Vancouver — Maintaining production levels following a period of rapid growth is never easy, but with four major gold deposits sitting in its property pipeline,
Like most of its peers, Placer has seen a dramatic rise in output over the past three years as consolidation gripped the entire gold industry. On the back of acquisitions, the world’s sixth largest gold company produced a record 3.8 million oz. in 2003. However, the production gain is expected to be short-lived, with output set to fall to 3.6 million oz. this year before flat-lining at around 3.5 million oz. in 2006.
Despite the projected 5% drop in production over the next few years, it is not hard to envisage Placer Dome pouring 4 million oz. per year near the end of that time frame and rising even more steeply by the end of the decade — provided gold prices hold at around US$400 per oz. and the company’s plump project pipeline moves into production.
Those projects include Pueblo Viejo in the Dominican Republic, Cortez Hills in Nevada, Cerro Casale in Chile, and Donlin Creek in Alaska, which, combined, could add nearly 2 million oz. gold annually to Placer’s account. However, with estimated capital costs ringing in at around US$2.2 billion, there seems little doubt that any development will be staggered over a number of years.
First out of the gate is expected to be the Pueblo Viejo gold-silver project. Placer had hoped to make a feasibility study decision by the end of last year and move into development by the end of 2004, but the company is still working on metallurgical options for treating the complex ore, and until it nails down a proven process, the feasibility study remains on hold. So far, the highest gold recoveries have been obtained using pressure oxidation, but tests are continuing. Placer now aims to have a production ruling in hand by mid-2005.
The government operated the Pueblo Viejo mine for 20 years but closed it in 1999 after depletion of the oxide portion and after environmental and processing problems related to the sulphide portion became evident. In total, Pueblo Viejo had cranked out an impressive 5 million oz. gold and 22 million oz. silver.
Under the concession agreement granted in July 2002, Placer has four years in which to decide whether or not to proceed with the project; during that period, it must spend US$10 million. The Dominican Republic retains a net smelter return royalty, a net profit interest, and corporate taxes based on varying profit levels.
Pueblo Viejo is 110 km north of Santo Domingo at an altitude of around 300 metres. The existing sulphide resource contains 34.6 million oz. gold and 204 million oz. silver in 544 million tonnes grading 1.98 grams gold and 11.7 grams silver per tonne, plus 0.55% zinc, based on a cutoff grade of 1 gram gold per tonne. Geological modeling by Placer has identified higher-grade areas (greater than 5 grams gold per tonne) near the surface, and these could boost the economics of the project.
Placer won the right to advance the project by proposing a US$336-million mine that would treat sulphide ores using a combination of traditional technology and bioleaching. Annual production is expected to average 403,000 oz. gold and 2.2 million oz. silver (in the form of dor), plus 90 million lbs. zinc, over a mine life of 33 years.
Closer to home, Placer’s 60%-owned Cortez Hills project in Nevada could take precedence over other properties that await development. Discovered in late April 2003, the deposit has a measured resource of 10 million tonnes grading 4.05 grams gold, based on a cutoff grade of 0.14 gram gold per tonne. The indicated resource stands at 28.5 million tonnes grading 3.5 grams gold. Not included in the contained gold calculation are 17.3 million tonnes grading 1.85 grams gold in the inferred category.
“Cortez Hills is shaping up to be the most significant Nevada discovery in recent years,” says Placer Dome CEO Jay Taylor. “It has the potential to sustain and extend production at Cortez well into the next decade.”
The property is 12 km southeast of the Pipeline-South Pipeline deposit and 0.8 km north of the Pediment deposit. A large drill program is currently trying to expand and delineate the deposit, which remains open along strike and to the west.
The Cortez property lies along the Cortez-Battle Mountain trend in north-central Nevada and is home to seven deposits: Pipeline, the South Pipeline extension, the Gap, Gold Acres, Cortez, Horse Canyon and Pediment gold deposits.
The Pipeline deposits consist of two mineralized zones. One extends from 10 metres below surface to a depth of 180 metres; the other is deeper and extends from 300 metres below surface. Both dip at a low angle to the east and range in thickness from 15 to 110 metres.
The Pediment deposit has one main mineralized zone, which lies 45 metres below the surface on the southern end and 170 metres below the surface on the northern portion of the deposit. The average thickness of the low-angle tabular zone is 75 metres.
The Pediment deposit and the Cortez Hills mineralization appear to be merging along strike at depth. Placer believes development of the new find can be done concurrently with either the Pediment or Pipeline deposits.
Placer is the operator of the Cortez joint venture. The remaining 40% interest is held by Kennecott Explorations, a subsidiary of
Last year, higher gold and copper prices caused Placer Dome to think seriously about the already-permitted Cerro Casale project. Some 11 years after partners
On the ground, the major’s first step is to update the 2000 feasibility study, which indicated that the project is economically viable as a large-scale, low-grade open-pit mine at a gold price of US$350 per oz. and a copper price of US95 per lb.
