Following an exhaustive and careful analysis,
The decision to continue mining was based on a review of past metallurgical performance and ongoing metallurgical testwork by independent consultant Mineral Resources Development Inc. (MRDI) of San Mateo, Calif.
Last year, the open-pit, heap-leach mine was affected by a significant 35% production shortfall caused primarily by metallurgical and recovery-related factors. The mine produced 48,164 oz. for 1999 at a cash operating cost of US$288 per oz. Re-evaluation of the mine’s performance in the third quarter resulted in a $39 million writedown of the asset value and early termination of mining activity (seasonal mining is typically carried out from April to October, whereas heap leaching is a year-round activity).
The mine’s problems began with reduced recoveries from higher-grade sedimentary ore and from some of the intrusive ore. In 1999, the company was mining deep in the Kokanee and Golden pits, and had initiated operations in the Blue pit. Recoveries in the less-weathered material (that is, in the transitional zone) proved much lower than anticipated. Also, Viceroy determined that the leaching characteristics in the oxidized material on the pads were much better in the first half of the year than later on.
For these reasons, a new model was formulated to predict future heap-leach recoveries. According to Viceroy President Clynton Nauman, leaching has been consistent with the model, which predicts a gold recovery of approximately 65% for the remaining reserves. Viceroy says recoveries of all pits have been re-assessed based on ore lithology, depth from surface and the projected delivered ore size. Current leach pad development will permit the mining of some 3.5 million tonnes over the next two years, with no increase in pad space. Viceroy spent $6.1 million on leach pad and mine development at Brewery Creek in 1999.
The company will selectively mine those orebodies and areas that have the highest grade and are highly oxidized. This year, ore will be mined from the Blue and Lucky pits, as well as the Pacific body. A substantial amount of the ore being delivered to the leach pads this year is altered quartz monzonite, together with oxidized sediments from high levels in the pits.
The Brewery Creek mine is 55 km due east of Dawson City. The process facility consists of a large heap-leach pad, an adsorption-desorption gold recovery (ADR) plant, and process and overflow ponds. The mine poured its first gold in November 1996 and went on to produce 10,175 oz. by year-end. Commercial production began in May 1997, and, in its first full year, Brewery Creek produced 66,545 oz. at a cash operating cost of US$184 per oz. In 1998, production totalled 79,396 oz. at a cash cost of US$177 per oz.
Gold mineralization is primarily contained in sedimentary and intrusive rocks in the hangingwall of reactivated thrust faults. Most of the reserves are hosted by quartz monzonite sills, with the remainder contained in deformed sedimentary rocks. Ten main oxide deposits have been defined and are collectively referred to as the Reserve trend. The Upper Fosters, Canadian, North Golden and North Kokanee deposits have been mined out.
Reserves were previously calculated at a gold price of US$375 per oz.; they have been re-calculated at US$300 per oz. At the end of 1999, the reserve figure stood at just under 3.1 million tonnes grading 1.59 grams gold per tonne, equivalent to 156,000 contained ounces. An additional 307,000 oz. are contained in a resource of 14.1 million tonnes grading 0.68 gram.
This year, about 2 million tonnes of ore averaging 1.63 grams gold will be placed on the leach pads, in addition to 1.8 million tonnes of waste being mined. A revised mining operating schedule for 2000 has decreased seasonal manpower to 95 from 150 persons.
A somewhat abbreviated mining season will be conducted in 2001, from April through to the end of September, until full capacity of the existing leach pads is reached. Viceroy does not intend to build additional leach pads until the gold price has improved to the point where the added capital cost can be justified.
Viceroy spent $600,000 on exploration at Brewery Creek in 1999. In its annual report, the company states that while exploration for additional oxide resources along the Reserve trend has yielded positive results, mining of those targets will not be contemplated until gold prices improve.
The mine is expected to produce more than 50,000 oz. gold this year at a cash cost of US$245 per oz., or a total cost of US$338 per oz. During the first three months of 2000, Brewery Creek produced 5,973 oz., down 12% from the comparable period a year ago, whereas cash operating costs were up 5% at US$338 per oz, owing to reduced recoveries. The production shortfall was due to the application of solution to ore that had been under leach for more than five months.
Capital expenditures at Brewery Creek are expected to total US$500,000 in 2000, most of which will go toward solution-handling and water-treatment facilities.
Viceroy incurred a net loss of $9.4 million (or 16 per share) on sales of $26.9 million in the first quarter of 2000, compared with a loss of $200,000 on sales of $11.5 million in the corresponding period of 1999. Operating cash flow between the two periods (after inventory charges) fell to negative $4.2 million (7 per share) from a gain of $2.8 million (5 per share).
Gold production in the recent quarter was a record 59,353 oz. — more than three times the amount produced in the first three months of 1999, while cash costs averaged US$242 per oz., or 28% less than a year ago.
