Fireweed Zinc (TSXV: FWC; US-OTC: FWEDF) could leverage open-pit mining to fund underground development at its 470 sq. km Macmillan Pass zinc-lead-silver project in the Yukon, according to its new preliminary economic assessment (PEA).
The company would start with three years of conventional truck-and-shovel mining at its Tom and Jason deposits before transitioning into underground mining by year four of the mine’s 18-year life.
Open-pit mining would account for 13% of the total 32.7 million tonnes of material Fireweed would mine and process at Macmillan Pass.
Fireweed president and CEO Brandon Macdonald says starting with an open pit lowers the company’s initial capital expense.
“The minimal pre-strip on Tom and Jason costs a lot less than the initial development to get the underground mine started,” Macdonald says in an interview with The Northern Miner. “So being able to fund that underground development out of cash flow makes a big difference.”
The company drafted a big-pit scenario and a small-pit scenario, and presented the latter in its study. Macdonald says two factors determine the pit life: the amount and intensity of acid generation from waste rock and the pit slope angle. The company chose conservative pit slope angles: 42 degrees at Tom and 45 degrees at Jason.
“We just didn’t have enough geotechnical information to say comfortably that it could be steeper,” Macdonald says. “If we can make the pit steeper, it means less strip per tonne of rock mined and processed, which means less acid-generating rock to manage. Then you can have more tonnes in the pit life.”
Fireweed designed the current pits so that it could use half of the waste rock from Tom and all the waste rock from Jason — which sits 4 km west of Tom — as backfill. The company had intended to model using paste backfill for Tom and quarried rock to backfill Jason, but adopted open-pit waste rock as preferred backfill instead.
As a result, Fireweed sized Jason so all of its waste rock could go back underground as backfill, avoiding costs associated with having a large, acid-generating, waste-rock pile.
“From a permitting point of view, the less you’re leaving behind that needs monitoring, the better,” Macdonald says. “Sometimes it’s worth leaving a little bit of money on the table for a mine plan that’s easier for communities to wrap their heads around.”
He says the company intends to optimize the project as it collects more data.
“I’m sure there’s a Goldilocks scenario in the middle that’s truly optimal, but we weren’t going to run a continuum of variants in pit size when we don’t have enough data to really nail down all the parameters.”
The project has an after-tax net present value of $448 million at an 8% discount rate, and a 24% internal rate of return. It will cost $404 million in pre-production capital expenses — $105 million of which the company would spend upgrading the government-owned North Canol road that leads from Ross River to its site.
The current road is made of gravel, although it’s not wide enough to accommodate large trucks. The company hopes it can offload some of that cost, perhaps through the Yukon’s Resource Access Road Program, which the Yukon government says “provides financial and material support to industry to develop resource access roads in Yukon.”
Fireweed’s PEA is based on a resource estimate from early 2018 — the first on the property since 2007.
The project now contains 11.21 million indicated tonnes grading 6.59% zinc, 2.48% lead and 21.33 grams silver for 1.63 billion lb. zinc, 610 million lb. lead and 7.69 million oz. silver, as well as 39.47 million inferred tonnes at 5.84% zinc, 3.14% lead and 38.15 grams silver for 5.08 billion lb. zinc, 2.73 billion lb. lead and 48.41 million oz. silver.
To calculate its resource estimate, Fireweed combined 2,400 metres from 2017 drilling with 70,000 metres of historical drilling, and 11 holes drilled by Hudbay Minerals (TSX: HBM; NYSE: HBM), the property’s prior owner, in 2011.
“They didn’t update the resource from 2007 after their drilling in 2011,” Macdonald says. “So we had the benefit of two field seasons’ worth of work go into the resource update.”
Fireweed resampled core, resurveyed holes, and re-estimated rock densities. It drilled 14 holes but never twinned a hole.
“In areas we were uncertain about, we would do an infill hole basically thinking, ‘Why twin when you can do an infill?’ and it gives you a sense of all the holes around it, rather than just one hole,” Macdonald says.
The company is targeting 10,000 metres with its $5-million, mid-year drill campaign. According to Macdonald, the company will step out from known zones, infill on areas that are critical to the project’s economics and carry out regional exploration.
“We don’t have super-firm targets yet for the exploration holes,” he says, “but we have some areas that, because of geology and geochemistry, are super interesting, and that we need to go follow up on. I don’t have a lot of interest in testing an immature target just because. I really want to make sure that we have a good sense that the target is worth testing before we blow a bunch of our budget testing it.”
The company recently optioned more land next to the project, bringing its total claim to 470 square kilometres. The first agreement is for 117 sq. km and extends the company’s project north and northeast. The second agreement is with Golden Ridge Resources for claims totalling 127 sq. km, and extends the project west.
“We think not just the work we do this summer but going forward is going to make a material improvement in those economics because, really, the exploration potential on this project — we’ve just scratched the surface here,” Macdonald says.
Shares of Fireweed Zinc are trading at $1.77 within a 52-week range of 67¢ to $2.14. The company has a $53-million market capitalization.
“We see the PEA as a guide telling us what the major risks and opportunities are in the project,” Macdonald says. “We have a much better sense now of how to mitigate those risks and maximize those opportunities.”