Vancouver — Armed with a $5-million financing, Hunter Dickinson-led junior
Situated 380 km southwest of Anchorage, the deposit was discovered in the late 1980s by Cominco (now part of
The Hunter-Dickinson (HD) group of companies became involved in the project in 2000, when management recognized the prospects for additional discoveries in the large alteration system associated with the deposit. The group inked a deal with Cominco, and subsequently staked additional ground southwest of the original claims and ran a geophysical survey, which expanded the existing anomaly to an area measuring 21 by 9 km. The accumulated data enabled company geologists to define six large coincidental geochemical and geophysical target areas over the 258-sq.-km project. Pebble is the largest and northernmost anomaly. With the ground tied up and the targets in place, HD assigned the project to Northern Dynasty late in 2001.
Under the deal, the junior can purchase the 36 claims covering the Pebble deposit by paying Teck Cominco US$10 million in cash or stock by Nov. 30, 2003, and purchasing HD’s 20% interest in shares at its independently appraised value. Once the purchase is complete, the junior can earn a half-interest in the surrounding property by completing 18,290 metres of drilling before Nov. 30, 2004. A 2-year extension is available at a cost of 100,000 shares per year. At that time, Teck Cominco can elect to enter into a 50-50 joint venture or sell its remaining half-interest to Northern Dynasty for US$4 million and a 5% net profits interest. In December 2002, the junior issued 200,000 shares to the major in exchange for a 1-year extension on the purchase agreement to Nov. 30, 2004.
“We are developing an entire district of gold-copper porphyries,” says Co-Chairman Robert Dickinson, “the most advanced of which is the Pebble deposit.”
Earlier this year, Northern Dynasty tabled an independent resource estimate that enhanced the economic potential of the Pebble deposit. The study, by Australian-based Snowden Mining Industry Consultants, nearly tripled the tonnage in the higher-grade core of the deposit to 141 million tonnes grading 0.48% copper and 0.67 gram gold per tonne (the previous estimate was 54 million tonnes grading 0.54% copper and 0.46 gram gold). Using a cutoff grade of 0.7% copper-equivalent, the inferred resource is 271.3 million tonnes grading 0.43% copper and 0.59 gram gold. Overall, using a 0.3% copper-equivalent cutoff, the inferred mineral resource is now 1 billion tonnes grading 0.3% copper and 0.4 gram gold per tonne, which is in line with the earlier estimate of 1 billion tonnes grading 0.3% copper and 0.34 gram gold.
Says Dickinson: “Comparing the 271 million tonnes at 0.86% copper-equivalent to other mines that have come on-stream in recent years, such as Kemess South in northern British Columbia (200 million tonnes grading 0.22% copper and 0.63 gram gold), Cadia in Australia (204 million tonnes grading 0.17% copper and 0.73 gram gold) and Batu Hijau in Indonesia (914 million tonnes grading 0.52% copper and 0.41% copper), the Pebble deposit is much more robust.”
An early-stage economic model for the deposit, using a 0.7% copper-equivalent cutoff and with the company funding the entire project cost, suggests a before-tax rate of return of 11.7%.
The scenario, which uses prices of US90 per lb. for copper, US$350 per oz. for gold, and US$4.50 per lb. for molybdenum, envisions a 90,000-tonne-per-day concentrator cranking out 265.2 million lbs. copper and 470,556 oz. gold per year for the first nine years of a 20-year mine life. Cash production costs are slated to hit US54 per lb. of copper and US$141.4 per oz. gold. Capital costs are pegged at US$927.3 million, with a 2.5-year construction period and sustaining capital of another US$122.5 million.
“We have a world-class production profile with a chance to develop a major mine,” says Dickinson.
Over the winter, Northern Dynasty collared 110 drill holes on the resource lands and developed a geological model for the mineralization. Exploration results to date indicate that the pebble deposit is intruded by a series of small stocks with at least three of them marking the mineralizing source. Several priority areas were identified, including two mineralized granodiorite porphyry stocks. The company determined that the higher-grade material occurs at the carapace of the stocks in both the intrusive and surrounding volcanic country rocks.