Bounty
The production increase is chiefly the result of the addition of the newly acquired Bounty mine in Western Australia. The operation turned out 33,508 oz., up 27% from the fourth quarter of 1999 (Viceroy’s first quarter as owner of that mine). Bounty’s cash operating costs were US$231 per oz., down 4% from the fourth quarter.
Viceroy acquired a 100% interest in the 966-sq.-km Bounty mine and related tenements in October from
Bounty is forecast to produce 130,000 oz. in 2000 at a cash cost of US$225 per oz., nearly doubling Viceroy’s annual production to 280,000 oz. at a consolidated cash operating cost of US$220 per oz.
Situated 360 km east of Perth, Bounty is a combined underground/open-pit operation with a 2,300-tonne-per-day carbon-in-leach mill. At the end of 1999, underground proven and probable reserves contained 223,000 oz. in 1.1 million tonnes grading 6.46 grams. An additional 343,000 oz. are contained in a measured, indicated and inferred resource of 1.8 million tonnes grading 6.68 grams. Open-pit reserves are estimated at 787,000 tonnes grading 3.86 grams, equivalent to 98,000 oz. A further 319,000 oz. are contained in a surface resource of 4.3 million tonnes grading 2.54 grams.
Gold mineralization at the Bounty mine occurs in a steeply dipping banded iron formation extending over a 600-metre strike length. It remains open downdip, plunging to the south below the deepest drill hole at 1,100 metres vertical. In terms of exploration, Viceroy is continuing with an underground drilling program, utilizing two rigs to replace and expand reserves. The company has also initiated surface exploration of the Bounty tenements.
In February, Viceroy expanded its land position by reaching an agreement with Outokumpu Mining Australia to earn a 100% interest in the precious metals and a 75% interest in other commodities on the Outokumpu tenements by spending A$6 million over five years. The Outokumpu tenements are contiguous with, and south of, the Bounty tenements and cover 270 sq. km of the southern quarter of the Forrestania greenstone belt.
The company is conducting a geological review of the Outokumpu ground and taking a close look at the previous aeromagnetic work. Approximately A$2.5 million will be spent on exploration of the combined Bounty and Outokumpu land package in 2000.
Castle Mountain
At the Castle Mountain open-pit mine in California, 110 km southwest of Las Vegas, Nev., Viceroy’s share of gold production in the first quarter was 19,872 oz., up 62% from the corresponding period in 1999, while cash costs declined 33% to US$232 per oz. Nauman attributes the improved performance to the re-initiation of milling and the reduced stripping ratios as the mine enters the final phases of its life. First-quarter production was slightly below internal forecasts, due primarily to reduced tonnage through the mill as a result of increased clay in the ore from the Jumbo pit.
Castle Mountain is forecast to produce 135,000 oz. this year at a cash cost of US$205 per oz., of which Viceroy’s share will be 101,000 oz. Cash costs are expected to decline through the year as higher-grade ore becomes available, stripping ratios decline and ore-blending reduces the amount of clay in the mill feed. Viceroy owns a 75% stake in Castle Mountain, with the remainder held by
Ore reserves are estimated to contain 295,000 oz. in 6.2 million tonnes grading 1.48 grams. Under a revised mine plan, 60,000 oz. have been added because of the delineation of additional reserves in the Oro Belle/Hart Tunnel areas. Mining will continue through to May 2001, while crushing and stacking will continue through to August 2001.
Gualcamayo
Viceroy is in the process of purchasing the outstanding 40% interest in the Gualcamayo project in Argentina from Mincorp Exploraciones for US$3 million, plus US$4 for each ounce of measured and indicated gold resource. In 1999, Viceroy earned a 60% interest in the project from Mincorp by spending US$5 million on exploration.
The Gualcamayo project sits in the rugged foothills of the Andes Mountains in northern San Juan province. Viceroy controls a land package in the southeastern corner of the Guandacol district, which covers 384 sq. km and includes the Gualcamayo project, the wholly owned Salamanca project and other wholly owned properties.
Viceroy completed more than 7,400 metres of drilling in 42 holes on the Quebrada del Diablo (QdD) zone at Gualcamayo during late 1998 and 1999. MRDI estimates that the zone contains a mineral inventory of 1.35 million oz. consisting of measured and indicated resources of 12.1 million tonnes grading 1.08 grams, equivalent to 421,000 oz., and inferred resources of 25.1 million tonnes grading 1.15 grams, or 930,000 oz.
Pending completion of discussions with Mincorp to complete the acquisition of the remaining 40% interest, Viceroy has initiated field work in the Guandacol district, around the periphery of the former joint-venture area. Nauman says Viceroy has demonstrated that the QdD zone extends east for at least 500 metres beyond the company’s eastern-most drill holes.
At the end of the first quarter, Viceroy held a cash balance of $23 million.
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