Partners hit sulphides at Duck Pond

The first two infill holes drilled at the Duck Pond base metal project, southeast of Buchans, Nfld., have intersected sulphide mineralization over substantial widths.

The drilling program, mounted by joint-venture partners Thundermin Resources (THR-T) and Queenston Mining (QMI-T), is meant to confirm and expand resources in two lenses of the Duck Pond zinc-copper-lead deposit (T.N.M., June 28/99). The first two holes were drilled in the southeastern part of the large Upper Duck lens to confirm continuity and thickness of the lens between 1980s-vintage drill holes.

Hole 201 cut a 21.6-metre core length in the Upper Duck lens, grading an average of 4.1% copper, 7% zinc and 1.6% lead, with precious metal credits of 108 grams silver and 1.7 grams gold per tonne. The lens has a 3.9-million-tonne resource with average grades of 3.8% copper, 6.7% zinc, 1.1% lead, 71 grams silver and 1.1 grams gold, so the new intersection shows grades comparable to earlier drill results.

A second intersection, about 63 metres deeper in the same hole, graded 3.7% copper, 10.6% zinc, 1.2% lead, 73 grams silver and 0.2 gram gold over a 1.6-metre length. The lower intersection probably is part of the Sleeper zone, beneath the Upper Duck lens, and is 35 metres away from previously known mineralization in the Sleeper zone. The new intersection may promise additional mineralization in the zone, which has a resource of 676,000 tonnes with 1.7% copper, 8.7% zinc, 1.2% lead, 63 grams silver and 0.5 gram gold.

In hole 202, drilled from a collar about 50 metres north of 201, the partners encountered 9.2 metres grading 5.3% copper, 4.8% zinc and 1% lead, with 106 grams silver and 1.5 grams gold. Future drilling will continue to fill in the existing 50-by-50-metre pattern drilled by Noranda (NOR-T) in the 1980s.

Two drills are operating on the site; one, near the northern end of the Upper Duck lens, is testing for an extension of the mineralization, while the other is completing an infill hole near the middle of the deposit. The whole program is expected to take about four months. The first phase of work includes 20 holes, or about 6,000 metres.

Noranda’s earlier prefeasibility studies indicated a likely net smelter return of nearly US$66 per tonne, based on recoveries of about 85% of the copper and zinc, about 50% of the gold, and about 20% of the silver. Further metallurgical tests are planned.

Later this year, in a second phase of drilling, the partners will test drill targets on the three Duck Pond lenses, on the Boundary deposit (a short distance northeast), and on four other surface showings on the 118-sq.-km property.

Noranda retains a back-in right that allows it to earn a half-interest in the project in return for funding a feasibility study and development costs. The back-in right is triggered if Thundermin and Queenston outline a further 15 million tonnes.

Low gold price puts mid-tier companies to the test

by The Northern Miner Staff

The following is the conclusion of a 2-part overview of how junior and mid-tier gold mining companies are coping in today’s low-cost price environment.

The success of narrow-vein miners such as River Gold Mines (RIV-T), Aurizon Mines (ARZ-T), Richmont Mines (RIC-T) and Claude Resources (CRJ-T) is encouraging for Canadian mining, but high-grade underground mines are not in themselves the answer to high production costs.

If Val d’Or, Que.-based McWatters Mining (MCW-T) were a bird, it would be flapping about on the ground, struggling to take off with one broken wing.

The good wing is the underground Kiena mine in Val d’Or, an operation that continues to perform well, having produced 19,000 oz. gold at a cash operating cost of US$228 per oz. in the first quarter of 1999.

The broken wing is the aged Sigma-Lamaque complex, also in Val d’Or, which produced 21,223 oz. gold in the first quarter at a cash operating cost of US$332. Of this, underground mining accounted for 15,605 oz. at a cash operating cost of US$376 per oz., whereas open-pit methods produced 5,618 oz. at US$208 per oz.

These high costs forced McWatters to suspend underground mining at Sigma-Lamaque in March, though the mill continues to operate using feed sourced from both the Sigma open pits and the small, nearby East Amphi open pit.

During the suspension, McWatters is carrying out a feasibility study at Sigma-Lamaque that is examining the viability of cranking up the combined underground and open-pit production to an annual level of 100,000 oz. gold at a projected cash cost of US$200-225 per oz. over 10 years.

Since acquiring Kiena and Sigma-Lamaque from Placer Dome (pdg-t) in September 1997, McWatters has spent $9.7 million on a combination of underground exploration and development at the latter.

