Why some mines fail to work

Once known as John F. Kennedy’s campaign song, the words of that popular tune from the 1960s mirrors the hopeful expectations of every mining company. Armed with a positive feasibility study, more than one outfit has ventured into the mine development stage with exuberance and confidence, hopeful that their `baby’ will not only work, but maybe, just maybe, will exceed its estimated operating parameters once in production.

As if moved by some cosmic interventionist and with Mother Nature firmly in their corner, many companies have been heard to speak of the potential of better grades once mining begins. “The deposit might get wider at depth and costs could surprise us and actually come down.”

The cold reality is that Mother Nature can’t be bought off with cheap stock and making mines is a tougher endeavour than most people think. History says so.

Canada has its great mines, Lupin, Campbell Red Lake, Hemlo’s three giants and others such as the Hollinger, the granddaddy of them all, which shutdown in 1965. We also have our share of disasters.

Why some mines failed to work, as originally hoped for in their feasibility studies, could become a field of study all on its own. Call it mine pathology.

For what ever reason a mine development fails, both major and junior companies have been victims of several of the factors described here.

With another crop of mining projects entering production this year, investors, analysts and especially lenders, will have to examine technical data with a keener eye.

Several problems are generally common to most mine failures and most can be illustrated by looking at three recent examples. D’or Val Mines (TSE) Beacon project, Seabright Resources’ Forest Hill and the Tartan Lake gold mine shared equally by partners Abermin Resources (TSE) and Granges Explorations (TSE).

The final chapter hasn’t been written on any of these three, but so far they have fallen short of expectations.

By no means are these the only ones. Over the past 12 months, Noramco Mining’s (TSE) Golden Rose has struggled with mill and grade problems and shutdown, Sonora Gold’s (TSE) big Jamestown project in California has yet to make a cent and who can forget the opening and closing of the Mirado mine by Golden Shield Resources (TSE) — within a short 6-month period last year?

What went wrong at the Beacon mine? Located near Val d’Or, Que., the property hosted proven reserves of 159,693 tons grading 0.225 oz gold per ton in 1986. A similar tonnage was placed in the possible category. Excitement over the property peaked in 1987 when several rich sections were drilled. These included 42.3 ft grading 0.92 oz and a 15-ft section grading 3.86 oz.

After spending about $35 million to get the mine-mill facility in operation, the mine was officially opened in April, 1987. Almost from day one, the initial mill head grade of 0.14 oz gold was well below the anticipated 0.2 oz.

By February, massive dilution problems had whittled the 0.14 head grade to around 0.066 oz. During the 9-month period of operation, only 8,000 oz of gold were produced. The mine shutdown in April of this year.

Dilution, probably the most insidious of the multitude of problems encountered by most mines, occurs when excessive wall rock, usually of marginal grade, is mined and milled with ore thereby effectively diluting the grades of the ore- bearing zone. In a sense, what was once ore, quickly becomes uneconomic rock.

D’or Val’s dilution problems stemmed from poor rock stability which resulted in an inordinate amount of waste rock falling off in mining stopes. Much information about rock quality could have been gleaned from drill core during the in-fill drill stage. “It’s important to do good rock mechanics during the feasibility stage,” Bernie Haystead, manager of mining for Hayes Resources (TSE), adds. “A remedy is to change the mining method, but there is usually a cost associated with that,” he explained.

Fabulous drill holes of rich, wide sections can also be relegated to the ash heap if no continuity can be established between such holes. Continuity — the extrapolation of grade and width between drilled sections — is what reserves are built on. Detailed close-spaced drilling improves the geologist’s confidence that the volume of rock between several wide and rich drill holes will display similar attributes.

Without good evidence of continuity, expected grades and tonnages, as determined by drilling, might not stand up once underground operations begin.

Lower grades and reserves are exactly what Granges Exploration and partner Abermin walked into once their Tartan Lake gold mine began operations in 1988. Located in northern Manitoba, Tartan’s problems were also exasperated by mill problems.

In 1987, both companies forecast a production rate of 50,000 oz per year from a deposit hosting 582,000 tons grading 0.31 oz. However, less than eight months after opening, head grades were running at less than 0.25 oz gold and mill recoveries averaged 60%. An independent consultant, hired by Abermin, concluded that the grade should be cut back to 0.19 oz along with the reserves.

Excessive dilution is a problem, closer to 13% rather than the anticipated 9%. Combined with the low mill recoveries, gold output has been markedly reduced. Although the mine will likely be turned around as a much smaller operation, the initial projections outlined in the feasibility study will not be met.

Probably the most talked about Canadian mining disaster can be found in Nova Scotia. In late 1987, Western Mining Corporation, one of Australia’s largest mining companies, paid $92 million for 100% of Seabright Resources. Seabright’s main asset is the Forest Hill gold mine.

Burdened by notoriously narrow gold-bearing quartz veins, the mine has never been close to achieving the operating parameters dreamed of in the original feasibility studies. Numbers bandied about by Seabright included three million tons grading 0.72 oz gold per ton at Beaver Dam and 400,000 tons grading 0.5 oz at Forest Hill — numbers which proved too good to be true.

When opened in June 1987, the mine was expected to produce 45,000 oz of gold per year. Experience showed otherwise. Massive dilution reduced mill head grades to less than 0.1 oz and output to less than half that originally expected.

Why so many mine failures? Several factors must be examined in order to find an answer. Most of the new mines which encountered problems were financed during the height of a 5-year gold bull market which peaked in August, 1987. Easy access to financing spurred many companies to rush developments. Eager, cash-rich institutions hungry for gold investments, placed less stress on due diligence — the need for good technical analysis of the projects, not just financial — and walked boldly, cash in hand, into the nightmares described above.

Jack McOuat agrees. A partner in Watts, Griffis and McOuat, one of Canada’s premier mining consulting firms, he also places part of the blame on inexperience. “A part of the problem lies with geologists estimating ore reserves, but being unfamiliar with mining. The volume of activity has allowed many inexperienced people to get involved with ore reserve calculations.”

On the engineering side, many engineers are relying on “computer-driven orebodies, with few geological constraints,” McOuat adds. Also, many developments neglected to carry out enough underground exploration and failed to complete representative metallurgical sampling.

Like a house, a good mining project is built on a foundation of sound technical information. Without one, the project, like a house, can become nothing more than a house of cards.