Kemess North decision looms

Yea or nay is the key decision that Northgate MineralsCorp. of Vancouver anxiously awaits from a joint federal-provincial review panel on proposed development of the Kemess North gold-copper deposit in north-central British Columbia.

It is not a decision to be taken lightly, as the company’s sole revenue-generating operation, the Kemess South mine, is approaching exhaustion within a few years and will soon transition into its wind-down phase. The open pit mine is one of the largest in Canada. It produced a record-breaking +300,000 oz of gold and 78 million lb of copper in 2004, with an average net cash cost of US$135 per oz. The operation also directly employs about 400 people and is a significant provincial and federal tax contributor.

Initially constructed by the now-bankrupt Royal Oak Mines in the mid-1990s, the Kemess mine was acquired from creditors by Northgate in 2000 for US$180 million. Northgate has since implemented a number of operating enhancements that resulted in boosted output and trimmed costs.

Kemess North is described as the larger sister deposit to Kemess South some 6 km away, as it has not undergone the level of significant glacial erosion and weathering as its southern sibling. Although it was already known in the 1990s, a high-grade porphyry dome was identified by Northgate via a dozen deep drill holes in 2000. The dome averaged 0.25% Cu and 0.50 g/t Au, and led to a major resource estimate. Subsequent exploration has further expanded and defined the deposit.

Northgate’s 2004 feasibility study on Kemess North projects positive economics. The study outlined development potentially coming onstream before the end of 2006 with an initial US$190 million capital investment. Permitting delays have pushed development timing to 2007. Based on current reserves, the project has an estimated production life of about 13 years. Ore would initially be blended with that from the present Kemess South operation until its reserves are exhausted in 2012. Once Kemess South is depleted, gold cash costs are expected drop to about US$110 per oz as higher-grade ore from the Kemess North core zone is extracted. About 2.6 million oz of gold and 1.3 billion lb of copper are projected to be produced from Kemess North, where proven minable reserves of 299 million tonnes grading 0.30 g/t Au and 0.16% Cu have been outlined. There are additional probable reserves of 124 million tonnes at 0.29 g/t Au and 0.15% Cu.

Plans call for Kemess North ore to be crushed at the North pit, and then transported by an 8.8-km conveyor, passing through a 2.8-km tunnel, to the Kemess South mill, which would be expanded. A longer period of simultaneous operation of both mines–in which North ore is blended with lower-grade South material–would result in about 25 million tonnes of South resources being upgraded to ore, due to lower unit-cost economics.

The company recently submitted its environmental impact assessment (EIA) report for proposed development of Kemess North. The report culminates three years of work by Northgate and pitches its case for the planned mine. The EIA now sits in the hands of the joint Federal and Provincial Environmental Review Panel.

The panel will take the report through a series of scheduled review processes, the first of which is a 60-day public (including First Nations) comment period to vet whether all terms and guidelines have been met. Subsequently, allotted periods of time will allow for company responses to comments, any possible requests for further information and for the panel’s final hearings. A final report is anticipated by mid-2006, which, if positive, would allow Northgate to make its final development decision.

Northgate is evaluating financing options for development of the new Kemess mine. One possible option under consideration includes vending a portion of the project to an Asian group coupled with a concentrate supply or off-take agreement.

Tailings impoundment plans

The one issue that has met with opposition is the proposed use of Duncan Lake (‘Amazay’ in Sustu’dene First Nations language) as a tailing and waste rock impoundment. Technically the case makes sense, as the rock at Kemess North is rich in sulphides, and could therefore be a significant source of acid rock drainage. Impounding tailings and waste rock underwater would prevent these materials from generating acid.

The plan would see the construction of a dam at the north end of Duncan Lake to raise the water level and provide a sub-aqueous reservoir for the waste rock and tailings. Extensive environmental baseline studies have examined the impact. The lake is alkaline and nutrient-poor, and contains naturally elevated metal values, all contributing to a naturally reduced population of aquatic life. Additionally, the shoreline and banks of Duncan Lake drop off quickly, providing a very limited littoral zone.

A fish habitat compensation plan has been tabled by Northgate to offset losses that would result from the development of Kemess North. The plan would see the capture of fish stocks and transfer into area lake systems that are currently barren. Construction of fish ladders and spawning platforms would also be undertaken.

Alternative options have been evaluated for waste rock and tailings impoundment, including multiple sites, but engineering studies support the Duncan Lake plan as having the lowest risk. The Department of Fisheries and Oceans will take the lead on behalf of the federal government in the review process.

Concurrently with its permitting process, Northgate continues to work with First Nations groups who have expressed concern and, in instances, opposition to the proposed Duncan Lake option.

New discoveries

Recent exploration around the Kemess North deposit has proven fruitful. Drilling to the east of the proposed pit has further intersected significant mineralization including 307 m grading 0.24% Cu and 0.3 g/t Au.

The new zone (Kemess North Offset) is situated east of the East Bounding Fault and south of the North Bounding Fault, previously believed to be the limits of the Kemess North mineralization. With further drilling, these new zones of mineralization could potentially add to the size of the orebody and possibly the mining plan.

Mid-2006 will no doubt be an anxious time for Northgate, its shareholders and those carefully watching the permitting process for the development.

Interestingly, in a project diversification initiative, Northgate recently acquired TSX Venture-listed Young-Davidson Mines to now hold the company’s namesake gold project, located about 60 km west of Kirkland Lake, Ont. Two past mines on the property, operated from the 1930s to 1950s, saw gold production of almost one million oz from about 10 million tonnes of ore.

The Young Davidson project was the subject of a 2004 technical study that reviewed measured and indicated open pit resources of 6.8 million tonnes grading 2.1 g/t Au plus 327,000 tonnes of inferred open pit resources averaging 1.3 g/t Au. Additionally, the project hosts an underground inferred resource of 7.7 million tonnes grading 4 g/t Au. The study reports a contained metal tally of about 1.5 million oz of gold in the deposit.

The project holds production potential of 150,000 oz annually for a decade, and nicely fits Northgate’s stated goal of adding to its asset base in a proven, politically stable jurisdiction.

Steve Stakiw is staff writer-geologist at The Northern Miner in Vancouver. He can be contacted at sstakiw@northernminer.com.