Goldcorp feasibility shows drop in costs — Mine could produce from new zones at US$88 per oz.

Results of a feasibility study commissioned by Goldcorp (G-T) show that the new high-grade zones at the Red Lake mine in Balmertown, Ont., could be mined at cash costs of below US$100 per oz.

The high-grade zones have been outlined in exploration drilling over the past three years. Goldcorp’s current reserve calculation shows 1.26 million tonnes with an average grade of 46.6 grams gold per tonne (1.4 million tons grading 1.36 oz. per ton).

The high grade of the zones is the key to the low production cost predicted in the study. Cash production costs, historically a problem at the mine, are expected to fall to US$88 per oz. or US$100 per ton. Total unit costs, including depreciation and depletion, would be about US$137. The cost estimates assume a Canadian dollar at US69 cents.

Goldcorp officers also suggested that cutting practices at the mine (rounding all grades down to 10, 5 or 2 oz. per ton) may mean that the reserve calculation understates the actual grades. Uncut grades are over 70 grams per tonne (2 oz. per ton) and would have a proportionate effect on the unit production cost.

With gold at US$300 per oz., the project has a net cash flow (before discounting) of US$154 million and an internal rate-of-return of around 49%. The capital would be paid back in 17 months.

The feasibility study estimates a US$56.2-million capital cost, of which US$4.2 million are preproduction dollars already spent or budgeted. About half — US$23.8 million — is to be spent on underground development, which will include an internal ramp, new ore and waste raises, and a main haulageway. There are at present no plans for a new shaft to surface.

A further US$15.5 million is earmarked for expansion and upgrading at the mill. Goldcorp has bought mill equipment from the Contact Lake mine in Saskatchewan, recently closed by Cameco (CCO-T), and will add other equipment to complete the new milling circuit. An autoclave is also planned to treat refractory sulphide ore, but will not be added in the first phase of development. Sulphide ore is to be stockpiled on surface for later treatment.

New surface facilities will eat up US$3.4 million and construction management will cost US$8.2 million; the rest (US$5.3 million) is held for contingencies.

Upgrades to the shaft and ventilation system are already under way, and pre-production development and surface construction work are scheduled to start in November. The new mill should be commissioned in January or February of 2002.

With the strike at Red Lake now in its 27th month, Goldcorp announced it will be using contractors to do the development work. Chairman Robert McEwen also indicated that the company would consider having the new zones contract-mined if the strike could not be settled in time for production.