The study envisioned an open-pit mine with a stripping ratio of 2.7-to-1 and proven and probable reserves of 1.03 billion tonnes grading 0.69 gram gold and 0.26% copper, equivalent to 23 million oz. gold and 6 billion lbs. copper. The calculation is based on a cutoff grade of 0.4 gram gold.
At a daily processing rate of 150,000-170,000 tonnes, the mine would produce an estimated 975,000 oz. gold and 287 million lbs. copper annually over a mine life of 18 years.
Assuming a copper credit of US95, cash operating costs are expected to be US$98 per oz. gold. Total costs, including life-of-mine capital, are pegged at US$203 per oz., whereas projected capital costs are a lofty US$1.43 billion.
Gold and copper recoveries are pegged at 76.3% and 87.1%, respectively.
Based on these figures, the internal rate-of-return after a 15% tax rate is projected to be 10.7%. The net present value, using a 5% discount rate, would be about US$915 million, and the project payback is estimated at 7.1 years.
The study recommended standard flotation, with the concentrate piped to the coast and shipped to a smelter for final processing.
During 2001, the project secured water rights to build and operate a plant, as recommended in the feasibility study, and in March 2002, Chilean regulators approved the environmental impact study.
Placer, which is required to spend US$1.3 billion on mine development to retain its 51% stake in the project, has agreed to update the feasibility to determine if there have been technological or other advancements since the completion of the last study. The new report is due in the first quarter of 2004.
“Cerro Casale is more attractive at current gold prices of about US$390 an ounce, and copper at US91 cents per pound,” states Taylor.
The deposit is on the 450-sq.-km Aldebaran property, 250 km southeast of Copiapo in the Maricunga region, some 150 km inland from the Pacific coast.
Arizona Star entered the scene in 1995 by inking a deal to earn a 49% stake in the property. The junior quickly outlined reserves of 1.97 million oz. gold, and in 1997 Placer Dome became a joint-venture partner for the development and financing of the Cerro Casale operation.
Another project on the development list is Donlin Creek, in which Placer recently elected to earn back a 70% interest. Under the agreement, the major has until late 2007 to green-light construction of a mine capable of producing at least 600,000 oz. gold per year.
A $12-million exploration program by
“Placer Dome’s decision [to buy back in] endorses our view that the project has transitioned from advanced exploration to development,” says NovaGold President Rick Van Nieuwenhuyse.
Like Cerro Casale, the project has high capital costs (US$602 million), primarily because of challenges related to infrastructure and metallurgy.
However, the Alaskan government appears to be doing its part to make the project more attractive to Placer. About US$10 million has been budgeted in the transportation portion of the federal spending bill, and this could provide road access to the proposed mine site. Although the spending bill does not indicate where the road would be built, the state of Alaska recently approved a resolution calling for a road between the proposed mine site and Crooked Creek, a village 18 km to the south.
Another option being explored is a road from Donlin Creek north to the Yukon River village of Ruby. Meanwhile, the governor of Alaska has introduced legislation that would grant US$100 million and guarantee US$50 million in loans for a power plant to serve the mine and the region. The legislation has not moved from the Senate Energy and Natural Resources Committee since it was introduced last summer.
Placer, which has not requested any government support, is working on various energy options for the proposed mine, which would need at least 100 MW of power at peak times. That’s about half of the peak usage by Fairbanks and surrounding Interior communities.
Donlin Creek has a measured and indicated resource of 117.5 million tonnes averaging 3 grams gold, or 11.1 million contained ounces. In addition, the deposit hosts an inferred resource of 142.2 million tonnes averaging 3.1 grams gold, or 14.3 million oz.
The base-case mine plan is for an open-pit operation capable of extracting 20,000 tonnes of mineralized material per day in each of 14 years at an average stripping ratio of 5.9-to-1. Head grades and recovery rates would be higher in the first five years, resulting in just over 10 million oz. of production over the life of the mine. This study was based on a measured and indicated resource of 73.97 million tonnes averaging 3.11 grams gold, or 8.3 million contained ounces, and a cutoff grade of 2 grams per tonne.
The scoping study suggests Donlin Creek can support annual production of 1 million oz. with a capital investment of US$602.1 million. The cost includes US$79.6 million for contingencies. The payback period would be just over five years.
Cash operating costs are pegged at US$166.57 per oz.; total production costs, at US$241.87 per oz.
The pretax rate of return for the base-case plan was estimated at 15.6%, based on a gold price of US$300 per oz. At US$350 per oz., the pretax rate of return jumps to 25.3%. The after-tax return ranges from 10.7% to 17.9%, based on gold prices of US$300 and US$350 per oz., respectively.
Results from metallurgical tests indicate that 95-98% of the gold is contained in fine-grained arsenopyrite mineralization. The gold can be recovered through conventional sulphide flotation, concentration, pressure-oxidation and carbon-in-leach cyanidation. Average gold recovery is 89%, and up to 92% with process optimization.
The Donlin Creek property covers 109 sq. km of private patented land under lease from the regional and village corporations of the lower Kuskokwim region.
— The author is a Vancouver-based professional geologist and freelance writer specializing in mining issues.
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