By Darren Campbell -- With Jericho closed and the plans to build the Mary River iron ore mine stalled, Agnico-Eagle’s Meadowbank project is on track to be Nunavut’s lone operating mine by 2010. It should be a huge money-maker for the company – thanks to the sky-high price of gold – and the project has already proved to be a winner for the community of Baker Lake and the Kivalliq region.

AT THE MOUTH OF THE THELON RIVER, 320 kilometres from the shores of Hudson Bay, Nunavut’s only inland community is on the verge of something big. At some point in January of 2010, ore blasted from an open pit mine known as Meadowbank, located some 70 kilometres north of Baker Lake, will be trucked to a mill on site. Once there, a processing plant will crush the ore into small pieces and pure gold will be extracted and melted into gold bars, making Meadowbank the first gold mine in Nunavut since Lupin closed in 2005. More importantly, it will be the territory’s only producing mine, bringing with it steady, goodpaying jobs for the people of Baker Lake and business opportunities for Northern-owned companies in the community, the Kivalliq region and throughout the North.

This is good news as 2009 has not been a good year thus far for the Nunavut mining industry. Spending on exploration is expected to drop from $273.6-million in 2008 to $168.2- million this year, and mining permits issued this winter were down by 100 compared to last year. The territory is also still stinging from the closure of the financially troubled Jericho diamond mine in 2008 and the darling of the territory’s mining sector – Baffinland Iron Mines and its Mary River project – was whacked by the global financial crisis, its share price battered and bruised, forcing the junior to drastically scale back its workforce and spending on the proposed $4.1-billion (U.S) iron mine.

But the deep global recession hasn’t been able to stop Meadowbank. Construction of the mine, owned by Toronto-based Agnico-Eagle Mines Ltd., is on schedule to be completed by the end of December and the ore processing plant will be in operation early in 2010. With an ounce of gold trading at well over $900 (U.S.), the commodity is one of the few that has held its own during the recession, making the mine look like a winner for Agnico-Eagle, even as capital costs to build it have increased about 32 per cent from the original estimates. “At current gold prices, the project is very robust,” says Agnico-Eagle’s president and chief operating officer Eberhard Scherkus. “It’ll be a big money-maker for us.”

IN NUNAVUT, a little mining can go a long way. In 2006, thanks in large part to the construction of the Jericho mine, the territory’s gross domestic product grew by 3.4 per cent – the best GDP growth in the territories and well above the national average of 2.8 per cent. With only 30,000 people living in the territory, when a major project costing hundreds of millions of dollars is being built, the effects of the work are often felt not just in the community nearby, but in all corners of Nunavut, as qualified workers and businesses in all three regions – Baffin, Kivalliq and Kitikmeot – pick up different slices of the pie.

In the case of Meadowbank, work here has been going on since the early 1980s – first with grassroots exploration programs in the area and then with the discovery of the Third Portage gold deposit in 1987 by Cumberland Resources Ltd. More deposits were discovered over the next decade-and-a-half, and by 2003 Cumberland felt it had a major gold project on its hands and commissioned a feasibility study that was released in 2005. The study concluded a conventional open pit mine could have a life of eight years with probable gold reserves of 2.9 million ounces. At the time, an ounce of gold was trading at just over $400 (U.S.).

In August of 2006, the Nunavut Impact Review Board gave Cumberland the goahead to build Meadowbank. But that’s as far as the junior miner would take it. By February of 2007, Cumberland and Agnico-Eagle entered into a share exchange deal for all outstanding and fully diluted common shares of Cumberland and Agnico-Eagle became the 100 per cent owner of Meadowbank.

Meadowbank is now on the cusp of producing gold. Scherkus says 8,500 tonnes of ore will be mined per day, but they are looking at expanding that to 10,000 tonnes. The mine would produce an average of 350,000 ounces of gold per year during its 10-year mine life. Scherkus says the cost of construction will be “in the neighborhood” of $700-million, way up from the original estimate of $475-million. “That’s a big number,” Scherkus admits. “It’s more than we envisioned. A lot of that has been due to the logistics of working in the Arctic and also because of some contracts we inherited. But it is not all escalation. We’ve made some modifications and added some things that were not in the original feasibility study – like a sulfur burning process plant, which was not originally planned.”

The company was able to get the mine’s major buildings – the mill, processing plant, diesel power plant, service buildings and camp facilities – enclosed by the end of 2008. But this summer is a critical time. Scherkus says the remaining construction materials, equipment and consumables for production will be barged in to complete the mine. It’s 36,000 tonnes of freight – about 11,000 tonnes more than last summer – and all the material will allow it to complete mechanical and electrical installation and complete dike construction at the site. If all goes well, by the first quarter of 2010 the mine will be producing gold.

Agnico-Eagle is busy, not just in Nunavut, but in other mining jurisdictions. It’s bringing a string of gold mines into production. It started with the Goldex mine in Quebec in 2008, followed by Kittila in Finland and Lapa in Quebec in early 2009. The Pinos Altos mine in Mexico is scheduled to begin production in September 2009 and then, finally, comes Meadowbank.

