Chimney, Rabbit Creek merger seems sure thing

The proposed swap of assets between Santa Fe Pacific (NYSE) and London-based Hanson PLC (NYSE) is expected to transform the Chimney Creek and Rabbit Creek mines, immediately north of here, into a single large operation.

The two companies signed an agreement for the swap in late January. Santa Fe’s coal and quarry assets will be exchanged for the gold assets of Hanson’s wholly-owned subsidiary, Gold Fields Mining.

The companies, which are completing due diligence and other details, expect to close the deal early in the second quarter.

Last year the two mines, which The Northern Miner visited recently, produced about 405,000 oz. at a combined production cost of about US$175 per oz. Reserves of the merged operations should be sufficient to sustain production until 2011. That includes deep sulphide reserves now being evaluated. Gold Fields operates Chimney Creek, which consists of three pits: North, Discovery and South.

The South pit is adjacent to and north of the Rabbit Creek deposit, which is essentially an extension of the South pit deposit.

Gold Fields located the Discovery orebody in the fall of 1984. That led to the discovery of the adjacent North pit deposit in April, 1985. In August, 1986, geochemical sampling and step-out drilling unveiled the South pit deposit, about two miles south of the North pit. It did not outcrop but, instead, lay beneath 15-300 ft. of alluvial cover.

Ownership of land immediately south of Chimney Creek’s South pit proved lucky for Santa Fe.

Santa Fe Pacific Minerals, a subsidiary of Santa Fe Pacific, is one of the largest private mineral land-holders in the western U.S., with about 7.2 million acres of mineral rights. It received much of the land through railroad grants dating back to the 19th century.

The structure of the grants varied depending on location, with those in Northern Nevada generally following a checker-board pattern of every second section along a 40-mile-wide strip (20 miles on either side of a rail line). (While Rabbit Creek would not be subject to the mining royalty being proposed by the Clinton administration because it was acquired as part of a land grant, Chimney Creek, sitting on public land, would be subject to any such royalty.)

Drilling by Santa Fe in 1987 encountered potentially ore-grade material in what is essentially an extension of Chimney Creek’s South pit. The Rabbit Creek deposit lies under 200 ft. of alluvial cover in the north and 500 ft. of overburden in the south. Prior to start-up in 1990, reserves at Rabbit Creek were 11.7 million tons of oxide mill ore grading 0.13 oz. gold per ton, 33.5 million tons of leach ore grading 0.027 oz. gold and 6.3 million tons of sulphide mill ore at 0.19 oz. gold.

Production between start-up and January, 1993, totalled 1.6 million tons of oxide mill ore grading 0.21 oz. gold, 2.6 million tons of leach ore grading 0.022 oz. gold, and about 23,000 tons of sulphide mill ore at 0.14 oz. gold. Minable reserves at Chimney Creek as of July 1, 1992, were 72.1 million tons grading 0.035 oz. gold, including 8.8 million tons of oxide mill reserves grading 0.11 oz. gold and 63.3 million tons of leach reserves with an average grade of 0.024 oz. gold.

Chimney and Rabbit Creek are “classic Carlin-type,” sediment-hosted deposits. Both contain sulphide reserves below the oxide reserves although studies to date have not found them economic. The proposed merger would make the economics more attractive, so additional studies are expected. Studies are also under way to increase efficiency of the combined operation. For example, neither operation has a dispatch system, yet the combined truck fleet will total about 60 units.

With a stripping ratio of about 10-to-1, Rabbit Creek recently used an 11,000-ft. conveyer for stacking run-of-mine waste. But as mining progressed below the water table, sticking and clumping of wet alluvium forced the company to revert to truck haulage.

George Byers, a spokesman for Santa Fe, said the conveyer is on standby and may be used again if a new energy tax is imposed.

Mill capacity at the combined operation will be 5,500 tons per day using carbon-in-leach.

Cutoff grades are 0.06 oz. gold at Chimney Creek’s 2,500-ton-per-day mill and 0.05 oz. gold at the Rabbit Creek 3,000-ton-per-day facility. Recoveries at Chimney Creek are better than 90% while those at Rabbit Creek average about 92%.

Both mines use run-of-mine heap leaching with a cutoff of 0.01 oz. gold at Chimney Creek and 0.013 oz. gold per ton at Rabbit Creek.

The combined operations leach between 15 and 16 million tons per year with both mines reporting leach recoveries of between 65% and 68%. Santa Fe Minerals expects post-merger gold output to total 700,000 oz. this year at an average cost of less than US$170 per oz. Those figures include the addition of Gold Field’s Mesquite mine in Imperial Cty., Calif., and Santa Fe’s existing Lone Tree open pit, south of Rabbit Creek/Chimney Creek. Gold production is expected to exceed 900,000 oz. in 1994 with cost remaining below US$170 per oz.