Go small: Trends make micro-mining increasingly viable

Special to the Northern Miner

For many junior companies, life consists of a search for the next Hemlo, the next Voisey’s Bay or the next Kabanga. They want big plays.

In this, they can be like a person focused on a big win in a lottery or casino, rather than paying attention to the steady growth of savings from employment income. That big win may remain just a dream, while the slow and steady work on a smaller scale may be a surer route to success.

This small-is-beautiful approach flies in the face of much accepted wisdom in the mining world today. For the past two decades, most metal prices have been depressed, resulting in a global slump in mining. Only the largest deposits were considered viable; small ones were believed to be uneconomic. Even with more recent higher commodity prices that appear remarkably durable, the majors are going even larger — looking for deposits that will let them extract 100,000 or even 300,000 tons per day. Again, small deposits are left out of the mix.

However, there are several trends that make seeking out and extracting small mineral deposits increasingly viable.

First, there is growing public dissatisfaction globally with current mining methods, which may involve a large influx of outsiders, disruption of the local economy, and a rapid decline as the orebody runs out. Mining ghost towns all over the world are testaments to the effects of boom-and-bust mining.

As a result, even some small communities with a strong need for economic growth are saying no to this kind of mining, sometimes out of concern about negative social and environmental effects. Helping them say no effectively are Internet-savvy non-governmental organizations, which can mount fast and effective pressure campaigns against mining companies perceived as acting in a heavy-handed way.

Another major trend involves “sustainability,” which can mean a host of things — ensuring the financial resources for the business to continue long term, working in a way that will allow future generations to meet their own needs, environmental stewardship, and providing long-term economic benefit to surrounding communities.

A third trend is the high commodity prices mentioned earlier — which may give mining companies the financial resources to try new ideas. This may mean that the time is right to consider seeking out smaller deposits to be worked through “micro-mining,” which involves these aspects:

* small mineral deposits, possibly in the US$75- to US$150-million range, and generally at shallow depths — from surface to 200 metres depth, and compliant with National Instrument (NI) 43-101;

* organic growth through retained earnings and little up-front debt or equity financing;

* living within the means of the deposit — conserving capital and operating financial resources;

* thinking like a farmer — taking a long-term approach;

* smaller workforces, often involving mostly local residents

* in some cases, operating perhaps eight months a year, and shutting down in winter; and

* evaluating the exploration potential for nearby deposits, and repeating the cycle.

This approach to mining is far from new — historically and even now in many parts of the world, it has been customary. But many juniors are reluctant to adopt the approach. One reason is that it doesn’t fit into their usual economic model, which involves building something that they can sell to a major. Another reason is that the cost structures of micro-mining are unfamiliar. They may also be concerned about meeting regulations regarding environmental performance. Lastly, many juniors want to follow the larger companies, and go big.

A case study

To understand how this can work, consider a hypothetical example in which drilling proves reserves to be 150,000 oz. gold at 0.4 oz. per ton — NI 43-101-compliant and with a current value of $90 million, assuming C$600 per troy ounce. Nobody else is interested in this deposit. You have started the environmental assessment, and the understanding is that the property is going into advanced exploration stages.

An extraction plan according to micro- mining principles might involve going underground in year one, with a small hoist plant and shaft; lateral development of ore; and setting up extraction and further exploration to keep the project sustainable with a budget of $5 million. In year two, it could include building revenue by mining 15,000-20,000 oz., (with revenue of $11-$14 million); extraction work plus a review and update of the plan; environmental assessment for further mining, and setting up for exploration with a budget of $11-14 million).

You are best to start work on building a small gravity concentrating mill (at a cost of about $2 million) only after the engineering studies are completed, and the project approved.

But what about the mine shaft?

Expensive, complex, slow to build and sometimes perceived as over-regulated — all are true about mine shafts, provided you are sinking a large, high-production shaft.

In micro-mining, it’s different. The shaft may be just 3 metres in diameter. A 25-metre headframe can be assembled in a matter of days when properly engineered. The hoist-room will cost in the neighbourhood of $40,000, and the hoist about $150,000.

This setup can produce up to 400 tons per day, and this means that six to eight months’ work on our hypothetical orebody would yield the 15,000-20,000 oz. projected for year two.

The relatively low costs of micro-mining mean significantly lower financing needs and concentrating on shallow deposits means quick positive cash flow. This allows junior exploration companies to move into production stages quickly and without excessive spending.

In many parts of the world, aboriginals and rural communities alike may find micro- mining fits their needs. This can be either through a mining company working in the group’s geographic territory, or the community itself may contract to work with members of the mining sector in a business venture that provides employment for community members, earning money from the land they have lived beside for generations.

In such cases, if desirable, the mine can be shut down during the winter for community purposes, it may cut production short if the desired cash flow has been achieved early owing to higher grades or if the community desires to curtail operations during hunting season, for example. Keeping the mine appropriate would also involve maintaining high environmental standards that minimize the mine’s impacts on the air, land and water, with smaller footprints on the land.

— The author is a senior mining engineer in the Red Lake, Ont., office of Golder Associates. He can be contacted at 807-727-1915 or ehinton@golder.com.