Macraes scales back expansion at New Zealand’s largest mine

Dunedin, New Zealand — The slump in gold prices has curtailed the expansion plans of Macraes Mining, owner and operator of New Zealand’s largest gold mine, some 60 km from this city in the eastern Otago region of the South Island.

The company was planning to spend A$120 million to increase the annual processing capacity to 9 million from 3 million tonnes. This would have enabled production of more than 300,000 oz. gold per year — more than double the 138,460 oz. produced in 1996. But weak gold prices and delays in getting local approvals resulted in a deferral of the original expansion program, pending improved prices for the yellow metal and the receipt of necessary approvals.

Patrick O’Conner, chief executive officer of Macraes (listed on the Australian and New Zealand stock exchanges), says other growth options will be pursued in the interim. He told The Northern Miner, which recently visited the open-pit mine site, that Minproc Engineers had been commissioned to undertake a feasibility study.

“We hope to make a decision by year-end,” O’Conner said. “The major thrusts of the programs are to reduce cash costs below A$350 per oz. and maximize gold production, thus improving cash flow and shareholder value.” Macraes has constraints other than the low gold price to consider. The mine is not a low-cost producer; the grade is low and processing options are limited, as the orebodies are partially refractory and carbonaceous. Yet the company has done a remarkable job of making the operation profitable (with the help of an aggressive hedging program) while meeting high environmental standards. Since the first gold pour, in October 1990, the mine has produced a total of about 700,000 oz. gold at a weighted average cash cost of A$391 per oz.

And from 1992 through 1996, the company has reduced its cash cost per dry milled tonne to NZ$17.34 from NZ$26.35 per tonne — a 34% reduction in unit costs that has allowed the treatment of lower-grade ore at a higher stripping ratio.

“We’re proud of the mine and like to show it off,” O’Conner said. “We have a large orebody that has good exploration potential and we’ve shown an ability to keep costs under control.”

Like most gold mines in New Zealand, Macraes is a past producer. Placer gold deposits drew the first prospectors to the region in 1862 — almost 8 million oz. were produced by placer operations in the area — and, by 1889, underground mining began at Macraes. The current mine is developed around old workings that were initially active in the 1870s. Historic production was intermittent, and was devoted to scheelite rather than gold when tungsten prices and demand were high in the First World War.

Modern exploration began in the 1970s, with work focused on the Otago schist. Within the schist, mineralized zones occur in mesothermal veins that formed in a variety of structures. The gold-scheelite-pyrite-arsenopyrite mineralization is associated with replacement and fissure quartz veins in the post-metamorphic shear zones.

Exploration leading to the development of the modern Macraes mine focused on what is now known as the Hyde-Macraes shear zone, which has a strike length of about 30 km. In the mine area, the shear zone is about 150 metres thick.

Three main styles of mineralization were identified at Macraes: * shear zones containing lode quartz and abundant sulphides; * stockworks (defined by the occurrence of greater than 3% discordant quartz-vein-associated mineralization); and

* disseminated stockworks.

Graphite-rich schists host the most strongly mineralized zones.

Within the Hyde-Macraes shear zone, the mine project encompasses two major oreshoots (Round Hill and Frasers) and five smaller shoots. Much of the shear zone remains unexplored. The geologists employ a rigorous sequence of mapping and soil-sampling to generate exploration targets, which are then drilled on close spacings to outline resources for mining.

The current mine consists of four open pits: Southern; Round Hill; Innes-Mills; and Fraser. Ore and waste are mined by Eltin under contract to Macraes.

This year’s drilling is expected to increase reserves, which, at last report, stood at 59 million tonnes grading 1.58 grams per tonne (3 million contained ounces) using a 0.7-gram cutoff. At the end of 1996, the overall resource at Macraes stood at 105 million tonnes of 1.44 grams gold (4.9 million contained ounces) using the same cutoff.

Both oxide and sulphide ores are mined at Macraes, though sulphides are more abundant, as the weathering profile is shallow (about 8 to 10 metres). Oxide ore is treated by

the conventional carbon-in-leach method, while ore containing sulphides is first concentrated and then reground to liberate the gold particles held by the sulphides.

In recent years, Macraes has sought to expand its overall resource base by exploring other gold prospects in New Zealand. An important focus has been the Reefton gold district on the west coast of the South Island, where substantial reserves and resources have been defined.

The Reefton project is at the advanced stage. All permits required for the development of the Globe-Progress mine (a past producer at Reefton) were granted in 1995. The development plan targets an annual production rate of 100,000 oz. The mineral resource at Reefton is about 1 million contained ounces, with reserves for Globe-Progress estimated at 5.6 million tonnes at 2.47 grams (or 442,000 contained ounces).

The potential of Reefton will be examined by Minproc as part of its feasibility study to expand and improve the economics of the Macraes mine.

The engineering firm is currently examining the following options: * optimizing the existing Macraes treatment plant at its current annual rate of 3.4 million tonnes;

* upgrading the existing plant to its optimum throughput level of between 3.4 and 5 million tonnes per year;

* applying process technology to the treatment plant, so as to enhance recoveries to more than 80% from the current level of 70%;

* developing the Reefton project to deliver gold concentrate for processing at the Macraes plant; and

* constructing an additional 6-million-tonne plant, incorporating the new process technologies identified, thereby achieving a total annual capacity of 9.4 to 11 million tonnes.

The options range in cost from A$1 million to A$150 million and could lift annual production to as much as 500,000 oz. The company recently entered into a technology-licencing agreement with Newmont Gold, which would allow it the option of using Newmont’s patented pressure oxidation process at Macraes.

In the meantime, Macraes has hedged a substantial portion of its production, such that it has an operating cash margin of about NZ$200 per oz. At mid-1997, almost 800,000 oz. had been sold forward. As a result, it will be able to generate enough revenue to meet operating cash commitments for at least two years, up to a maximum of 75% of its recoverable reserves.

“Notwithstanding what we do from a gold-hedging perspective, we cannot beat the spot price of gold in the long run,” O’Conner said. “Given that we are a price-taker for the sale of our product, the primary focus is to reduce costs.”