Ken Snyder mine nears completion

In the early 1990s, geologist Ken Snyder stood on a windswept hilltop near this old mining town and told Pierre Lassonde and Seymour Schulich, founders of royalty sisters Franco-Nevada Mining (FN-T) and Euro-Nevada Mining (EN-T), that the sagebrush-covered valley below could host “10 million ounces of gold.”

Bullish predictions were a dime a dozen in those ounce-mad times, but this one proved to be remarkably prescient. Exploration to date at the Midas property has generated a global resource of 6 million oz. gold-equivalent, which includes minable reserves of 2.17 million tons grading 1.04 oz. gold and 11.65 oz. silver per ton (or 2.75 million gold-equivalent ounces). These reserves were calculated at US$300 per oz. gold and US$6 per oz. silver, and at a cutoff grade of 0.25 oz. gold. A low-cost, high-grade mine bearing Snyder’s name is nearing completion. And with numerous targets yet to be tested, ongoing work is expected to generate additional tonnage and new discoveries in the historic Nevada camp.

“We’re on the third chapter of a twenty-chapter story,” Lassonde told a group of mining analysts gathered on that same hilltop, now dubbed Prophecy Point. “We’ve only explored 5% of our ground and have a long way to go.”

One surprising part of the story is that it took so long for the Midas district to get the modern exploration effort it warranted. After all, recorded historic production there (between 1906 and 1930) totalled about 300,000 oz. gold and 3 million oz. silver from high-grade vein systems — impressive numbers considering the rudimentary methods used to extract precious metals at that time.

The area lies at the juncture of the Getchell gold trend (40 million oz.) and the world-famous Carlin trend (100 million oz.), thereby providing a tempting and prospective target for structurally controlled mineralization with potential district-scale strength.

While a few companies poked around in the 1970s and 80s, Midas didn’t fit the desired model of low-grade, disseminated gold deposits suitable for open-pit mining and heap-leach processing. And the surface exposures of the known veins didn’t carry as much gold as was hoped.

Another surprising part of the Midas story was the involvement of Franco- and Euro-Nevada, which, until recently, had restricted their business activities to acquiring royalties (mostly on gold, but also oil and gas and other metals).

The partners acquired their cornerstone royalty in the Carlin trend for US$2 million in 1986. Over the years, this investment has generated US$2 billion of revenue as operator Barrick Gold (ABX-T) expanded reserves to 24.1 million oz. from 600,000 oz. at Goldstrike and neighboring deposits. Small wonder that Lassonde and Schulich are fond of quoting investment guru Warren Buffett, who said “the best business is a royalty on the growth of others — requiring little capital itself.”

Finding and developing mines, on the other hand, is both capital-intensive and risky. Franco-Nevada and Euro-Nevada weren’t known to be terribly interested in this side of the business — until 1992, that is, when two locals placed a newspaper notice offering to sell their claims in the Midas district.

Chapter One

When consulting geologist Ken Snyder went out to investigate the claims and surrounding region, he saw “fantastic, exciting potential.” After collecting some samples with visible gold, he headed to Toronto to convince the royalty companies to make an offer. The region fit his personal criteria of a good geological environment: favorable stratigraphy, a trapping mechanism and conduit system within a domal antiform, and the existence of gold.

“I’d been interested in the camp a decade before the notice appeared, but the land ownership was complex,” Snyder recalled. “The ad suggested an opportunity to get into the area without having to sort all that out. But I wasn’t able to do the deal and the ground was eventually picked up by Romarco [Minerals].”

Still intrigued, Snyder spent all of 1993 acquiring and compiling geological, geochemical and geophysical data from the various companies and individuals that had worked in the region. Then, as ground became open, the companies staked claims and began some early-stage mapping and sampling. The 50-50 joint venture now controls more than 90% of the camp, including over 26,000 acres (or 40 sq. miles) of mineral rights and private lands.

By the time exploration began, three potential models had been formulated, none of which involved the caldera setting seemingly favored by earlier players. The first postulated the presence of disseminated gold mineralization near the axial plane of the anticlinal fold that encompasses the district; the second postulated that the Carlin trend might exist at depth beneath the volcanic rocks of the Midas area; while the third called for an evaluation of the outcropping vein systems in the district and their alteration haloes, in the hope that the still-missing host for a major disseminated deposit could be found.

The first model was supported by an induced-polarization survey, which yielded a bull’s-eye anomaly coincident with the axial plane of the fold. However, a fence of holes returned lots of pyrite, but no gold related to the anomaly. The second model was tested to a depth of 1,400 ft., without success, though it remains untested at greater depths.

One of several holes drilled to test the third model bore fruit when it encountered what is now the Ken Snyder deposit in the Rex Grande structure. The mineralization was not disseminated, but because it had visible gold and intervals grading more than 1 oz. gold per ton, the hole was followed up nonetheless. “We knew we were on to something but didn’t know what,” Snyder recalled.

Lassonde and Schulich give Snyder and his geological team full credit for making and expanding the discovery. “He’s the soul of our geology department,” Lassonde told analysts.

Mineralization at Midas is now being compared with that found in Idaho’s Delamar region, Washington’s Republic district and Nevada’s Sleeper mining camp, as well as the Hishikari district of Japan. Mineralization along the Rex Grande structure is described as “a classic example of a quartz-adularia-sericite low-sulphidation system.”

The Midas district begins at the northern edge of a trough and extends northwestward as a structural and stratigraphic window exposing older gold-silver-rich volcanic rocks surrounded by younger, barren volcanic rocks.

