Buried in the tropical rainforests in the western highlands of Papua New Guinea lies one of the world’s most important known undeveloped gold deposits — so big that when it comes on stream in the 1990s it could rival South African mines in terms of annual gold output.
The deposit, one-third owned by Placer Pacific, the Australian subsidiary of Placer Development of Vancouver, is called Porgera. It contains 78 mill ion tonnes of geological reserves grading 3.76 g gold per tonne, including a 1.7- million- tonne high grade core averaging 40.02 g gold per tonne. Placer, the ope rating com pany, and its Australian partners, Renison Goldfields Consolidated and MIM Holdi ngs, expect to start negotiating a development agreement next year to build a $4 00(US)- million mine. The mine could be in production by 1991, eventually turnin g out 15.5 tonnes of gold a year.
The Porgera gold deposit and a slew of others (see table, page 10) being explored in the East Indies by a plethora of junior exploration companies are class ic examples of what are known as epithermal gold deposits. If successfully broug ht into production, these new deposits could have a dramatic effect on the gold supply- demand balance in the 1990s.
According to one theory, these big, shallow, low grade epithermal deposits form when hot geothermal solutions laden with gold rise to the surface along fractu res in the rock overlying active volcanic centres. They have been discovered all around the Pacific Ocean in what is known to geologists as the Rim of Fire — a ring surrounding the Pacific where the oceanic crust of the Pacific Plate collides with, and is subducted under, continental land masses. This occurs on both t he southeast and southwestern margins of the Pacific Plate at rates of between t wo and three centimetres per year. In the case of southeast Asia, perhaps the mo st geologically active area in the Pacific, oceanic crust is being subducted und er the oceanic crust of the Indian-Australian Plate. The result is the largest c oncentration of volcanic activity in the world (there are 120 active volcanos in the region). Although epithermal-type deposits are nothing new to geologists — the Emperor m ine in New Zealand which is of epithermal origin has been mined si nce 1930 — their significance as a major source of gold has only recently been recognized.
Geoffrey Loudon, an Australian geologist who worked for Placer before formin g his own company in 1980, has uncovered another big gold deposit in southeast A sia. It also has the potential to produce gold at a rate typical of several Sout h African mines — mines that currently account for half of the world’s total go ld production. Unlike the Porgera deposit, this one could be easier to mine beca use of its location near the coast of Lihir Island, a small piece of land 40 km to the northeast of the Papua New Guinea. Loudon’s company, Niugini Mining (Aust ralia) Pty is a 30% joint-venture partner with Kennecott Mining (70%) in the pro ject. They have outlined 137 million tonnes of mineralization grading 2.66 g gol d per tonne in a deposit that is just one kilometre inland from a beautiful whit e beach formed in the mouth of a Quaternary volcanic caldera. The companies are conducting a feasibility study for mining the deposit by open pit methods at a r ate of 15,000 tonnes per day to extract 23 tonnes of gold a year.
The volcanic activity responsible for the deposit is so recent geologically th at ambient rock temperatures are 55 degrees C at 80 m of depth. Nuigini estimates th e companies will have to spend $12 million over a 9-year period to drill large- diameter holes 80m deep, then pump cool sea water into the rock formation to coo l it so that it can be mined safely at depth. The scheme would add $2 to the cos t of producing an ounce of gold. Such a mine could be in production by the end o f 1989, according to General Manager Gavin Thomas. It would cost about $450 mill ion and would be capable of producing a gram of gold at a cost of between $4.50 and $6.50. Present reserves are good for a mine life of 29 years, but Thomas is confident reserves will double once a new zone has been adequately drilled.
Canadians are most familiar with epithermal gold deposits in unglaciated terra in, such as Echo Bay’s Round Mountain mine in Nevada, City Resources’ Cinola dep osit on the Queen Charlotte Islands off the coast of British Columbia and the Pl acer Dome’s Kidston mine in northeastern Australia. These deposits should contin ue to contribute to what has been a stunning increase in the production of gold outside of South Africa. Since production peaked at 1,000 tonnes in 1970, South African production has steadily fallen to a low of 640 tonnes in 1986.