“The Pebble deposit hosts dramatically more good-grade resources than previously recognized,” says Dickinson, “and we plan to move the project rapidly toward prefeasibility for a large-scale mining venture.”
Regional
Results from last year’s 11,300-metre drill program surrounding the Pebble deposit boosted the economic potential of the area.
“We drilled 68 holes to see if the sulphide system around the pebble deposit was pregnant, and indeed it was,” says Dickinson.
The program led to the discovery of three distinct types of potentially economic mineralization south of the historic deposit.
The first new discovery lies 12 km southwest of the Pebble deposit, where hole 34 cut 64 metres grading 0.3% copper and 0.2 gram gold per tonne at a down-hole depth of 21.3 metres. Moving 450 metres to the north, hole 38 hit 160 metres grading 0.32% copper and 0.33 gram gold at 35.4 metres down-hole.
Subsequent drilling outlined a mineralized zone 1 km long and up to 600 metres wide, and which is still open along strike and at depth. All 16 holes drilled into the new find show classic copper-gold-molybdenum porphyry-style mineralization but lack the sills and dykes commonly observed in the Pebble deposit.
Moving 5 km west of hole 38, hole 37 tested a 1-km-long gold-copper soil geochemical anomaly and cut a broad zone of chalcopyrite-pyrrhotite skarn-style mineralization, yielding 0.4% copper and 1 gram gold over 79 metres at 14.9 metres down-hole. Included in this section was a higher-grade portion running 1.7% copper and 3.6 grams gold over 6.5 metres. Moving 1.5-2 km north, four scout holes returned narrow sections of up to 0.7% copper and 5.2 grams gold.
Some 5 km southwest of the Pebble deposit, hole 25 tested an 800-by-800-metre gold-in-soil anomaly and returned an impressive 28.9 grams gold over 6.1 metres. The mineralization is hosted in a biotitic pyroxenite and lies 350 metres southwest of a previous Cominco hole, which returned 33.9 grams gold over 1.5 metres. Additional drilling returned 15.3 grams gold over 3.1 metres in hole 62.
All three styles of mineralization occur within a 22-by-6-km multi-phase intrusive corridor at the southeastern edge of the Kaskanak batholith and are associated with a late Cretaceous intrusive complex.
The junior is in the midst of a 15,000-metre drill program designed to expand the higher-grade resources, as well as follow up on the new discoveries.
The first priority of the new drill campaign is to upgrade and delineate the higher-grade gold-copper resources in the Pebble deposit. The first few holes will utilize oriented-core methods to determine the dominant mineralized fracture orientations; in doing so, crews hope to determine the most appropriate angle at which to drill the deposit. (Of the 110 historic holes, only seven were drilled at an angle.)
“The angle holes were 13.6% higher in grade than the vertical holes,” states Dickinson.
Copper porphyry
The HD group is no stranger to discovering and advancing large copper porphyry deposits.
“The hallmark of this group is success with copper-gold porphyries,” says Dickinson. “Our first project was Continental Gold at Mt. Milligan [65 km southwest of Mackenzie, B.C.], which was taken over for $182 mi
llion, or $20 per share, in 1988.”
From there, the group went on to discover, develop and permit the Kemess South deposit under the El Condor Resources banner.
“We had a 60% interest and our shareholders were taken out at seven dollars per share for a total project value of $170 million,” he says, adding “Pebble is five or six times more robust then these projects, and we have the technical and management team to move it forward.”
The group also holds the past-producing Gibraltar copper mine in McLeese Lake, B.C., under
Boosting Northern Dynasty’s financial clout to advance the project is a $5-million private placement taken by London-based Shambhala Gold. The deal includes 6.9 million units priced at 72 each. A unit consists of one share and one warrant, the latter being exercisable at 90 until June 12, 2004.
At the end of the day, Shambhala would hold a 26% stake in Northern Dynasty, slightly less than the 37% held by current management. With the potential exercise of the associated warrants ($6.2 million), current dilutables ($3.5 million) and $850,000 in cash, Northern Dynasty has $15.6 million with which to advance the Pebble property.
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