Pacific North West Buys Nixon Fork Gold Mine

While many cash-poor resource companies are experiencing considerable pain in the current bear market, their well-funded brethren are using these conditions as an opportunity to acquire assets.

Pacific North West Capital (PFN-T, PAWEF-O), for one, is buying the Nixon Fork gold mine from St Andrew Goldfields (SAS-T). Nixon Fork, a past-producer that closed in 1999, is located 56 km northeast of McGrath, Alaska, and about 350 km northwest of Anchorage.

Pacific North West paid US$100,000 for an option on the mine in December, and after conducting a due-diligence inspection, decided in February to go ahead with the purchase for another US$400,000.

The transaction has a special significance for Greg Myers, the company’s vice-president of business development. While working for Battle Mountain Gold, Myers, an expert in skarn deposits, was a member of a team that discovered the skarn deposit at Nixon Fork in 1984-85.

Nevada Goldfields operated the underground mine between 1995- 1999, but closed it because of low gold prices. The mine produced 138,000 oz. gold, 2.1 million lbs. copper, and some silver. Average head grade was 42 grams gold per tonne, and production costs averaged US$266 per oz.

St Andrew bought the mine in 2003, spent US$15 million on upgrades, and completed about 9,500 metres of drilling. In 2007, the mine produced about 6,800 oz. gold and 79,000 lbs. copper. However, production was suspended in October 2007 because the geometry of the zone being mined was not as predicted and was causing production issues.

A National Instrument 43-101 resource estimate completed in 2006 put proven reserves at 47,000 tonnes grading 34.1 grams gold per tonne and probable reserves at 137,500 tonnes grading 18.6 grams gold, for 134,000 oz. gold. At a cutoff grade of 21 grams gold per tonne, measured resources are estimated at 23,400 tonnes grading 36.8 grams gold, for 27,700 oz. gold. Indicated resources add another 126,000 tonnes at 21.6 grams gold and inferred 93,000 tonnes at 15.5 grams. Tailings are estimated to have indicated and inferred resources of 116,000 tonnes at 8.1 grams gold, for 30,000 oz.

The 2006 technical report also calculates project economics, but many of the cost parameters and commodity prices have changed since. However, it is worth noting that the report projects a throughput of 45,000 tonnes per year for annual production of 40,000 oz. gold.

Based on reserves, the mine life was estimated at four years. At 2006 prices, operating costs were estimated at US$359 per tonne milled, or US$368 per oz. gold. Copper grades were estimated at 1.2%, and silver grades at 27 grams per tonne. The technical report puts third-party royalties at 7%.

The mill, with an estimated capacity in the range of 140-200 tonnes per day, includes a flotation plant, a gravity gold separation circuit and a new carbon-in-leach (CIL) circuit. The site has mining vehicles, a power plant with four diesel generators, maintenance facilities, living quarters, offices and an airstrip.

While in operation, the mine produced dor bars from gravity circuit concentrate, while concentrate from the flotation circuit was shipped for further processing. Once the CIL circuit is operational, it would process tailings from the flotation circuit.

The mine and mill are permitted and bonded. A 115,000-tonne stockpile of mill tailings grading about 8 grams gold per tonne is ready to be fed to the CIL plant. The mine is accessed via a 250-metre-deep ramp, but the company hopes in the future it will be possible to mine it as an open pit.

Pacific North West is planning a technical and financial evaluation of Nixon Fork to bring the mine back to production. It believes that the property has the potential for discovery of more resources with further exploration.

The company figures that it may be able to restart production with a capital expenditure of US$1 million, with a view to producing 40,000 oz. gold per year. With the new CIL circuit, Pacific North West hopes to achieve gold recoveries as high as 98%.

The Nixon Fork deal represents a diversification strategy for Pacific North West, which, until now, has focused on platinum exploration. In the current economic crisis, the gold market seems more resilient.

Gold produced at Nixon Fork is subject to a 7% net smelter return (NSR) royalty, while copper and silver are subject to a 4% royalty. The property is subject to a monthly lease payment of US$3,000, which is credited as a royalty prepayment.

Nixon Fork can be reached by a charter aircraft operating from McGrath, Anchorage or Fairbanks. The airstrip can handle a Hercules C-130 aircraft. Winter road access is available from McGrath, and river access is available via Kuskokwim River from Bethal on Bristol Bay to Medfra, 13 km south of the mine on a winter trail. When the mine was in operation, diesel was flown in, but it might be possible to ship it on a barge.

Pacific North West also has an option agreement with Kinbauri Gold (KNB-V) for the Fiedmont platinum project in Quebec’s Vald’Or region.

On Oct. 31, Pacific North West had working capital of $7.7 million, 61.7 million shares outstanding, and 76.8 million shares fully diluted. At presstime, the company’s shares were trading at 13¢ in a 12-month range of 5-61¢.