Many market analysts, including those at Consolidated Gold Fields of London, England, predict that production from the southwestern Pacific (Indonesia, Malays ia, the Phillipines, Papua New Guinea, Australia and New Zealand) will surpass C anadian production by 1990. Consolidated Gold Fields conservatively predicts tha t production in 1990 from the region will be about 254 tonnes. By contrast, Cana dian production last year was about 107.5 tonnes. Excluding Australia, 50-150 to nnes of gold could be produced every year from epithermal deposits and their all uvial derivatives in southeast Asia by 1990. Two deposits already in production in Papua New Guinea — the Bougainville and Ok Tedi copper-gold mines — produce d 16 tonnes and 20 tonnes of gold respectively in 1986. Projections for Canadian production in 1990 are about 154 tonnes.
In Indonesia CRA and New Zealand Goldfields have so far outlined 27 million tonnes grading 2.7-2.9 g gold per tonne on the island of Kalimontan. Kenneth Phil lips, an exploration consultant for New Zealand Goldfields, says mineable reserv es on the Kelian property could be in the order of 20 million tonnes at a grade of about 4 g gold per tonne and there is potential for 10 million more tonnes. ” There are still a lot of ifs, ands and buts,” he admits, “but the partners are looking at making a mining decision in mid-to late-1988.” Production rates could be 5.3 tonnes per year from three million tonnes of ore mined each year. Capital costs could be $140 million and mining costs could be as low as $9 a tonne.
Not surprisingly, exploration geologists and investors alike are concerned about how the world is going to absorb this extra production and what effect this will have on the price of gold. Should prices drop, for whatever reason, the low-cost mines founded on epithermal-type deposits around the Pacific Rim of Fire will be in business long after many others have been forced to close. Higher-cost underground operations in Canada may not fare so well at significantly lower prices. But as Peter Fells of Consolidated Gold Fields says, “gold would have to d rop significantly to have any impact on global gold output.
“I don’t think we have to fear that the banks will become sellers of gold in the future as they did in the U.S., for political reasons, in the 1960s and ’70s, ” Fells says. “Unless there is a financial dislocation like the one in 1929, it is unlikely that we’ll see a gold standard similar to that of the 1930s” either. Who says gold is a scarce commodity? Australia’s largest company, Broken Hill Pty., produces so much of the yellow metal, it announced last January that it plans to spin-off its pure gold mining assets into a separate portfolio to take full advantage of today’s buoyant gold market.
Last year bhp sold 307,000 oz of gold and expects to sell in the order of 485,000 oz this year. Most of this cames from the Ok Tedi mine in Papua New Guinea, in which bhp has a 30% interest. But by 1989 this mine will have quickly become a copper, not a gold, producer; so it was not included in the new bhp gold float.
Nevertheless bhp could well become the fourth largest gold producer in Australia by 1990, says Dr Brian Belcher, the company’s corporate representative in Eur ope. Four properties are already in production and three are in the advanced dev elopment stages. Al
so, the company’s annual exploration expenditures are $71 mil lion(A). Production should escalate quickly from 190,000 oz by the end of 1987 t o 300,000 oz in 1990, Belcher says. The company’s new mines should include the C oronation Hill property in Australia’s Northern Territory, the Gympie property a nd the Macraes Flat joint venture.
To help fund the massive capital expenditures required to develop newly discovered gold mines in the non-communist world, compani es are looking more and more to gold loans whereby mining companies borrow gold bullion and then sell it on the bullion market for the cash needed to build a mi ne. Then once the mine is in production, a percentage of annual output (15%-25%) goes to the gold lender to pay off the loan. The rest of the mine’s gold production is sold on the bullion market.
Locked in at, say, $400(US) per ounce, such loans are the lowest effective lending rates (about 3.5%) available today.
“This vehicle, under current conditions, is capable of providing an enormous amount of money,” says Warren Magi, managing director of Mase Westpac, an Australian company which recently acquired Johnson Mathey.
“Since most investors in gold mining stocks expect to see a surge in earnings when prices rise sharply, a manager must balance this with his hedging on the fu ture price of gold through gold loans,” Magi says. He recommends mining companie s combine strategies of spot selling, forward selling, options and futures throu gh a marketing department.
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