Fire River breathes new life into Nixon Fork

SITE VISIT

NIXON FORK, ALASKA — There is nothing easy about developing a narrow-veined gold mine in tricky geology, let alone one at a fly-in-only camp in remote Alaska.

But bonanza grades, a remarkable amount of existing infrastructure, and hard lessons learned from past operators should help Fire River Gold (FAU-V, FWR-F, FVGCF-O) as it works towards starting production at the Nixon Fork gold mine sometime next year.

The company has had an advantage from the start, having acquired the project for a fraction of the investments put in so far.

Harry Barr, president and CEO of Fire River, oversaw the purchase as head of Pacific North West Capital (PFN-T) in 2008.

As Barr tells it, he could hardly believe the back and forth with St Andrew Goldfields (SAS-T, STADF-O), which was trying to pare down its assets in the face of bankruptcy. During negotiations the price for everything at Nixon Fork eventually went from US$18 million to US$4 million to US$500,000.

“I had to leave the room to splash water over my face,” says Barr.

For a cool half-million dollars, Barr secured a fully permitted and bonded gold mine with a 200-tonne-per-day mill, partially installed carbon-in-leach (CIL) plant, 85-person camp, 1.2-km landing strip, mining vehicles and a self-contained diesel power plant. Fire River estimates that to bring the mine to its current state from scratch would cost well over $100 million.

After securing the property, Barr created Fire River as a gold-focused company, since Pacific North West was more of a platinum- group metals company. Barr then sold Nixon Fork to the freshly created company for US$500,000, plus US$2.5 million in shares, half a million in warrants, and had it cover $774,000 in Pacific North West expenses. Both companies fall under the umbrella of International Metals Group, which pools resources between its companies.

The mine has an established record, producing roughly 175,000 oz. gold at an average grade of 39 grams gold per tonne.

But that tantalizing 39 grams gold figure can be misleading. While now-defunct Nevada Goldfields managed to churn out 122,381 tonnes grading 42 grams gold between 1995 and 1999, St Andrew ran into trouble with grade control and dilution when it briefly operated the mine in 2007.

Recoveries dropped from the 83% Nevada Goldfields was achieving to 68% and the head grade plunged to 17 grams gold, all despite St Andrew throwing US$52 million at the project between 2004 and 2008. The company suspended operations after recovering less than 6,800 oz. gold in 2007.

Avoiding the same fate as St Andrew is a top priority at Fire River. Barr has entrusted the job of ensuring a successful mine to Richard Goodwin, the company’s vice-president of mining. Goodwin says a sound mine plan that provides high grades is crucial for the operation.

“Because we have a low-capacity mill, we can’t err on the side of higher tonnage, lower grade,” says Goodwin. “We really need to ensure that we do get high-grade ounces coming out of the mine.”

Re-logging thousands of metres of old core, and extensive underground mapping, have been first steps in taking control of Nixon Fork and better understanding the complex skarn deposit. “We are a geologically driven project,” notes Goodwin.

In a bid to increase clarity, geologists are working to reduce the 300 existing rock codes down to a more manageable 30. The core shack also has a sort of cheat sheet on the wall, with core cut-outs and the name of the corresponding rock-type underneath to make logging more accurate.

Goodwin is making sure Fire River does a thorough job before starting production to reduce dilution and assure it gets those ounces.

“It comes down to controlling dilution and having lots of drilling ahead of the mining plan,” says Goodwin, “and making sure that we’re mining correctly.”

Fire River got an early lesson in the benefits of being thorough when it cleaned out 513 kg of material from the ball mill left by the previous operator. Along with the worn down milling balls and steel fragments, the material contained 900 oz. gold that Fire River promptly sold for $1.1 million.

Also left by the previous operator was over 9,000 metres of definition core, the results of which were never released. Over the summer, Fire River had the core from 2007 and 2008 re-assayed and released a number of spectacular results.

Hole 61 cut 3 metres grading 498 grams gold, hole 49 hit 6.7 metres averaging 110 grams gold, hole 23 intercepted 4.4 metres carrying 122 grams gold and hole 11 returned 4.6 metres averaging 140 grams gold.

The results were largely from the 3000 and 3300 zones in the Crystal decline, which have seen the most development. The Crystal portal opens up a very short distance from the mill, a welcome design for when the harsh Alaskan winter rolls in.

