Skyline working hard Johnny Mountain turnaround

While the 100%-owned mine is currently generating what President William Price terms a “positive cash flow,” it is not yet showing a commercial profit.

Since the official opening of the fly-in/fly-out mine a year ago, Skyline (and its share price) has been battered by a variety of production problems, financial woes, a management upheaval and a steadily declining gold price.

But a recent visit to the minesite revealed that a comprehensive effort is under way to effect a turnaround at the mine. The campaign is headed by Price, a former general manager of the Blackdome mine near Clinton, B.C., and by Skyline Chairman Ron Shon, a successful Vancouver real estate developer.

An early financial backer of Skyline, Shon is currently the company’s largest single shareholder. Not long after his baptism by fire into mining, Shon attempted to sell or joint venture the mine project, however no “acceptable” bids were received.

“Mining is a lot different from what I’m used to because you can’t see the gold,” said Shon. “In real estate you can see the buildings, you can see the land. In mining there is a lot that is beyond your control — especially the price of gold.”

Faced with the prospect of a diminishing return on his investment, Shon’s recourse was to launch a series of initiatives to turn around the problem-plagued mine. The first involved turning over day- to-day management of the mine to Price from former management led by Reg Davis.

“I think the current team is the first professional group we’ve had up there,” said Shon. “They’re dedicated, experienced and committed to make this thing a success.”

After coming onboard as chief operating officer last October, Price (now president) soon recognized the need to modify the mill processing system in order to improve throughput and recoveries.

Gold recovery in October averaged only 61% from the milling of 5,840 tons (188 tons per day) at a head grade of 0.41 oz gold per ton. During the month 1,454 oz gold, 1,990 oz silver and 17,171 lb copper were produced.

After testwork and some brainstorming with outside consultants, Price ordered the removal of the cyanide circuit in its entirety and the installation of a new 3-stage cleaning system. This work took place in early 1989 and the milling process now entails only gravity and flotation circuits.

A shortage of diesel fuel caused production shortfalls for a short period this past winter, but by March gold recovery improved to 84% and throughput increased to 316 tons per day. During the month the company produced 4,531 oz gold, 8,681 oz silver and 151,188 lb copper from 9,781 tons of ore.

In June of this year, the company produced 4,230 oz gold, 7,487 oz silver and 134,960 lb copper from 9,364 tons of ore (312 tons per day).

To get recoveries up from current levels (85%-86%) to a minimum of 90% or better, Skyline plans to install a regrind circuit at a cost of about $500,000.

Coleman Sinclair, assistant mill superintendent, said the regrind component would also allow the company to increase throughput by at least 10% to 350 tons per day from the current rate of 320 tons per day.

“We have gold that is still locked in coarse particles,” said Sinclair. “The regrind should liberate more free gold and improve our overall recoveries.”

About two-thirds of the gold is currently produced from concentrate while one-third is produced from the gravity circuit. Gold bars (75% gold and 15% silver) are poured on site, but the copper concentrate containing gold and silver is flown out for shipment to a refinery in Japan.

Another important initiative — and one that is currently generating good results — is a $2-million exploration program on the 18,800- acre Reg property. About $1.3 million of this amount was raised by a flow-through financing.

The systematic exploration effort is managed by chief geologist David Yaeger. The primary objective is to increase reserves for mining in the area of the existing workings. This portion of the program involves about 10,000 m of drilling from surface and underground.

According to Price, the program has already been successful in identifying reserves in an ore shoot of the Pickaxe vein similar to one now being mined in the parallel 16 vein.

So far, seven holes are reported to have intercepted the Pickaxe between two faults believed to be those forming the structural control for the 16 vein.

Price said a decision has been made to access the Pickaxe vein by a 100-m crosscut from the present mine workings. Development of Pickaxe ore is expected to increase reserves available to the mill and take precedence over ore at depth which is costlier to mine.

Mine Manager Harry Skoglund said the company will have five active stopes by September, however this does not include stopes that will soon be developed at Pickaxe.

So far Skyline has about 1 1/2 miles of underground workings. The deposit is developed on four levels, with three accessed by adits and one by a ramp from the 10 level. Mining equipment is all trackless and the mining method is shrinkage stoping.

The underground workings to date are primarily along the 16 quartz-sulphide vein structure which Price called “the bread and butter” of the mining operation, but underground workings also access the Discovery vein.

Drilling is also continuing to test the 16 vein along strike and surface drilling is planned for the Gold Rush vein and other geophysical conductors in the minesite area. Less advanced exploration work is also planned for other key areas of the property.

Later this year, Skyline expects to release an updated reserve estimate that will incorporate results from this summer’s program. At last report (April 30), reserves in all categories stood at 876,000 tons grading 0.55 oz gold, with a cut-off grade of 0.3 oz gold used to develop the estimate.

The 0.3 oz cut-off grade is simply a function of the high cost of mining in this remote region, officials of Skyline explained, something that was not fully taken into account by previous management at the onset of mining.

Skoglund told The Northern Miner that the main challenge on the mining side has been and still is the prevalence of faulting, particularly minor offset faulting, within the Stonehouse deposit.

Despite this, a tour of underground revealed good ground conditions and the importance of using skilled underground mine geologists to control the direction of mining.

As one geologist explained, the old adage “drill for structure, drive for grade” has proved to be the case at Johnny Mountain.”

Because Skyline’s early promotion was based on the expectation that higher grade tonnage (0.8 to more than 1.0 oz) would be mined at the outset, many investors were puzzled by what later proved to be much lower head grades.

“We are getting exactly the same types of grades in our diamond drill holes and our chip sampling that those hopes and expectations were based on,” said Yaeger. “But the average projected thickness of the veins is not there, so the grade is diluted by our minimum mining width to the 0.56 fully diluted grade that we are currently experiencing.”

Yaeger said the average mining thickness of the 16 vein to date is about 1.5 m, while the average thickness of the Discovery vein is 2 m.

“These figures are deceptive because we commonly get dilation zones in both the Discovery and 16 veins of up to 8 m in thickness with ore grade across the full thickness,” Yaeger explained, adding that where such zones occur the grade typically improves.

Asked about the expected mine life at Johnny Mountain, Skoglund said it would depend on how effective the company is in its ongoing exploration programs. But he stressed the property’s potential has only been scratched.

But even as Skyline continues its efforts to reach profitability at Johnny Mountain, it still has two possible aces in the cards.

The
British Columbia government and private industry recently funded a study to investigate possible access routes for a road into the Iskut River camp. If the road comes to fruition (as many expect it may next year), the impact would be a dramatic reduction in Skyline’s operating costs.

A major cost incurred in the operation of the mine is for transportation of fuel, supplies and concentrate. From the beginning of February to the end of May, the cost of transporting fuel and supplies to the mine site was $1.1 million or 16% of total operating costs. During the same period the cost of moving concentrates from the mine to Prince Rupert added up to an additional $700,000.

After silver and copper credits, but before concentrate transportation and refining costs, Skyline estimates that its average cash production cost during the four months was about $251(US) per oz of gold.

The other factor that could change the still clouded profit picture at Skyline would be an upswing in gold prices.

“A 10% rise in the price of gold would change the perception of this project dramatically,” said Ron Shon.

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