During the first quarter, McWatters sold 38,531 oz. gold at an average price of US$290 per oz. and racked up losses of $5 million on revenue of $16.8 million. McWatters ended the period with $20 million in current assets, $37 million in current liabilities and another $16 million in long-term debt. One card left in its hand is a good cash position: some $5.7 million in liquid assets were acquired through McWatters’ merger last year with Minorca Resources.

This year, if underground production resumes at Sigma-Lamaque as planned, McWatters expects to produce a total of 170,000 oz. gold at a cash operating cost of US$250.

Quebec producer Agnico-Eagle Mines (AGE-T) was in the red to the tune of US$1.7 million at the end of the 1999 first quarter, compared with a loss of US$2.1 million a year earlier. The LaRonde mine near Val d’Or turned out 33,000 oz. gold, 1.2 million lbs. copper and 1.5 million lbs. zinc in the quarter. Cash costs were US$216 per oz. gold for the period, about the same as the comparable 1998 period, though total costs fell to US$259 from US$268 per oz.

Agnico-Eagle says 1999 was “a transitional year” in that production will move from the existing No. 1 and 2 shafts to the new No. 3 shaft, which was sunk in order to gain access to higher-grade zones. Once mining of these zones begins, later this year, the company expects to boost production and lower costs.

The discovery of additional reserves at LaRonde has triggered plans to expand the operation to 3,600 tons per day from the current 2,000 tons. If all goes as planned, by 2002, gold production will climb to 280,000 oz. gold and 2.3 million oz. silver annually, plus 16 million lbs. copper and 90 million lbs. zinc.

While Agnico-Eagle does not hedge, it has the financial resources to stay in the game during this period of weak prices. At the end of the first quarter, cash and cash equivalents stood at US$59.6 million, whereas working capital amounted to US$80 million.

Campbell Resources (CCH-T) lost $3 million in the three months ended March 31, compared with losses of $1.7 million in the first quarter of 1998. Like Agnico, Campbell does not hedge, and the company has suffered for it, but with $42.4 million in working capital, including $40.4 million in cash, it can ride out low gold prices for some time yet.

The Joe Mann mine in Quebec produced 15,300 oz. at a cash cost of US$301 per oz. Similarly poor results are expected in the current quarter, but things are expected to improve in the second half of the year as miners exploit newly developed stopes. Production for the year is projected at 75,000 oz., with cash costs anticipated at US$260 per oz.

Meridian Gold (MDG-N) adheres to the strategy that low-cost mines go well in times of low prices.

The company hopes to lower cash operating costs, which were US$200 per oz. in the first quarter of 1998, by starting up the El Pe-on gold-silver mine in Chile. The mine is expected to triple the company’s annual output to the tune of 250,000 oz. at a cash cost of US$100 per oz.

Costs will be paramount to the company as it has closed out its remaining forward positions, leaving
it at the mercy of the spot price.

The processing plant at El Pe-on should be completed by the third quarter, in time for initial production feed from the small open pit in the fourth quarter. Underground ore is scheduled to report to the mill by the first quarter of 2000.

Meridian still has a sizable war chest of US$35.9 million, though it owes US$22.7 in long-term liabilities and US$12.5 million in short-term debt.

Also profitable was Geomaque Explorations (GEO-T), which earned US$89,000 in the recent first quarter, compared with US$107,000 in the corresponding period last year. The San Francisco mine produced a record 19,300 oz. at US$240 per oz. — up 47% and down 11% in terms of production and costs from a year ago.

Geomaque is developing its Vueltas del Rio project in Honduras and plans to enter production by year-end. The mine is expected to increase the company’s annual output to 130,000 oz. gold and lower its average cash costs to US$213 per oz.

Philex Gold (PGI-T) earned US$288,000 in the first quarter of 1999, compared with a loss of US$3.1 million in the initial three months of 1998. The improved performance stemmed from higher head grades, more tonnage mined and lower cash costs (US$166 per oz. for the recent quarter) at its Bulawan mine in the Philippines. However, a light hedging position has left the company with little room to manoeuvre.

When everything goes right, a big project offers a big profit margin. Just about everything is going right these days for Iamgold (IMG-T), thanks to the company’s strong operations and a healthy balance sheet.

Iamgold’s Sadiola open-pit gold mine in Mali, a joint-venture with operator Anglogold (AU-N), entered production in 1997 and has so far lived up to high expectations. In the first quarter of 1999, Sadiola cranked out 116,149 oz. gold at an average total cash cost of US$138 per oz. and a total production cost of US$205 per oz.

While head grades are lower and stripping rates are higher compared with last year, the partners still expect Sadiola to produce 450,000 oz. gold in 1999 at an average direct cash cost of US$132 per oz.

