Newmont rethinks Hope Bay (October 16, 2008)

Rather than proceed with a mine plan conceived by former owner Miramar Mining that would see production begin this year, Denver, Colo.-based Newmont Mining (NMC-T, NEM-N) has taken a step back at the Hope Bay gold project in Nunavut in order to evaluate the entire greenstone belt as a future mining opportunity.

“Miramar planned to high-grade part of the Doris deposit and that was a good strategy for a junior,” says Chris Hanks, director of environment and social responsibility for Hope Bay Mining Ltd., a subsidiary of Newmont.

“But we bought Hope Bay because it is an undeveloped greenstone belt, and we want to make sure that we go forward with the right set of plans that will allow us to develop the belt.”

As a result, Newmont will review and expand upon previous work at the Doris deposit and extend drilling at the nearby Madrid and Boston deposits in order to better understand the total resource package at Hope Bay and devise a plan for future development.

Newmont took control of Hope Bay in March, when the gold giant spent $1.5 billion to acquire the shares of Miramar Mining that it did not already own.

Miramar had acquired the project a decade earlier from BHP Billiton‘s (BHP-N, BLT-L) predecessor BHP Minerals for $25 million after the senior spent about $90 million exploring the region.

Newmont first invested in Hope Bay in 2005, seeing the project as a “potential strategic mining opportunity.”

Hope Bay is one of the largest undeveloped gold projects in North America.

The project covers more than 1,000 sq. km on the Arctic coast and has a gold resource of about 10 million oz. in three separate gold deposits.

The largest deposit, Boston, is located near the south end of the north-south-trending Hope Bay belt, while the Doris and Madrid deposits lie on the north end. The project is close to Bathurst Inlet, allowing supplies to be barged into the site during the summer.

Hope Bay is a typical Archean greenstone belt comparable to the Yellowknife and Kirkland Lake gold belts. It is more than 80 km long and 7-20 km wide.

The belt consists of mafic metavolcanic and metasedimentary rocks that are bound by granite intrusives and gneisses and transected by shear zones that appear to control the occurrence of mineralization.

Similar to other Archean greenstone gold camps, major flexures coincident with antiforms are often the locus for gold deposits.

Newmont has spent a good part of this year building the infrastructure required to run an advanced exploration camp.

This includes: a 900-metre, all-weather airstrip at the north end of the belt to complement a similar airstrip at the south end; a 16-km, all-weather road between the Doris camp and the Windy exploration camp; a 118-person lodging facility; a 5-million-litre fuel storage site; and upgrades to existing facilities.

“We cut the drilling back a bit this year in order to complete the infrastructure work, but the plan for next year is to have a full-fledged advanced exploration program going,” Hanks says.

Newmont’s go-slow approach at Hope Bay is radically different from Agnico Eagle Mines‘ (AEM-T, AEM-N) plan for the other advanced gold deposit in the vast region, Meadowbank.

Agnico is expecting to reach production at Meadowbank six months earlier than planned, in January 2010, allowing the mine to contribute to the company’s ambitious goal of producing 1.4 million oz. gold annually by 2011, up from about 231,000 oz. last year.

Agnico took control of Meadowbank just over a year ago, when it bought Cumberland Resources in a deal valued at $710 million. The project has probable gold reserves of 3.5 million oz. in four separate deposits that are all amenable to open-pit mining.

Meadowbank is expected to produce an average of 360,000 oz. gold per year over a nine-year mine life. An all-season road has been completed and mine construction is under way.

Hope Bay has the potential to produce at a much higher annual mining rate from a large open-pit and underground mining and milling complex, but the optimal mining scenario will take time to determine.

Miramar had planned to begin production from Doris North at a rate of 150,000 oz. gold annually for four years.

Production was expected to grow to about 500,000 oz. per year as the Madrid and Boston orebodies were brought on-stream and the longer-term goal was to increase output to 1 million oz. per year by expanding resources and making new discoveries along the belt.

“We are only at stage two, which means we’re looking at all our options,” Hanks says. “At the end of stage two, we’ll have a preferred list of options. At stage three, we’ll narrow that down to one option. Stage four is advanced engineering and stage five is execution.”

Hope Bay will be Newmont’s first foray into the challenging work environment of the Arctic. Its other core assets are in the U.S, Indonesia, Australia, Peru and Ghana.

But the company is confident it can overcome the lack of infrastructure and difficult working conditions by planning carefully and hiring northern expertise.

“We had a meeting in July to devise the flow sheets for all the various studies we are doing. There were about forty people at the table, and about sixty per cent had significant experience in the Arctic,” says Hanks, who was the environmental manager for Hope Bay when it was owned by BHP and went on to become the chief environmental officer at the company’s Ekati diamond mine.

The 2008 budget for second-stage studies at Hope Bay is US$40 million.

This summer, Newmont secured a permit for tailings disposal in Tail Lake and obtained a commercial lease for a portion of the Hope Bay belt from the Kitikmeot Inuit Association (KIA). Permitting for the road between the Doris and Windy camps continues.

Newmont will also continue exploration with a 2008 budget of US$30 million.

To secure the staff to operate up to five drills, Newmont is sponsoring a diamond-drill training program for local Inuit along with other local and regional partners.

Meanwhile, the company is meeting with the KIA, surrounding communities, regulators and local and regional elected officials to update key stakeholders while soliciting their input on the project.

–The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Commnications.