A brief rally in gold combined with the anticipated go-ahead from the Costa Rican government should enable
Bellavista is about 70 km northwest of the capital, San Jose, in a historic mining district within Costa Rica’s Central gold belt. The site is 3 km northeast of the town of Miramar and 20 km north of the Pacific port city of Puntarenas.
Wheaton aims to build an open-pit, grind-agglomeration, heap-leach operation that will exploit an epithermal gold-silver reserve of 11.2 million tonnes grading 1.54 grams gold per tonne. Production capacity will be 1.62 million tonnes annually, and the stripping ratio is projected at 1.3-to-1.
The heap-leach pads will have a 13-million-tonne capacity and be built in three phases. They will be designed to withstand the major earthquakes and hurricanes that are unavoidable in Central America.
With production possibly beginning in 2002, the project can yield 440,000 oz. gold and 722,000 oz. of byproduct silver over 7.3 years of mining and 8.3 years of leaching.
In an average year, the mine will produce 60,000 oz. gold at a cash operating cost, including royalties, of US$173 per oz. and a total production cost of US$241 per oz. The largest royalty, named Carib, will cost US$3.2 million over the life of the mine at US$350 per oz. gold.
Construction costs are estimated at US$23 million, which will make Bellavista the largest Canadian investment so far in Costa Rica. The figure is US$5 million below an estimate in Wheaton’s 1999 feasibility study, owing to: an equity contribution from Wheaton’s 89%-owned subsidiary,
At a gold price of US$350 per oz., the project has a net-present value of US$25 million (at a 5% discount rate) and an internal rate of return of 29%. The payback period would be less than four years.
One of Bellavista’s attractions is its proximity to the country’s major infrastructure, including the Pan-American Highway, the national power grid, a cement factory and a deep-water container port in the Gulf of Nicoya, Puerto Caldera.
“We’re well-located,” says Raymond Gagnon, president of Wheaton subsidiary Metales Precesados. “From the point of view of other places I’ve worked in Central America, this is a dream.”
For the Bellavista project to go forward, it is critical that the spot price of gold pokes its head for a few days above US$295 per oz. so that Wheaton, in concert with Barclays Bank, can sell forward at least 180,000 oz., or 40%, of Bellavista production at a minimum of US$350 per oz.
“It’s a good project at US$325, but it’s a real barn-burner at US$350 or US$360 an ounce,” says Wheaton Chairman Ian McDonald. “And that’s attainable if you think gold is going to have any sort of uptick in the next 8-10 months.”
As well, if gold does experience sustained higher prices in the future, at least a year’s worth of production in the pit walls will move into the reserve category and could be mined and placed on the existing pads.
Wheaton bought Bellavista from
In 1998 and 1999, Wheaton spent $7.4 million carrying out prefeasibility and feasibility studies which showed that a small, economically robust heap-leach operation could be developed — a plan that contrasted with Rayrock’s larger, but sub-economic and environmentally risky, plan to build a conventional mill and unlined tailings pond.
Rayrock’s plan, based on more than 1 million oz. of reserves, would have had a capital cost of US$55 million and generated only an 11% internal rate of return at US$400 per oz. gold.
Wheaton’s Bellavista acquisition included an existing 20-year, 10-sq.-km exploitation permit that was granted in 1956 under an old law but remains valid in perpetuity unless the company violates current regulations. Also, a predecessor company presented an environmental impact statement (EIS) for Bellavista to the government, which was approved in 1986.
Despite this, Wheaton was asked to submit a revised EIS to the government, which the company did last September. A formal response is expected soon from the Costa Rican government; an approval will mean that Wheaton has cleared its last major regulatory hurdle.
While not legally required to do so, Wheaton will also participate in formal public hearings, to be held in San Jose, possibly in late May or June.
Still, the company’s plans to develop Bellavista have not won over all the locals. “In Miramar, there is still a little opposition to mining,” admits Franz Ulloa, president of Compania Rio Minerales and a native Costa Rican. In particular, he says, the town’s unelected mayor and the municipal council are in the opposition camp and the local fisherman’s union has expressed concerned over the possible effects of a cyanide spill on the Gulf of Nicoya’s fishery.
Another worry of the locals was whether the excavation of a 17-ha pit would dry up their wells. In fact, Wheaton has shown, through hydrogeological studies, that the bottom of the pit will be well above the local aquifer and therefore will not interfere with local water levels.
Since 1997, Wheaton has been carrying out an extensive public-relations program designed to educate Costa Ricans, who are largely unfamiliar with modern, responsible gold mining. Already, some 1,200 people in small groups have come to tour the Bellavista site.
Ulloa cites a government survey that found that 50-60% of locals were in favour of the construction of a mine at Bellavista, compared with just 5% who were opposed. Still, Ulloa says a cyanide spill earlier this year at an Australian gold mine in Romania — widely publicized in Costa Rica — did erode local support for the Bellavista project.
“We do have support at high levels,” says McDonald. “Once we get through this EIS permitting stage, the environmental groups will turn their attention to something else they can prevent. It’s just about at that stage now.”
The mine will undoubtedly bring economic benefits to Miramar, which is in one the poorest areas of Costa Rica. Wheaton already employs some 50 people in Costa Rica and will eventually become the area’s biggest employer, with more than 238 employees, most of whom will be locals. Wages at the mine will be higher than neighbouring industrial operations, and the company will also be paying municipal royalties and union dues, as well as federal royalties and taxes at the end of the holiday period.
