Newmont’s Hope Bay nears construction decision

When you’re 685 km northeast of Yellowknife, or 160 km above the Arctic Circle, just about everything costs more than it does down south.

Over the past four years, Newmont Mining (NEM-N, NMC-T) has sunk over $2 billion into its Hope Bay gold project in the northern reaches of Nunavut, including the $1.5 billion spent acquiring Miramar Mining in late 2007. It spent $300 million there this year alone, and anticipates a board decision to move the project into full construction and make Hope Bay Nunavut’s second major operating gold mine.

Newmont completed 90,000 metres of surface drilling and 10,000 metres of underground drilling at the 10-million-oz. gold project this year. It’s now entering the final stages of completing a decline at the high-grade Doris North deposit to provide access for test mining and underground exploration. Some 400 workers, including 160 Inuit, are on site and busy stockpiling ore. All that’s needed now is a mill, as well as a few key permits from the Nunavut government and signed agreements with local organizations. 

According to a media spokesman for Newmont, a board decision to build a mill is expected before year-end. 

A quarterly report filed in late October is more cautious, however, with the company stating it continues to “evaluate development options and economic feasibility for Hope Bay comparatively with other development opportunities within the company’s wider project pipeline.” Despite being the world’s second largest gold producer, Newmont has no prior expertise working in harsh northern climates. Its other mines and development projects are in the warmer jurisdictions of Nevada, Mexico, Peru, Ghana, Indonesia, Australia and New Zealand.

As seen by Agnico-Eagle Mines‘ (AEM-T, AEM-N) ambitious but difficult foray into Nunavut over the past few years, the Arctic cold can often lead to unforeseen problems and higher-than-expected operating costs. Production at Agnico’s Meadowbank gold mine 300 km west of Hudson Bay near the Arctic Circle has so far been profitable, but not easy: an access road to the mine that was supposed to cost $275,000 per km to build came in at $550,000 per km; a kitchen fire early this year cost the company $20 million and forced it to evacuate 300 employees and operate the mine with a skeleton crew for two months; emergency parts need to be flown in, and preferably during the short summer shipping season; snowstorms can quickly and drastically reduce visibility; near-total darkness descends on camp for three months a year; polar bears need to be watched for; and the largely unskilled aboriginal labour force needs to be trained.

While Newmont has not released a feasibility study for the project nor an updated National Instrument 43-101 resource estimate, previous work by Miramar outlined a gold resource of over 10.6 million oz. in all categories.

The ounces are contained in several deposits spread throughout the Hope Bay greenstone belt, which stretches more than 80 km long and 20 km wide and is entirely under Newmont’s control.

Most of the company’s exploration this year expanded and confirmed the principal orebodies delineated by Miramar, but some work was also done on around 90 district targets in the belt. 

Doris, the starter underground mine located at the northern end of the belt and scheduled to go into production first, holds 1.1 million indicated tonnes grading 19.31 grams gold per tonne, according to Miramar’s 2006 resource estimate, and contains 726,000 oz. gold at a cut-off grade between 5 grams and 8 grams gold. It also contains 1.6 million inferred tonnes at 14.54 grams gold for another 741,000 oz. gold, under a cut-off grade between 5 grams and 7 grams gold.

Boston, another high-grade orebody but one located at the southern end of the greenstone belt, contains 4.7 million tonnes averaging 10 grams gold across all categories, while the much larger but lower-grade Madrid deposit hosts 75 million tonnes averaging 3 grams gold for 7.6 million contained oz. gold.

Madrid is several kilometres south of Doris at the northern end of the belt. If production at Doris goes as planned, Newmont says its next step would be to develop multiple operations at nearby deposits such as Patch 14, which is part of Madrid, and Doris Central. The third phase would then be to develop as much of the district as possible, similar to Newmont’s operations in Nevada. 

Shares of the senior gold producer closed up US5¢ to US$69.38 in New York on Nov. 4, with a 52-week range between $50.05 and $71.25.