Reid predicts full commercial production will begin near the end of the second quarter of 2011. He reckons Trelawney will produce 30,000 to 33,000 ounces of gold in the first 12 months after it declares commercial production, generating about $15 million in cash flow.
“The schedule is to ramp that up to approximately 75,000 ounces within two years from three different zones,” Reid said.
Company president Greg Gibson said the project has the potential to host both high-grade and high-tonnage gold mineralization. Located eight kilometres by road west of Highway 144, the property was explored and developed in 1986-89 but never put into production due to falling gold values, a decline in flow-through share funding and lack of a mill.
The Chester 1 Zone has a 5,500-foot decline ramp that reaches a depth of 500 feet. It also has 2,300 feet of lateral development on five underground levels. Replacement costs at today’s value have been estimated at $30-35 million. The Chester 2 Zone, west of the underground development, has a shaft sunk to 200 feet. A third zone, the Chester 3, has been identified north of the Chester 1. Based on historical estimates, Trelawney estimates the three zones hold a resource of about half a million ounces down to a depth of only 500 feet. However, these estimates were completed prior to implementation of the NI 43-101 standards of disclosure adopted by the Canadian Institute of Mining, Metallurgy and Petroleum in 2000, so Trelawney is cautious about their accuracy.
Since March 2009, the junior miner has raised about $85 million. That includes $57 million in new money raised in a bought-deal private placement late last year. In the past two years, Trelawney’s share price has soared from mere pennies to more than $3 a share. Reid says that shows how well the project has been received by the investment community.
“The driver behind it is the Cote Lake discovery, which is a large lower grade, high-tonnage project,” he said. Early last year, drilling intersected 107 metres grading 8.2 grams of gold per tonne, including a section grading 313.5 g/t over 2.56 metres, about one kilometre west of the Chester 2 Zone. Trelawney dubbed this the Cote Lake Zone. In September it reported an intersection of 137 metres of 5.33 g/t within a large envelope of 274 metres grading 2.99 g/t at Cote Lake. In November, Trelawney hit 520 metres of 1.44 g/t, including 1.7 metres at 199.8 g/t (more than 6 ounces gold per tonne).
“Intersections such as these reported today support our confidence in the exploration potential of 3.5 to 6 million ounces of gold for the Cote Lake Deposit,” Gibson said at the time. The zone is open in all directions, said Reid. “We have not found the boundaries.”
Trelawney has been moving rapidly on its Chester 1 mine development project as well. A year ago, it spent $718,000 to buy the surface and underground electrical distribution system, ventilation and air heating system, compressors, a furnished warehouse, equipped workshop, office, first aid and dry requirements, as well as some mobile equipment. It dewatered underground workings and rehabilitated the ramp last year. It now has an 80-person camp with kitchen and bunkhouses as well as a mine dry, offices, garage and water polishing pond. Mining at Chester 1 continues on two shifts, 24 hours a day, seven days a week.
This year, the company expects to spend about $15 million on a 77,000-metre diamond drilling program to test the Cote Lake Zone and explore the high-grade, narrow vein system on its Chester 1 Zone.
The company has five drills on the property. Trelawney will also conduct underground exploration and advance a long drift from its existing workings to the Chester 2 Zone and the Gomac Zone.
“That’s how we’ll bring our production up to somewhere in the neighbourhood of 700 to 800 tonnes per day,” said Reid, who expects Trelawney will be producing 75,000 ounces to 90,000 ounces of gold annually 24 months from now.