Explorers say it’s cheaper to find gold in Nevada

To finance the acquisition of the world’s second largest gold mining group, Minorco is expected to sell off ConsGold’s 49.3% interest in Newmont Mining Corp. of New York.

While Newmont is currently carrying a debt load of around $1.5 billion, the potential of Newmont’s gold producing subsidiary is likely to make the New York company an attractive target for some of Canada’s largest mining outfits.

As the largest resident on Nevada’s 45-mile Carlin gold trend Newmont Gold controls some 302.6 million tons of material averaging 0.049 oz per ton in a state where the cost of finding an ounce of gold has traditionally been much lower than most of Canada’s best known mining camps.

Canadian companies that ventured down to the silver state during the late 1960s did so because it possessed a per ounce gold finding cost about one half of Canada’s and the U.S. Reward ratio Franco Nevada Mining (TSE), which holds a substantial royalty interest in American Barrick Resources’ (TSE) Goldstrike mine, noted th at Nevada offered the best risk-reward ratio of any region on the North American continent.

When the company was incorporated in 1983 to conduct exploration in Nevada, the geology of the area had already yielded well over 150 million oz gold and exploration costs were low relative to Canada. Other advantages included mild winters, year-round exploration potential and no taxes.

According to Hans Schreiber and Mark Emerson, authors of “Discovery Costs and Potential Cash generation from North American Gold Deposits,” the total gold related exploration expenditure in the U.S. by some 30 major companies from 1961 to 1983 amounted to $1.45 billion. Over the 23-year period, some 46.5 million troy oz gold have been indicated in 40 to 45 discoveries. The discovery cost works out to be about $31(US) per oz, they concluded. In Canada over the same period, $1.65 billion was spent for gold exploration, resulting in the discovery of some 20 deposits containing 28 million oz gold for a discovery cost of about $59(C) per oz. At 1983 exchange rates, that worked out to $46(US) per oz. Second conclusion

“The first conclusion one can draw from this is that the cost of finding an oz of gold is 50% higher in Canada than in the U.S.,” Franco-Nevada Chairman Seymour Schulich. “The second conclusion is that more than twice as many discoveries were made in the U.S. (45) than in Canada (20) over the same period of time.”

In the five years since the Scheiber/Emerson paper was published, a number of discoveries by American Barrick and Newmont Mining have put Nevada’s Carlin trend in the same league as Hemlo, Ont., and some of South Africa’s largest deposits.

Having already enabled the U.S. to pass Canada and become the world’s third largest gold producer, Nevada is expected to be producing at least four million oz annually by 1990.

By far the largest contributors to Nevada’s future production inventory will be Newmont Gold and American Barrick.

Production from Newmont’s Carlin operations was expected to reach 830,000 oz last year and it is spending $450(US) million to increase its Nevada gold output to 1.6 million oz by 1991. Production from the three Hemlo gold mines — the David Bell, Golden Giant and Page-Williams — exceeded 900,000 oz in 1988. Goldstrike operation

Barrick is spending $365 million to develop 128.4 million tons of grade 0.095 oz gold at the huge Goldstrike operation where production is scheduled to increase to over 900,000 oz in 1992 from 115,000 oz last year. As reported (N.M., Jan 16/89), over the life of the Goldstrike development plan, cost per ounce will be about $190(US) to $195.

But it isn’t just the cost of finding gold which has brought other companies like Rayrock Yellowknife Resources (TSE), Galactic Resources (TSE), and Corona Corp. (TSE) to Nevada. They are benefiting from recent improvements in recovery processes like heap leaching which have made deposits with average grades as low as 0.025 oz gold per ton economic.

Almost all of the gold mined in Nevada to this point has been from lower cost, lower grade open pit mines. The 16 Carlin deposits which comprise Newmont’s Carlin operations will be mined via open pit methods. American Barrick recently opted to mine its Post/Betze deposits via a huge open pit.

“The large size of many Nevada deposits makes the unit cost of getting ore out of the ground relatively cheap in comparison to Canada,” said Dave Hutton, Rayrock’s vice-president exploration. Rayrock is one of the pioneer gold mining companies in Nevada. Cash costs

Amax Gold’s Sleeper mine in Humboldt Cty., for example, which produced 70,000 oz last year is the U.S.’ lowest-cost large gold mine with cash costs in the $110(US) per oz range. Similar production costs have been reported at FMC Gold’s Paradise Peak gold mine southeast of Reno. It is producing at a rate of 175,000 oz gold annually.

Toronto-based Rayrock has a stake in three producing Nevada gold mines. They are the Pinson, Preble and Dee mine where cash operating costs in 1989 added up to $164(US) per oz. In a joint venture with Placer Dome Inc. (TSE), Rayrock is also attempting to bring a fourth Nevada mine, the Marigold into production. The project comprises four orebodies all of which are oxidized and, according to Rayrock, easy to process and mineable by open pit methods.

The potential of the Nevada gold belt has not escaped the attention of speculators and mining companies who would like to share in Nevada’s untapped riches. Texas oilman T. Boone Pickens unsuccessful bid for Newmont left the New York company in its current debt-ridden state. According to insiders, a number of Canada’s largest mining companies are waiting Minorco to make its next bid for Consolidated Gold Fields.

Placer Dome Chairman Fraser Fell said recently that he is monitoring the Minorco situation, and with a prize like Newmont Gold involved, it is hardly surprising that others are doing the same.

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