Newmont’s Hope Bay project nears construction decision

When you’re 685 km northeast of Yellowknife, or roughly 160 km above the Arctic Circle, everything costs more than it does down south.

Over the past four years, Newmont Mining (NEM-N, NMC-T) has sunk just over $2 billion into its Hope Bay gold project in the northern reaches of Nunavut, including the $1.5 billion spent acquiring Miramar Mining in late 2007. It spent $300 million there this year alone, though a board decision is still required to move the project into full construction mode and make Hope Bay Nunavut’s second major operating gold mine.

Newmont completed 90,000 metres of surface drilling and 10,000 metres of underground drilling at the 10-million-oz. gold project in 2011, and is now at the final stages of completing an underground decline at the high-grade Doris North deposit to provide access for test mining and underground exploration. As many as 400 workers are currently on site and busy stockpiling ore, including around 160 Inuit. All that’s needed now is a mill, as well as a few key permits from the Nunavut government and some signed agreements with local organizations.

According to a media spokesman for Newmont, a board decision on construction of a mill is imminent and is expected to be made public before year-end. A quarterly report filed in late October painted a slightly less rosy picture, however, with the company stating, “We continue to evaluate development options and economic feasibility for Hope Bay comparatively with other development opportunities within the Company’s wider project pipeline.”

Despite being the world’s second largest gold producer, Newmont has no particular expertise working in harsh northern climates. Its other mines and development projects are all located in warmer jurisdictions, being Nevada, Mexico, Peru, Ghana, Indonesia, Australia and New Zealand, and the company’s board of directors is wise to weigh its options carefully to mitigate risk.

As seen by Agnico-Eagle‘s (AEM-T, AEM-N) ambitious but difficult foray into Nunavut over the past few years, the bone-chilling, steel-snapping Arctic cold can often lead to unforeseen problems and higher-than-expected operating costs. Production at Agnico’s Meadowbank gold mine some 300 km west of Hudson Bay near the rim of the Arctic Circle has been profitable so far but not easy. An access road to the mine that was supposed to cost $275,000 per km to build came in at $550,000 per km; a kitchen fire this spring cost the company $20 million and forced it to evacuate 300 employees and operate the mine with a skeleton crew for two months; emergency parts need to be flown in, preferably during the short summer shipping season; blinding snowstorms can quickly and drastically reduce visibility; near-total darkness descends on camp for three months a year, and roaming Polar bears need to be watched for; and the small, largely unskilled aboriginal labour force needs to be trained.

While Newmont has not released the results of a feasibility study for the project or an updated National Instrument 43-101 resource estimate, previous work by Miramar outlined a gold resource of over 10.6 million oz. in all categories. The ounces are contained in several deposits spread throughout the Hope Bay greenstone belt, which stretches more than 80 km long and 20 km wide and is entirely under the control of Newmont. Most of the company’s exploration this year continued to focus on expanding and confirming the principal orebodies delineated by Miramar, but some work was also done on the 90 or so identified district targets located throughout the belt.

Doris, the starter underground mine located at the northern end of the belt and scheduled to go into production first, holds 1.1 million indicated tonnes grading 19.31 grams gold per tonne according to Miramar’s 2006 resource estimate, containing 726,000 oz. gold at a cut-off grade between 5-8 grams gold. It also contains another 1.6 million inferred tonnes at 14.54 grams gold for another 741,000 oz., under a cut-off grade between 5-7 grams gold. Boston, another high-grade orebody but one located at the southern end of the greenstone belt, contains about 4.7 million tonnes averaging around 10 grams gold across all categories, while the much larger but lower-grade Madrid deposit hosts around 75 million tonnes averaging 3 grams gold for 7.6 million contained oz. Madrid is several km south of Doris at the northern end of the belt.

Should production at Doris go ahead as planned, Newmont says its next step would be to develop multiple operations at nearby deposits such as Patch 14 (part of Madrid) and Doris Central. Phase 3 would then be to develop as much of the district as possible, similar to Newmont’s operations in Nevada.

Shares of the senior gold producer closed up 5¢ to $69.38 in New York on Nov. 4. They have a 52-week range of $50.05-$71.25.