Chapter Two

Since the initial discovery was made at Midas, more than 700,000 ft. of drilling have been carried out in more than 700 holes. Work has focused on the Rex Grande structure, the single most significant structure identified to date in the Midas district. It is mappable along strike for 8,000 ft. but is believed to have potential to extend for as much as 22,000 ft. Only about 6,000 ft. have been tested to date.

Minable reserves are contained primarily in the Colorado Grande vein, the major vein in the Rex Grande structure, as well as in a portion of the subsidiary Gold Crown vein and one or more distinct hangingwall zones. The average width of the Colorado Grande vein is 5.5 ft.

“We have a good handle on the model, but all models have complications and foibles,” Snyder said. “The biggest problem is structure, and it’s sometimes difficult to predict offsets.”

Even so, discovery costs to date are a mere US$5.49 per oz., or US$2.51 per oz. if resources are included. The partners plan to spend $5.2 million on exploration this year.

Franco- and Euro-Nevada also plan to enhance the potential of prospective ground held by neighbor Romarco Minerals (R-T). In early October, the royalty companies tightened their grip on the Midas district by agreeing to acquire 350 acres of patented and unpatented lands for 480,000 Franco-Nevada shares and 620,000 Euro-Nevada shares worth an estimated $33 million in total. Romarco’s board has approved the transaction, which awaits shareholder approval.

Earlier this year, Romarco announced a contained resource of about 500,000 oz. gold-equivalent at its Midas project. But t
he topography of its ground is such that it could no longer explore from surface. The deal with Romarco allows the royalty companies to gain access to these resources from underground without much additional cost, as they have already drifted to within a few feet of the property boundary. “It effectively doubles the productivity of our [ore development] spirals,” Snyder said.

The royalty companies have as many as 17 target areas on their own ground, most of which have received limited work. “Our goal has been to develop minable reserves rather than generate a global resource,” Lassonde told analysts. “We’ll have time for that later.”

Underground drilling began in late 1997, and on-site geologists say it has proved useful in outlining new vein structures. One of those structures, the Jewelry Box (JB) vein, appears to be a splay of the main Colorado Grande vein. More work is planned to test this vein and followup previously encountered, multiple intersections of 12 oz. gold and 65 oz. silver over widths of 3 ft. In the years ahead, the partners plan to explore the downdip extensions of the known veins (many of which remain open) from underground.

And, as Ken Snyder told analysts, regional work to date has focused only on the eastern limb of the antiform at Midas. “The west limb is another story,” he added. “We don’t have much drilling there. That remains for the future.”

Once enough reserves and resources were outlined to justify mine planning, Franco- and Euro-Nevada had to decide whether or not to attempt to develop the project on their own. A decision to proceed would require beefing up the management team with more mining professionals.

But after crunching the numbers, Lassonde and Schulich found that the opportunity was too good to pass up. They concluded that the deposit was rich enough to become “one of the lowest-cost gold mines in the world,” providing them as much annual after-tax cash flow as Barrick’s Goldstrike complex.

Simply put, they concluded that the Ken Snyder mine had a high enough silver credit to carry all operating costs, thereby “creating an effective 100% gold royalty.”

Chapter Three

Construction began in March of this year and, at the time of the property visit in late September, the Ken Snyder mine was about 80% complete. The US$84-million project was on budget and 3-5 months ahead of schedule. Construction was managed by Kilborn International, which had also carried out the feasibility study.

More than 40,000 tons of ore have been stockpiled and separated by grade (1 oz., 2 oz. and above 3 oz.), and underground development is well-advanced. The mine is expected to reach full commercial production early next year at an annual rate of 250,000 oz. gold-equivalent. Cash operating costs are expected to be a mere US$80 per oz.

The vein will be mined by low-cost, long-hole methods, as well as some cut-and-fill stoping. Ore is brought to the surface and to the mill by 30-ton haulage trucks.

With stopes now open, the partners are finding some pleasant surprises. “The actual grade is running higher than the reserve grade,” Lassonde said. “Our experience underground is better than [indicated] by surface drilling, and we may see an enhancement of the reserve grade.”

Unlike most operators in Nevada, the royalty companies have decided to use contract miners, with overall management carried out by a small, in-house staff of seasoned mining professionals. Dynatec Mining is the contract operator.

“We think the mine is well-suited for contract mining,” Andre Douchane, vice-president of operations, told analysts.

Indeed, as Nevada mines go, Ken Snyder appears to a relatively simple and straightforward operation. The vein-type deposit is near-vertical, remarkably continuous and easily distinguished from the hangingwall and footwall. It is a dry, relatively shallow mine, within 1,500 ft. from surface and easily accessible by decline and ore development spirals. It is in competent rock, well-suited to underground mining. And the vein mineralogy is simple and consistent.

The mill circuit features 2-stage crushing and is based on whole-ore cyanide leach, with a Merrill-Crowe precious metals recovery system (requiring an 84-hour leach time). A gravity circuit is in place — more for “insurance” than anything else, as less than 1% of the gold recovery is expected to be recovered using this method.

Head grades are expected to average 1.5 oz. gold-equivalent for at least the first three years, while recoveries are forecast to be 97% for gold and 95% for silver. With a current capacity of 500 tons per day but a design capacity of 700 tons, the new mill can be doubled in size for US$10 million.

“It was designed with future expansions in mind,” Schulich said. “We intend to be here a long time.”