High River exceeds target at Siberian gold mine

The Siberian region of Buryatia is known for its punishing climate and remoteness. Yet for High River Gold Mines (HRG-T), it is increasingly synonymous with reward.

The Toronto-based company is a partner in the Russian company Buryatzoloto, which last year exceeded targeted gold output by 7.6% and achieved record production of 89,847 oz.

The joint venture consists chiefly of two underground mines, Zun-Holba and Irokinda, which are at opposite ends of Lake Baikal in the Eastern Sayan range at an altitude of 1,989 metres.

Both mines have been in production for more than seven years. In 1997, they cranked out a total of 85,794 oz. gold — an increase of 16.3% over the previous year. Output at Zun-Holba was 57,125 oz., compared with 48,892 oz.

in the previous year, whereas Irokinda produced 28,669 oz., compared with 24,885 oz. in 1996. In addition, production from Buryatzoloto’s placer operation increased to 4,053 oz. gold from 3,948 oz. over the 2-year period.

Buryatzoloto’s cash operating costs for 1997 averaged US$199 per oz., unchanged from the previous year. Total cash cost was US$249 per oz., compared with US$247 in 1996. “We are quite confident that we’ll be able to reduce cash operating costs to US$182 per oz. in 1998,” High River Chairman Donald Whalen tells The Northern Miner.

Towards this end, the joint venture will draw upon a US$25-million financing completed in late 1996, with the European Bank for Reconstruction and Development (EBRD) as lead underwriter. Proceeds are aimed at upgrading mining equipment and building a carbon-in-pulp (CIP) processing plant at Zun-Holba.

The CIP plant, which is expected to be operational by September, will enable the joint venture to cut costs by eliminating the need to transport concentrates to a refinery in the Ural Mountain region. The plant’s annual capacity is pegged at 10,000 tonnes, and High River is hoping the facility will further reduce cash operating costs by US$20 per oz.

Low-cost producer

Whalen says that following completion of the mine’s upgrading program in 1999, cash operating costs will fall below US$180 per oz., placing Buryatzoloto among the lowest-cost gold producers in the world.

“We are tremendously pleased with the progress that continues to be made at Buryatzoloto. The Russian management team is excellent, and all the necessary financing is in place. Management have designed and implemented cost-saving programs and are meeting schedules. They are also reporting all their results in a manner that is consistent with international [Gold Institute] standards. All of this augurs well for the future,” he says.

Proven and probable reserves at the Zun-Holba mine stand at 3.4 million tonnes grading 17.6 grams gold per tonne, equivalent to 1.9 million contained ounces. At Irokinda, the figure stands at 343,000 tonnes of 20.5 grams, equivalent to 226,270 contained ounces. Combined, the mines are estimated to contain 3.8 million tonnes at 17.9 grams, for 2.2 million contained ounces.

To arrive at these reserve estimations, High River used a cutoff grade of 2.5 grams per tonne. Previously, mining was carried out using a cutoff of only 1 gram. However, the Russian government granted approval for the higher cutoff, which is more in tune with Western standards.

Whalen stresses that the higher cutoff is expected to raise the average grade of the geological reserves to 17.6 grams, which is 66% higher than it would be at a 1-gram cutoff.

“The benefit of changing to the higher cutoff means that we are mining higher-grade ore, and this is key to our goal of reducing cash operating costs,” he says.

Expansion program

The Russian-Canadian partnership has retained Kvaerner Metals to study the feasibility of increasing annual gold production to 200,000 oz. from the current rate of 85,000 oz. Kvaerner has considerable experience in Russia, having recently constructed the Kubaka gold project in the Magadan region.

The results of Kvaerner’s study are under review.

Exploration activity has been focused on the Irokinda mine, where, in 1997, the joint venture increased proven and probable reserves by 40,225 oz. in two veins. In the coming months, three veins will be explored, including the Tuluinskaya vein, which is the main source of ore at Ironkinda.

Plans are also being formulated for the exploration of a recently acquired 306-sq.-km area adjacent to the Zun-Holba mine, which is described as having “excellent potential.”

High River is the largest shareholder of Buryatzoloto, with a 24.6% interest. The market value of those shares is about $17 million, or 60cents per fully diluted High River share. The company holds two seats on the board and chairs a 5-member advisory committee. The EBRD is the second-largest shareholder.

In July 1997, High River began benefiting from a hedging program that is effective until 2004. Under the program, Buryatzoloto hedged 30,000 oz. in 1997 and has hedged 60,000 oz. (70% of planned production) in 1998 and 1999 at prices considerably higher than the prevailing world market prices. The strike price of the put options is US$370 per oz. for 1997 and 1998; this increases to US$375 per oz. in 1999.

The hedging program for the period 2000-2004 includes forward gold sales of about 10% of annual production at prices exceeding US$400 per oz. Forward sales are directly linked to the EBRD loan repayment.