In the first quarter, Iamgold realized US$323 per oz. from its share of production and posted net earnings of US$2.8 million on gold revenue of US$14.1 million. Iamgold ended the period with a consolidated cash position of US$73.8 million (including US$66.2 million in cash and short-term deposits), US$31.2 million in current liabilities, and US$67.8 million in long-term debt.

Not content to rest on their laurels in Mali, Iamgold and Anglogold are exploring for gold in areas around Sadiola and have just tabled a positive prefeasibility study of the Yatela gold deposit, 25 km north of Sadiola.

To the surprise of many, seasonal producer Wheaton River Minerals (WRM-T) posted net earnings of $1.8 million for 1998, compared with a loss of $1.6 million in the previous year.

The company’s Golden Bear mine in northern British Columbia turned out 36,100 oz. gold last year — 5,500 oz. more than in 1997. Total costs (including royalties) fell 30% to US$147 per oz., owing to an increase in grades, recovery and production. This year, the mine is expected to produce 59,000 oz. at a total cost of US$184 per oz.

With Golden Bear expected to cease operations by 2002, Wheaton River is turning its attention to developing the Bellavista mine project in Costa Rica. A feasibility study has shown that a US$28.3-million, open-pit operation could produce 60,000 oz. gold annually at a cash cost of US$156 per oz. over a 7.3-year mine life.

One anomaly among the mid-size gold producers is TVX Gold (TVX-T). Despite having interests in low-cost mines, the company has been a chronic money-loser since 1996, not least because of large writedowns on mineral properties. The picture in the first quarter of 1999 was brighter: TVX earned US$4.8 million on revenue of US$41.1 million. January’s drastic fall in the Brazilian real meant an equally drastic drop in costs at the company’s Brazilian operations.

At the New Britannia mine in northern Manitoba, which TVX operates in a joint venture with High River Gold Mines (HRG-T), cash costs fell to US$215 per oz. in the first quarter, from US$251 in the comparable period last year. At the Musselwhite mine, in northern Ontario, operater Placer Dome reported that cash costs between the two periods slipped to US$187 from US$196 per oz.

Still, TVX has an unusually high total cost in comparison to its cash cost: in the first quarter of 1999, cash costs were US$158, whereas total cost were US$249 per oz.

Trouble in paradise

Back in the heady days of the boom, the Third World was billed as the place to be, owing to those countries’ low costs, rich deposits, and co-operative governments ready to deal on taxes and tariffs. Yet the ground is just as thick with wounded in the tropics as it is elsewhere.

A heavy debt load pushed Greenstone Resources (GRE-T) US$3.3 million into the red during the 1999 first quarter, despite having generated revenue levels similar to those of a year ago, when it earned US$251,000. Combined production from the company’s four mines in Latin America topped 27,456 oz., while cash costs averaged US$273 per oz.

Greenstone has faced difficulties at each of its operations, prompting the company to suspend mining activities at one mine and put another up for sale. On March 31, its working capital deficit topped US$40.8 million, leaving it little room for error at ongoing operations.

Though significant steps have been taken, the company’s future rests solely on the success of the newly expanded Cerro Mojon and recently commissioned San Andres mines. Both are touted as low-cost operations (the former’s costs averaged US$220 per oz. in the first five months of this year), and, in 1999, are projected to crank out a combined 219,000 oz. at US$183 per oz. Thereafter, combined production is expected at 300,000 oz. annually, with cash costs falling below US$220 per oz.

Vengold (VEN-T) posted a first-quarter loss of US$16.7 million (or US12 cents per share), compared with a net loss of US$1.9 million (US2 cents per share) during the year-earlier period.

The company received US$342 per oz. on gold sales during the first quarter, compared with US$319 in 1998, while revenue from gold sales between the two periods rose to US$8 million from US$4.4 million. The revenue boost was attributed to an 8.2% increase in Vengold’s interest in the Lihir gold mine.

The company’s consolidated cash position by the end of the first quarter stood at US$20.1 million, of which US$9.8 million was in cash; the remaining US$10.2 million represented Vengold’s pro rata share of cash held by Lihir Gold.

Lihir, owned by Papua New Guinea-based Lihir Gold, has several major shareholders. Vengold, with a 15.8% interest, is joined by Rio Tinto (RTP-N) and Niugini Mining, each of which has 17.1%. The public holds a 41.8% share, and local landowners, the remaining 8.2%. Battle Mountain Gold (BMG-N) owns 50.5% of Niugini, and Placer Dome (PDG-T) holds a 16.5% interest in Vengold.