For the town, Wheaton has already designed a water purification system, donated a farm and cattle, and created a wildlife preserve that will prevent further logging of the last natural tropical forest in the Puntarenas province. The forest is home to such animals as panthers, howler monkeys and a multitude of bird species.
Lobbying on Wheaton’s behalf for approval of its EIS is the Canadian ambassador to Costa Rica, Denis Thibeault, as well as federal officials in Ottawa.
By June, Wheaton hopes to have clarified all major permitting, legal and tax issues. “It’s probably taken a little bit longer than we would like, but we’re very, very close to putting the final touches on these issues,” says McDonald.
In particular, Wheaton wants to operate Bellavista under Costa Rica’s Free Zone regulations, which provide foreign companies with several advantages, including: the right to bring equipment into the country duty-free; the right to buy fuel tax-free; and certain tax breaks. The best-known company with free-zone status in Costa Rica is Intel, which has a large Pentium-III chip plant near the San Jose airport.
To make the most of its position under the Free Zone program, Wheaton has created two major subsidiaries in Costa Rica: Compania Rio Minerales, which will mine the deposit; and Metales Precesados, which will process the ore and export the gold. Bellavista’s 2,000-tonne-per-day mill will be fenced off and designated a free zone.
Currently, Wheaton is debt-free, but the company will be taking on some debt to leverage construction of Bellavista. It anticipates drawing down on a US$19-million gold loan from Barclays Bank next February if it gets the necessary documentation by June 30. The remaining debt financing for the project will come from a US$5-million equipment loan.
“We’re one of the few gold mining companies — even though we’re small — that is actually making money,” says McDonald. “One of the reasons is that we have not had to service debt taken on at a higher gold price. That’s why we’re going to continue to use the forward markets for hedging — not just because the bank requires it, but because it’s prudent to protect that capital investment. We’ve become very risk-averse in the last couple of years as we’ve watched a lot of our peers hit the wall and collapse.”
While Wheaton is placing great emphasis on getting the Bellavista mine into production, the property holds several grassroots targets that can be drilled in later years.
One such target, situated immediately south of the Bellavista deposit, is the abandoned Montezuma gold mine, which was exploited by the New York-based Johnson & Johnson Wax company from 1900 to 1915, yielding about 100,000 oz. gold from shallow underground operations. East of the Montezuma deposit is an undrilled, 400-metre-wide area of surface gold anomalies that remains open to the east.
A few hundred metres west of the Bellavista deposit, Wheaton geologists are examining the La Trinidad target — another large, undrilled gold-in-soil anomaly where some gold mining took place in the 1940s and 50s.
A third major anomaly exists at the intersection of the normal Liz fault (which defines the western boundary of the Bellavista deposit) and the La Lucha fault (which defines the eastern boundary of the La Trinidad anomaly).
Wheaton’s only asset spinning off cash this year is its Golden Bear high-grade gold mine in northwestern British Columbia. The seasonal heap-leach mine, now in its third-last year, is scheduled to produce 65,000 oz. in 2000, though the company hopes to push this to a record 85,000 oz..
Mining is ongoing at the bottom of Golden Bear’s Ursa deposit, as well at the underground Kodiak B deposit, in an attempt to mine out the deposits this year.
The lost production from Golden Bear will likely be made up through the recent acquisition of the Red Mountain gold deposit by North American Metals (NAM).
Situated 18 km east of Stewart, B.C., in the same region as Golden Bear, Red Mountain was extensively explored, first by
NAM picked up the project for just $413,360 from Royal Oak’s interim receiver, PriceWaterhouse Coopers, and is now poring over data that include 127,000 metres of diamond drilling, 2 km of underground workings and whole-rock analysis every 20 metres.
Based on its own due-diligence study, Wheaton believes that a 700,000-tonne core grading 12 grams gold can be mined, recovering 250,000 oz. gold over five years. A scoping study shows an internal rate of return of 40%.
“A lot of bigger companies will spend gobs and gobs of money and get hooked into a big project, even though the deposit may not warrant it,” says Dunham Craig, Wheaton’s vice-president of corporate development. “We like to get a property at as low a cost as we can and then let the deposit drive what’s right to maximize profit. If we have to gut it, that’s just the way it is.”
Because the Red Mountain deposit is so well drilled off, Wheaton is not planning any further drilling. However, the company expects it will take another year or two to complete a feasibility study. The company will examine various development options, which will likely centre around a seasonal operation modeled after the success of Golden Bear.
Wheaton also has a third promising venture in the pipeline: the wholly owned George Lake gold project, 70 km south of Bathurst Inlet in northwestern Nunavut. The project was acquired by Wheaton through its recent merger with affiliate
Total resources at George Lake are estimated at 6.5 million tonnes grading 9.76 grams gold for 2 million contained ounces gold.
This spring, the major launched a 9,000-metre drilling program that will try to extend the depth and strike of the project’s Goose Lake deposit in hopes of adding another million ounces to the resource base and improving the project’s economics. Conceivably, the George Lake project could enter production during 2004.
With gold being pulled from mines at Golden Bear, Bellavista and Red Mountain, Wheaton River’s gold production profile could look something like: 70,000 oz. in 1999; 64,000 oz. in 2000; 50,000 oz. in 2001; 48,000 oz. in 2002; and 61,000 oz. in 2003.
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