Yukon Zinc hunts Wolverine

Yukon Zinc is confident its Wolverine zinc-copper-silver-lead deposit 135 kilometres southeast of Ross River can support a mine and make money.

Yukon Zinc is confident its Wolverine zinc-copper-silver-lead deposit 135 kilometres southeast of Ross River can support a mine and make money.

But first, the company will have to mine about $220 million from investors to bankroll construction and production.

And critics note the company has a poor track record when it comes to providing accurate economic information.

On Monday, Vancouver-based Yukon Zinc — which has never opened a mine in its 15-year history — released an economic study supporting its goal of putting Wolverine into production.

“Our view is the results of the feasibility study provide us with a strong document for securing project financing,” Yukon Zinc president and CEO Harlan Meade said from Vancouver on Tuesday.

The study, prepared by Wardrop Engineering, has declared the Wolverine project “technically and economically” viable, said Meade.

It estimates zinc production at the site could hit 53,400 tonnes annually — up 60 per cent from previous estimates, he said.

The study also estimates yearly lead production could top 6,000 tonnes, copper production could top 4,800 tonnes, and silver production of nearly five million ounces from the underground mine.

“I think one of the most significant findings of the optimized feasibility study is the very significant increase in metal output, because that simply equates to revenue,” said Meade.

He called the increases in metal output estimates for Wolverine, compared with previous studies, “significant” and supportive of “attractive” economics.

The study’s economic findings were based on an assumed copper price of US$1.85 per pound.

Copper has been experiencing a price correction lately, with its price falling from about US$4 a pound in 2006 to around US$2.50 in early 2007. Many analysts expect the price to continue falling.

At points in 2005, a pound of copper was worth only US$1.65.

But Meade’s not worried.

Wolverine is economically viable at very low metal prices, he said.

For example, the mine would still break even if zinc fell to US60 cents per pound, said Meade.

“So, given that we’re at US$1.70 a pound (for zinc), the mine would be quite profitable right down to some fairly low metal prices,” he said during a company conference call for investors and the media on Tuesday morning.

“I don’t think anybody expects to see 60-cent zinc any time in the near term; someday we might, but unlikely.”

The study notes the entire project is more sensitive to operating than capital costs, and is most affected by changes in zinc, silver and copper prices.

During the news conference, Meade noted the estimated capital costs found in previous Wolverine studies have increased by some 15 per cent.

But operating costs decreased to $95.58 per tonne mined in the study, he said.

If the Wolverine property becomes a mine, about 60 per cent of its revenues will come from zinc, 22 per cent from silver, 10 per cent from copper, and the remaining money from gold and lead deposits, said Meade.

“We’re primarily a zinc-silver mine, and we’re sensitive to those prices. Of course, the outlook for zinc looks very good going forward; it’s certainly one of two metals that most analysts believe will outperform the other metals in 2007.”

Construction of the infrastructure for the mine could begin this year, with production starting in 2008, said Meade.

The mine could remain in business for more than eight years if further discoveries are made, he added.

But he continually stressed the company needs investment before any metal can be mined at Wolverine.

“That’s a quite an achievable schedule, but it is dependent upon us completing our project financing,” he said.

 “You spend the money, we’ll find more ore,” he said.

Wolverine’s development plan calls for the construction of a 24-kilometre road to connect the mine to the Robert Campbell Highway, as well as an airstrip extension and a camp able to support 150 people.

Ores mined from Wolverine would be trucked about 860 kilometres south to Stewart, British Columbia, for export to Asia, said the study.

Yukon Zinc obtained a quartz-mining license from the Yukon government in December 2006.

The company also applied for a water licence in January, but has yet to receive it from the government.

Because the mine will be underground, its anticipated environmental impacts will be minimal, said Meade.

“As an underground mine, it’s relatively low impact, so there is not a lot of waste material on the surface at any particular time, and the whole mine has been designed to have a fairly quick period whereby it reaches a steady state where water controls are not necessary,” he said.

“The view is that it will be able to, within a few years of its closure, be a walk-away operation, where it’s not having any environmental impact.”

The Wolverine property is within the traditional territory of the Ross River Dena Council.

Ross River signed a participation agreement with Yukon Zinc in 2005 that “provides for their participation in the economic and social benefits of the development and operation of the mine,” reads the Wardrop report.

But while the study may appear rosy for some investors, mining critics aren’t so sure they can trust Yukon Zinc’s numbers.

In May 2006, the company made a “computational error” on an earlier economic feasibility study for Wolverine.

Estimated mining costs for the project skyrocketed by 35 per cent to $35.18 from an earlier estimate of $25.93 per tonne of metal.

Incredibly, the company even got the date of the press release wrong.

Yukon Zinc’s stock price fell from nearly $1 per share to less than 40 cents in little more than a few days.

The stock’s price hasn’t recovered since.