But will the mine be as profitable as Scherkus says it will be? Tahera Diamond Corp. had high hopes for its Jericho mine but it hemorrhaged money from the start. Opening a mine in an expensive and remote jurisdiction like Nunavut is always risky.

However, Steven Butler, a precious metals analyst with investment firm Canaccord Adams in Toronto, doesn’t think Agnico-Eagle investors have anything to worry about. In fact, now is a great time to be opening a gold mine. Not only is gold trading at over $900 (U.S.) an ounce, Butler says Canaccord’s forecast is that gold will go even higher and trade at $1,100 (U.S.) an ounce in the next 12 months.

Butler sees Meadowbank as a very strong project. It’s a large-scale open pit mine with a good grade of ore associated with it (3.45 grams of gold per tonne) and cash costs to produce an ounce of gold in the first year of production will be $320 an ounce – meaning paying off the mine’s construction costs could happen quickly. Plus, Butler says Agnico-Eagle’s management team is highly regarded in mining circles. “It’s a great management team,” he says. “They’re known for doing a great job at their mines and operations and they’ve done well with Meadowbank. They’ve been able to avoid any bottlenecks in construction that could have happened.”

Meadowbank has certainly transformed Baker Lake, once a community racked by high unemployment, but now a place where anyone who wants a job has one thanks to the boom brought on by the mine construction. “Our employment situation was very poor back then, before the mine was talked about,” says Baker Lake mayor David Aksawnee. “It’s helped a lot with employment opportunities for our people and it’s benefiting our local contractors, too.”

Scherkus provides some numbers to show how much the mine has benefited Baker Lake. Of the 309 employees on Agnico-Eagle’s payroll at Meadowbank, 145 are Inuit – 47 per cent of its workforce. And during the two years the company has been involved in the project, it has spent $16-million using Baker Lake services and businesses. Unemployment had also dropped to next to nothing here. Before construction of the mine started, unemployment skirted around the 40 per cent mark. Now it’s down around 4.5 per cent.

The wealth is also being spread around to more than just Baker Lake. Scherkus says approximately 45 per cent of the money spent on capital expenses for the mine has been with Northern-based businesses, like Nuna Logistics, which was used to build the 110-kilometre all-season road built to the mine site. And as the mine goes from construction phase to production phase, other business opportunities will remain for as long as the mine is in operation.

Agnico-Eagle would certainly like to extend the mine’s life beyond 10 years. The company now has a year-round exploration camp on the property, which encompasses 30,500 hectares, and there are seven drills operating. Scherkus says since Agnico-Eagle bought the property it’s already added one million ounces to Meadowbank’s reserves and the company is looking for more.

“It’s a very large property and our plan is to hit it hard over the next several years,” says Scherkus. “That’s our company’s strategy wherever we go. We like to see upside. If you look at our mothership, the LaRonde mine in Quebec, we started there in 1985 with 200,000 ounces of resource. Here we are 20 years later and we’ve mined over four million ounces and we still have five million ounces of reserves.”

Of course, where there is a mine in the North, there are concerns – about protecting the environment, about Northern employment and about the social problems that can come when new money and an influx of southern workers arrives in a place.

Agnico-Eagle has worked to get the community onside. It has a staffed office in Baker Lake. It has held numerous community meetings and feasts to update the residents on its plans and progress. It has made an effort to get to know the people and key players in Baker Lake and in the Kivalliq region. At this year’s Nunavut Mining Symposium, Agnico- Eagle was chosen mining company of the year. “Trust doesn’t get turned on instantly,” says Scherkus. “I understand relationships are very important in the North and it’s more our actions rather than what we say.”

That doesn’t mean it’s all been smooth sailing for Agnico-Eagle since taking over Meadowbank. In 2008, the Kivalliq Inuit Association, which is in charge of implementing the Nunavut Land Claim in the region, complained that the mine was not allowing Inuit to speak Inuktitut on the work site. The company said that rule only applied for radio communications and was put in for safety concerns, so everyone would be using a common language. And there have been concerns that to extract gold from the ore, cyanide will be used in the process. Agnico-Eagle says the lethal chemical will be destroyed using the standard sulfur-dioxide air process.

Mayor Aksawnee says the hamlet has some unfinished business with Agnico-Eagle, too. He says the hamlet could use improvements in infrastructure – particularly housing – and he’s talking to the company about how it can contribute to help Baker Lake meet its considerable needs.

But Aksawnee says that by and large the relationship with Agnico-Eagle is working well and he thinks the community is solidly behind the project. He said what clinched his support for the mine was a public meeting where Baker Lake elders in attendance came out in favour of the project.

“These elders have lived in the community for so long, they remember when there were hardly any jobs for young people and they just stayed up late and wandered around,” says Aksawnee. “They told us, ‘Our grandchildren have to have jobs for the future.’”

q And so, as production of the first bar of gold gets closer, Aksawnee is looking to the future – one that, right now, looks a lot better with Meadowbank than without it. “I see happy faces. It’s putting food on the table. People are able to buy ATVs they could never afford. It’s helping a lot.”