate profitably, representatives of ABM’s key lenders are also happy with the way the project is shaping up.

“They (construction contractor PCL Northern) have done a really bang-up job,” remarked Harry Burgess, vice-president of Toronto- based Micon International. It is acting as consultant to Bank of America Canada, Banque de la Societe Financiere Europeene (BSDE) and National Australia Bank Ltd., which together have lent $90 million to the project. “All we need is for ABM to start mining gold out of there and at the right grade,” said Burgess.

Much of the skepticism surrounding the project centres on the relatively low grade of the Colomac ore and the cost of fuelling such a remote operation. As proven and probable reserves now stand at 28.1 million tons grading 0.056 oz. gold per ton, ABM needs a gold price of US$365 per oz. during a projected 8-year life span to break even. In order to pay back the $156-million capital costs by 1995, gold must trade at a minimum of US$410 per oz., according to Hill.

As the plant’s six 2.8-megawatt diesel generators will churn out more electricity than it takes to power the city of Yellowknife (population 17,000), it is expected that the cost of fuelling this remote operation will account for 25% of the mine’s $16-per-ton operating cost.

With so much riding on the price of both gold and fuel, Neptune and now ABM have been doing everything possible to keep operating costs to a minimum.

The mill’s autogenous grinding system, for example, in which ore is ground down without the use of conventional steel balls, is expected to knock as much as US$10 per oz. off projected operating costs.

Overall milling costs could also be reduced significantly if planned throughput levels are increased. “My gut feeling is that we could process 12,000 tons per day,” said Hill.

When full production gets under way, the number of people on the Colomac payroll is also expected to be about 8% below the level predicted by Neptune in its feasibility study. Under an agreement with the Dogrib Indian Band, 25% of an estimated workforce of around 288 will be drawn from the local native population.

Also, to limit the enormous transportation costs, about 1,500 truck loads of fuel and heavy equipment are being transported north along a 190-mile winter road stretching from Rae/Edzo to the mine site. As the road stretches across a series of frozen lakes, anything that doesn’t make it by the end of March will have to be flown in via Hercules aircraft at a cost of $11,000 per flight.

According to Hill, however, the critical factor in the Colomac equation is knowing exactly what grade of ore is being transferred into the mill from the proposed open pit.

Until new ore is proven up on adjacent ground optioned recently by ABM, the company will be mining from three zones contained within a feldspar porphyry system known as the Colomac Dyke. Drilling to a depth of 700 ft. has outlined a north-south trending mineralized zone over a strike length of 8,000 ft. The average width of the ore zone is 175 ft.

In a bid to determine the source of that mineralization and to establish parameters for designing the 8,000×1,000-ft. pit, ABM has conducted an extensive blasthole sampling and pit-mapping program.

When The Northern Miner was driven over to the pit site, ABM had three drill rigs on site as it awaited delivery of two 992 front- end loaders and six 85-ton haulage trucks that will deliver the ore from the open pit to the primary crusher.

Although some of that equipment won’t be on site until late March, about 80,000 tons of ore have already been stockpiled and if everything goes according to plan, the grade of material treated will average 0.063 oz. during the first three years of production and average about 0.056 oz. over the life of the mine.

“Establishing grade control in these types of deposits is quite an art and takes into consideration all of the information that you have at hand,” said Hill. Under the plan, ABM will achieve a stripping ratio of 3.3 to 1 by designing the open pit walls at a 60 degrees angle.

To provide some insight into how grade control procedures are being handled at another high-tonnage, low-grade operation, a team of Colomac engineers travelled recently to ABM’s Jamestown gold mine in California where 42% owned affiliate Sonora Gold (TSE) is running a 6,300-tons-per-day operation in much warmer temperatures.

If everything goes according to plan and Colomac does what management says it will do, the operation should add about 100,000 oz. to ABM’s projected 1990 gold output of about 35,000 oz.

A September startup would also be good news for Rayrock Yellowknife Resources (TSE) and Hydra Explorations (TSE), which together hold a 3-10% net smelter interest (depending on the price of gold) through jointly owned Johnsby Mines. Gold Reserve Corp. of Spokane Washington also has a stake in the project via its 5.2% equity interest in ABM.

Asked when Northgate would acquire the shares of ABM that it doesn’t already own, President John Kearney replied: “It’s something we might look at in the future.”