Production at the mine during the first quarter of 1999 amounted to 128,329 oz. gold at a cash cost of US$227 per oz., compared with 139,525 oz. at US$178 per oz. a year ago. Vengold’s share of production between those periods increased to 23,741 oz. from 14,300 oz., owing to its increased interest in the mine. The increase in cash costs is a result of lower production, higher mining rates, and expenses associated with an autoclave remediation program. Vengold is also struggling with a US$115-million debt load.

Improved recoveries and higher grades at the El Limon mine in Nicaragua has made the picture brighter for Black Hawk Mining (BHK-T), which inherited the operation when it took over Triton Mining in May 1998. Grades are up to 6.3 grams per tonne from 5.8 grams and recovery, at 82%, is significantly higher.

B
lack Hawk, which lost US$335,000 on revenues of US$8.1 million in the first quarter of 1999, is seeing cash costs of US$220 per oz. at El Limon and US$224 at its Keystone gold mine near Lynn Lake, Man. The Lynn Lake pit, in spite of its location in “high-cost” Canada, is recording costs comparable to those at El Limon on average grades of 4 grams per tonne.

Making money

A bigger top line, built through successful hedging, is seeing some higher-cost producers through the tough times. The “Australian model” still carries the risk that the gold price will continue to fall, and even the most accomplished hedgers will have to face the day they fall below the line of profitability.

Eldorado Gold (ELD-T) is fighting a war on two fronts: actively hedging as it brings down its production costs. The company posted a first-quarter profit of US$1.4 million (2 cents per share), compared with a loss of US$3.5 million (5 cents per share) a year earlier.

Revenue from gold sales during the recent 3-month period was US$14.8 million, compared with US$15.3 million a year ago.

Between the two periods, consolidated production increased to 46,111 from 43,525, while operating costs fell to US$179 from US$255 per oz. Total production costs slipped to US$266 from US$334 per oz.

Eldorado’s hedge position allowed the company to realize an average gold price of US$321 per oz. during the recent quarter, resulting in a contribution margin (the difference between revenue and total cash cost) of US$136 per oz., or US$6.3 million.

The company hedged all production for 1999 at an average price of US$320 per oz. An additional 165,000 oz. gold have been hedged at an average price of US$335 per oz. for the years 2000 and 2001.

At the end of the first quarter, Eldorado had US$3.9 million in its till.

In Brazil, the company owns the Sao Bento mine, which, between the first quarters of 1998 and 1999, saw its gold production levels rise to 29,748 from 25,292 oz., while cash operating costs fell to US$178 from US$271 per oz. Proven and probable reserves stand at 3.3 million tonnes averaging 9.02 grams gold per tonne, or 957,400 contained ounces.

The company also owns the La Colorada mine, near the town of Hermosillo, Mexico. The open-pit, heap-leach mine produced 16,363 oz. gold in the recent first quarter, compared with 11,870 oz. a year ago, while operating cash costs dropped to US$180 from US$236 per oz. Proven and probable reserves there are reported to be 7.7 million tonnes averaging 1.27 grams gold, or 315,000 contained ounces.

Eldorado’s current long-term debt load weighs in at US$36 million, and total liabilities are pegged at US$67.9 million.

Bema Gold (BGO-T) enjoyed a first-quarter profit of US$718,000 (US1 cents per share) on revenue of US$9.7 million, unlike the year-ago period, when it incurred a loss of US$1.2 million (US1 cents per share) on revenue of US$9.8 million. During the recent quarter, Bema realized an average price of US$386 per oz. gold and its hedging program generated US$2.6 million of additional revenue. The company’s cash position at the end of March 1999 was US$14.2 million.

The company owns a half-interest in the Refugio gold mine in Chile, with the remainder held by Kinross Gold (K-T). The mine is perched high in the Atacama Desert of the Chilean Andes, 800 km north of the capital city of Santiago. The minable reserve within the Verde deposit weighs in at 102 million tonnes grading 1.03 grams gold per tonne, equivalent to 3.3 million contained ounces.

Production in the first quarter totalled 52,850 oz. gold (of which, Bema’s share was 26,425 oz.) at an operating cash cost of US$239 per oz. Comparable figures in the year-earlier period were 48,544 oz. (Bema’s share: 24,272 oz.) at US$287 per oz. At the end of March, 1999, Bema reported a long-term debt of US$21.8 million.

For Bolivar Goldfields (BVG-T), 1999 may bring some stability as the Tomi mine and mill in eastern Venezuela come into commercial production. Bolivar lost US$838,265 in the first quarter of 1999, but is expecting low costs (US$118 per oz.) at Tomi and has sold about 80% of its production forward at US$294.

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