‘Bonanza grade’ at Keno mine prompts spending push

Exploratory drill results at the Keno Hill mine site are so good, Alexco Resource Corporation is counting in kilograms.

Exploratory drill results at the Keno Hill mine site are so good, Alexco Resource Corporation is counting in kilograms.

Typically in Canada, where the metric system is applied, assays are graded by grams of mineralization per tonne of rock, but in Keno’s case that would mean an unwieldy number of digits.

So Alexco is estimating up to 5.8 kilograms of silver per tonne of rock based on partial results from a hole in a new strike called Silver King East.

The new hole is 600 metres from the historic Silver King mine that closed in 1988, along with the rest of the property formerly owned by United Keno Hill Mines Ltd. that Alexco bought from the Yukon government earlier this year.

The company is responsible for reclamation of the abandoned sites, and pledged $10 million for cleanup in February.

“The real story at Keno Hill is the potential to unlock value,” Alexco president and CEO Clynt Nauman said in a teleconference with potential investors and analysts on Tuesday.

“It contains 35 historic mines and it is a huge land position,” Nauman said from Alexco’s Vancouver office.

“It has historic production grades of approximately 40 ounces (1.134 kilograms) per tonne, which are amongst the top two or three per cent in the world.”

Keno Hill mines yielded more than 5,667 tonnes of silver over 40 years, he said.

Nauman estimated Keno’s known remaining resources at about 850 tonnes of silver, based on historical records calculated in the mid 1990s.

Alexco reported almost $6 million in exploration expenditures at Keno during the 2006 drilling season, which will wrap up later this week.

All told, the company drilled about 11,000 metres of core samples.

The results are promising.

The “Bellekeno” mine at the eastern edge of the district yielded varying silver grades between 1.59 kilograms per tonne and 3.8 kilograms per tonne from three holes drilled over the summer, said Nauman.

“Admittedly, these are large variations of grade, but any one of these holes constitutes a significant high-grade intercept.”

The other two holes at Silver King East yielded assays with silver grades of 2.3 kilograms per tonne and 3.47 kilograms per tonne.

As well, assays from the new discovery contained between two and four grams of gold per tonne of rock.

“The gold was always theorized to be much farther away, and how far was kind of unknown,” said Scott Casselman, a geologist with Aurora Geosciences Ltd. and former president of the Yukon Chamber of Mines.

“But they are now getting the gold … and they’ve got two grams of it.

“That’s a pretty good number, if you add that to the 5.8 kilograms of silver.

“That’s a real sweetener for the richness of the ore.”

Casselman crunched some of the data on the estimated silver content, and calculated values between $980 (US) and $2, 497 (US) per tonne of concentrate.

“It is a spectacularly high grade of silver,” he said.

“They are at a minimum three times what it would actually cost to extract the ore and process it.

“Now, these two holes don’t make a mine, and the fact that they haven’t received all of their assays yet, it’s a little bit premature to get too caught up in it.

“However, based on the visual examination that their geologist would make, they probably would have an indication about how extensive these zones are.

“But they won’t know for sure the absolute values until they get the assays.”

Assay labs around the world suffered a backlog during the 2006 summer months, and Alexco is still waiting for most of its assay test results before it can use a more precise measurement of the Keno grade.

“There is a tremendous amount of activity in the mining and mineral exploration business at the present time,” said Nauman.

“There is certainly not the capacity in the assay labs in Canada or outside of Canada to handle the tremendous loads of samples that are arriving at those labs.”

That’s a problem, because Alexco wants to ramp up its exploration in the region next year.

It is planning to drill at least 30,000 metres in 2007, which translates to an investment worth about $13 million.

“We don’t have a firm number for next year,” said Nauman.

“All the infrastructure that was required to support a program such as we’re running is in place.

“It will be a lot more efficient in 2007 than it was in 2006, given that we didn’t get started until the beginning of July.”

Before the drilling program can be expanded, Alexco must find investors.

But it’s not ready to start hunting, yet.

“We don’t have enough results from the 2006 work to put together a comprehensive and intelligent budget for 2007,” said Nauman.

“I can see it being at least a month, maybe more, before we get enough of these samples in to intelligently lay out a program for next year and clearly identify what kind of costs are going to be involved.”

A sizeable chunk of the company — 19 per cent — is owned by NovaGold Resources Inc., which managed the 2006 exploration program at Keno.

In addition to $8 million Alexco has on its books to finance exploration, the company will generate about $1.2 million in revenue from several mine reclamation projects it operates across the North.

What’s more, if the Yukon Energy Corporation proceeds with plans to build a transmission line connecting the territory’s northern and southern power grids, Alexco may be able to tap surplus hydroelectric power for production, said Nauman.

The region is already powered by hydroelectricity from the Mayo dam, he said.

Alexco will have to renew its permits for 2007, and it needs a water licence for care and maintenance of the abandoned sites from the Yukon Environmental and Socioeconomic Assessment Act.

“There are no objectives or standards set, and that water licence will set environmental objectives for the district,” said Nauman.

“There is no part of our ongoing exploration program that rests on any extraordinary regulatory success, other than the normal permits.”