Fire River’s stock price spiked several times over the summer as it released the re-assayed core. In July the company came close to its 52- week high of 75¢ reached in January, though its shares have lately been trading around 50¢.

In early October, the company released an updated resource estimate based on the historic drilling. The indicated resource now stands at 121,690 tonnes grading 26.9 grams gold for 105,168 contained gold oz. and the inferred resource adds 70,780 tonnes of 27.8 grams gold for 63,256 contained oz.

The update also included a re- source estimate on the existing tailings pond from previous operations. Nevada Goldfields was achieving 83% recoveries when it was processing 42 grams gold, so the thought was that there must be a fair amount of gold lying there waiting to be processed more efficiently, aided by the addition of a CIL circuit.

The pond is now estimated to contain 92,000 indicated tonnes of 7.9 grams gold for 23,287 contained oz., and a further 48,000 inferred tonnes of 7.4 grams gold for 11,377 contained oz.

At first Goodwin and others thought the tailings pond could serve as an early production start, but various delays mean it will likely now go online at the same time as the mine.

A recent preliminary economic assessment (PEA) looked at both the benefits of processing the tailings and of finishing the installation of the CIL circuit. The study estimated the cost of finishing the circuit — which was 60% completed by St Andrew– at US$7.6 million.

On the tailings pond, the PEA outlined a pretax net present value of US$3.3 million using a 5% discount, and an internal rate of return of 24%, both using a US$1,000-peroz. gold price.

Tailings would be processed during the months of the year that the pond is not frozen, and waste from the process would be kept on an already constructed dry-stack. The tailings would be supplemental to the underground operation.

As to the benefits of completing the CIL circuit, the study showed recoveries of 79% from existing tailings, but more importantly, it showed that future recoveries from mined ore could be boosted to between 94% and 97% with the circuit.

The study looked at the original base case design by St Andrew, which did not factor in any carbon recycling. It proved to be far less economical because of both the reagent cost and transport costs, which account for 50% of operating costs for the tailings processing.

Fire River plans to install a carbon stripping circuit to recycle the carbon, while in the future the company might install a Merrill- Crowe system to use less reagent and allow the production of rough gold bars to avoid shipping out concentrate.

Several aspects of the PEA highlight the other big challenge at Nixon Fork: transportation. Roughly 240 km northwest of Anchorage by a flight over the mountain range that hosts Mt. McKinley, the site is a long way from any roads.

The hard-packed dirt runway is long enough to accommodate huge Hercules aircraft, but flying everything in still
means paying a premium and requires extra planning.

“Transportation costs are so critical here,” says Goodwin.

He does, however, note that while providing an extra challenge, costs are less than some would think. Giant DC-6 planes fly 3,000 gallons of diesel in per trip at about $5.30 per gallon, while bulk freight runs at about 70¢ a pound.

The site has seven 9,400-gallon fuel tanks for about six weeks capacity and the company plans to add two more. The extra storage can be crucial in winter months, when strong winds and low visibility can play havoc on getting supplies.

In the winter, “fuel flies in on days they can fly,” says Goodwin.

The company will have a clearer picture of both transportation and total costs when a second PEA, looking specifically at resuming underground mining, is released near the end of this year.

The PEA will incorporate the latest resource update, but not any of the 28,000 metres of drilling the company is currently working through.

The drill program includes some surface drilling around the Whalen and Northstar targets, located 2 km south of the Crystal decline at the end of the airstrip. Re-assayed results from 2007 on the Whalen zone, meanwhile, include 15.5 metres of 12 grams gold and 7.8 metres grading 5 grams gold.

The program, however, will concentrate mostly on underground drilling. The company recently secured a second underground rig and will adapt the surface rig for underground work as well to ensure good progress over the winter months.

As in past operations, most of the work needs to go into defining the existing mine, rather than regional exploration. But there is plenty of speculation that more deposits are lying in the area, which Fire River will have more room to explore once in production.

For now, Barr, Goodwin and their team are working on the more immediate goal of getting into production by next summer. Many companies talk of a quick start-up, but Fire River is uniquely positioned to make it a reality.

“You couldn’t justify starting from the ground up, but everything is here,” says Goodwin. “The threshold to launch is very low.”