Hot dry weather threatens B.C. gold-copper mine

Centerra Gold Inc. [CG-TSX, CAGDF-OTC] says a lack of available water is posing a threat to is Mount Milligan mine in British Columbia.

The company recently said it has filed a formal request with the BC Environmental Assessment Office for an amendment to its environmental assessment certificate to provide additional short term water sources through 2020, and to initiate the development of a longer term water supply plan for subsequent years.

With respect to short term water sources, the company said the amendment request specifically seeks permission for Mount Milligan to access additional water from groundwater wells as well as from surface water sources at Philip Lake, Meadow Creek and Rainbow Creek, in each case, in a manner that is protective of the environment.

The company warned that while it is committed to working with regulators and Indigenous groups, there can be no assurance that Mount Milligan’s short and long term water needs will be satisfied.

In the short term, Centerra said there is a risk that throughput levels at Mount Milligan may need to be reduced in the fourth quarter of 2018 in the event that:

• The company does not receive regulatory approval to access these further groundwater and surface water solutions on its expected timeline.
• The flows from presently permitted or new sources are not as great as expected;
• Dry weather conditions experienced in the first half of 2018 persist in the second half of 2018;
• The company is unable to recover significant amounts of water that has drained into sands and gravels within Mount Milligan’s tailings management facility;
• Actual water levels in Mount Milligan’s tailings management facility vary significantly from those predicted in the Mount Milligan’s water model, which is the subject of ongoing evaluation and refinement.

The Mount Milligan mine is one of two flagship assets in the Centerra Gold portfolio. The other is the Kumtor Mine, which is located in the Kyrgyz Republic.

Located about 120 kilometres northwest of Prince George in central B.C., Mount Milligan is a conventional truck-shovel, open pit copper and gold mine. It features a copper processing plant with a design capacity of 62,500 tonnes per day.

Proven and probable reserves at the end of 2016 stood at 496.2 million tonnes, grading 0.187% copper or roughly 2 billion pounds of contained copper, and 0.36 grams gold per tonne or 5.76 million ounces.

Dry conditions are becoming the new normal at Mount Milligan, where milling operations were shut down in December, 2017 due to a lack of sufficient water resources.

This was due to a drier than normal spring and summer during 2017, with a limited amount of snow melt. This resulted in lower than expected reclaim water volumes in the tailings storage facility, which is used in the mill processing operation, the company said.

Last year’s water shortage was exacerbated by extremely cold temperatures at Mount Milligan, resulting in a greater than expected loss of water volumes in the tailings storage facility due to ice formation.

In the fourth quarter of 2017, the company tried to mitigate the water shortfall by drilling additional wells to draw water from nearby aquifers. But this proved insufficient to offset the loss of water volumes caused by the limited snow melt and cold temperatures.

As a further mitigation measure, the company moved to secure an amendment to Mount Milligan’s Environmental Assessment to allow it to pump water from a nearby lake (Philip Lake).

As announced in February, 2018, milling operations were restarted (albeit at a reduced capacity) following a shutdown in December, 2017.

The company was able to resume mill operations by using one of its two ball mills to minimize water requirements.

The company said the second ball mill was restarted following a build-up of water at Mount Milligan’s tailings storage facility that resulted from higher than expected thawing of ice in the tailings facility.

The company was also been able to pump water from groundwater sources, tower drains and nearby Philip Lake.

Centerra recently reported a second quarter 2018 net profit of $43.5 million or 15 cents a share on revenues of $243.3 million.

In the second quarter, the company produced 130,183 ounces of gold, including 83,803 ounces at Kumtor and 46,380 ounces at Mount Milligan.

Mount Milligan produced 16.5 million pounds of copper during the second quarter.

While the company says it fully expects to receive the necessary approvals to access additional water supplies, the timing of such approvals is uncertain and outside the control of the company.

If regulatory approvals to access water sources are not received as expected and given the expected maintenance shutdowns, the company said the Mount Milligan mill would need to operate only one ball mill to conserve water and throughput would be reduced to approximately 30,000 tonnes per day for the fourth quarter.

“At that rate, the outlook for 2018 production at Mount Milligan would be reduced to 175,000-195,000 payable ounces of gold and 40-47 million payable pounds of copper,” the company said.

If, however, the company gets the green light to access short term water sources in the fourth quarter of 2018, second half throughput could be increased.

On Wednesday, Centerra shares were up 0.52% or $0.03 to $5.77. The 52-week range is $5.70 and $9.35.