October 2013

Golden fortunes

Expansion about to pay off for Lake Shore Gold

By Graham Chandler

In a business like gold production, sometimes it can help to have good timing on your side. Such is the case with Lake Shore Gold Corp., which, with today’s volatile gold prices, is poised to report its first quarter of positive free cash flow in the final three months of 2013. The company completed a major expansion of its milling facility in September and advanced the build-out of its mines in the Timmins Camp. At its new production rate of 3,000 tonnes per day, the company is now targeting 140,000 ounces per year of gold production and cash costs of around US$700 per ounce – about 30 per cent lower than in 2012.

The origins of the mill expansion go back to a decision to integrate vertically, after committing to the development in its Timmins West deposit in 2007.

“We were doing a review to determine what would be the next thing to do with the company,” recalls Tony Makuch, president and CEO. “We did a strategic review and the best alternative we came up with was to advance the company from an explorer to a producer.” For that to happen, naturally, they would need a milling complex. It so happened that at the same time Goldcorp had the adjacent Bell Creek mill site available for sale. “So we contacted Goldcorp and purchased it in late-2007,” says Makuch.

The acquisition of the mill was a timely and strategically important one for the company. “We had completed a prefeasibility study for the Timmins West deposit and identified the opportunity to build the mine to produce 70,000 to 75,000 ounces a year,” says Makuch. With close to one million ounces of reserves to process over the course of its mine life, Lake Shore needed a mill that could do the job. The company has since added the Thunder Creek deposit, directly adjacent to Timmins West, creating a much larger mining operation than was envisioned in 2007.

The race to rehabilitate

Goldcorp’s mill site had been put into care and maintenance so there was a considerable amount of work needed to get it operational again. “There was a closure plan done on the project so we had to do some modifications to bring it up to an operational level and get it permitted,” says Makuch. “We did that and took responsibility for the closure plan for the site.” The process was done in several stages: taking the mill from an initial 800 tonnes per day capacity through to 2,500 tonnes per day capacity by December 2012. This all occurred prior to the price of gold taking its most dramatic tumble in years this past spring. The most recent mill upgrades, which took processing from 2,000 tonnes per day to 2,500 tonnes, were completed at the end of last year and mainly involved expansions to the back-end of the circuit. Major components for this stage of expansion included a thickener, carbon-in-leach tanks and upgrades to piping and water systems. Lake Shore also needed to upgrade the lime system, flocculation plant and a leach tails screening plant. Significant retrofits and upgrades were also needed for several key internal systems such as electrowinning.

The results to date have been encouraging. For example, average mill throughput during the second quarter of 2013 was 2,540 tonnes per day, slightly better than the mill’s existing capacity.

The company got lucky in 2011 with the opportunity to purchase a ready-made SAG mill from Metso — a retrofitted ball mill that had been built for another client, prior to the order being cancelled. “That was a good find for us,” says Makuch. “We were able to source a mill that would have been a long lead item. But the fact that we were able to source it, that it was already constructed and available for use, definitely helped us in terms of advancing the project. It helped us with time, and it helped us understand the scope of what we needed to build. And it was a perfectly suitable mill for what we wanted to accomplish.” 2011 saw significant expansions of projects in North and South America, so there was considerable demand and pressure on factories to build these plants. “I would say we saved probably six months to a year and somewhere around five million dollars,” says Makuch.

The expansion project was not without its worries. “Dealing with the cost pressures was a challenge,” says Makuch. “There were a lot of expansion projects going on in the region, including two large open pits and another underground mine.”

Plenty of room to grow

The latest stage of Lake Shore’s Bell Creek mill evolution is focused on extending the mill’s capacity to upwards of 3,000 tonnes per day. This expansion involves the front, or dry, end of the circuit: mainly completing a truck dump that can accommodate 80 tonnes at a time, a crushing system which features a Metso C110 jaw crusher capable of 500 tonnes per hour, a 6,000-tonne ore storage dome, as well as finalizing the installation of the aforementioned SAG mill and SAG mill building. That facility began commissioning and ramp-up in late July and, as of early September, had achieved the new target rate.

With other projects in Lake Shore’s pipeline, the mill has been expanded with further growth in mind. In fact, the new front-end has been built for a daily capacity of 5,500 tonnes. To expand the entire milling circuit to that level, future upgrades will be mainly on the back-end with costs expected to be considerably lower than those associated with the recent expansion. “The crushing circuit, the ore delivery circuit and the SAG mill itself is capable of producing up to 5,500 tonnes per day,” says Makuch. “What’s required on the downstream end of the circuit would be some additional leaching capacity and we would definitely have to upgrade our pumps and pump lines.”

The company envisions growing its mining operations to support a long-term production capacity of 5,500 tonnes each day. “It’s all contingent on further exploration and what’s going on in the gold market, but we have existing resources at Gold River of over a million ounces that have not been developed,” Makuch points out. “Similarly, at our Bell Creek site, we have a large base of resources at depth that aren’t developed.”

Scaling up in this way is advantageous. “We can now grow production without having to add expensive parts to the mill,” explains Makuch. As production grows, operating costs improve. “Over the last year we have taken production from 2,000 tonnes per day to 2,500 tonnes per day and now 3,000 tonnes per day without adding to our workforce,” Makuch emphasizes. The all-in sustainable cost per ounce – which he says Lake Shore hopes will be around $1,000 at the end of this year – reduces as volume grows.

Mark Utting, vice-president of investor relations for Lake Shore, says, with the mill expansion commissioning, this is an extremely important breakthrough time for the company. “We have done the mill expansion and we have also been active in building our Timmins West mine to where we will be supporting somewhere around 140,000 ounces a year of production,” he says. “We have just come through several intensive years of capital investment and now we are at the point where, as our production goes up, the costs come down; we start generating cash flow and our capital comes down because a lot of the work and investments are now done.” Indeed, in the current price downturn, that is another example of good timing.

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