Despite controversy surrounding last year’s acquisition of Getchell Gold,
The major is in the midst of a major exploration and development program at the property, where more than 30 drill rigs have been mobilized. In excess of US$87 million will be spent on the property this year, including US$20 million on exploration, representing about a third of Placer’s annual exploration budget. Four mineralized areas are being evaluated: the N-zone, Turquoise Ridge, Powder Hill and Getchell. A new resource estimate is expected in July, followed by an updated reserve statement by year-end.
In May 1999, Placer merged with Denver-based Getchell Gold, owner and operator of the adjoining Getchell and Turquoise Ridge underground mines. Placer issued 75.5 million of its shares on a 2.45-for-1 basis to acquire all of the outstanding shares of Getchell Gold. Getchell, a high-cost producer, was valued at US$34.45 per share, a premium to its Dec. 11, 1998, closing price of US$16.19, when the merger was first announced. The $1.1-billion deal was criticized for being pricey. At the time of purchase, the total resource stood at 16 million contained ounces, including 6.6 million oz. in reserves.
Proven and probable reserves currently sit at 6.5 million oz. contained in 18.1 million tons grading 0.36 oz. gold per ton. A gold price of US$325 per oz. was used to arrive at the estimate, which is based on Getchell Gold’s calculation at Dec. 31, 1998, and takes into account depletion resulting from 1999 production. At US$300 per oz., reserves decrease by less than 5%.
The Getchell property comprises 65 sq. miles and includes the Getchell and Turquoise Ridge mines, as well as a 3,000-ton-per-day mill. The mill consists of crushing and grinding facilities, as well as a whole-ore pressure-oxidation circuit comprising autoclaves. Gold is recovered by the carbon-in-leach (CIL) process, carbon stripping and refining.
Approximately 58% of the Getchell property, including all current proven and probable reserves, is subject to a net smelter return (NSR) royalty of 2%.
Getchell produced 176,833 oz. in 1998 at a cash cost of US$321 per oz. and a total cost of US$397 per oz., as a result of milling 592,000 tons grading 0.33 oz. Some 15,756 oz. of preproduction from Turquoise Ridge were included in the 1998 figures. By comparision, in 1997, the mine produced 178,360 oz. at a cash cost of US$418 per oz. The mine had an operating loss of US$17 million in 1998, compared with a loss of US$27 million in 1997.
Getchell Gold, originally known as FirstMiss Gold, started open-pit, heap-leach operations at the Getchell property in 1985, followed by construction of a 3,000-ton-per-day mill in the spring of 1989 to process open-pit, refractory sulphide material. Initial development of the Getchell main underground deposit, via a decline, began in August 1993, leading to startup of commercial production in May 1995. However, mining difficulties encountered early-on led to a change in mining plans, limiting underground production to 700 tons per day, compared with the 2,000 tons originally planned. Open-pit mining finally ceased in 1996.
The Turquoise Ridge deposit, situated a half-mile from the Main pit and the Getchell main underground deposit, was discovered in 1993 during a program of exploration drilling. It was found to contain sulphide mineralization similar to that of the Getchell main underground. The discovery hole ran 0.52 oz. over 62 ft., starting at a depth of 720 ft. below surface.
Early plans
In early 1996, Getchell Gold, without fully delineating the extent of the mineralization, pushed ahead and began development work on Turquoise Ridge by sinking production and ventilation shafts. Turquoise Ridge was to come on-stream at an initial rate of 1,000 tons per day and increase, at a later date, to 2,000 tons. Getchell began processing development ore from Turquoise Ridge in the first quarter of 1998.
By the end of 1999, Getchell Gold had mined more than 2 million oz. gold from the property.
Based on its initial due diligence work, Placer felt there was significant potential for a 20-million-oz. resource at the Getchell property. The company had expected Getchell would contribute an average of 400,000 oz. per year through 2002 at a cash production cost below US$230 per oz. By 2003, milling capacity was to have doubled, at an incremental capital cost of US$230 million, allowing the mine to produce 800,000 oz. per year at a cash production cost below US$200 per oz.
However, inadequate infrastructure had resulted in high operating costs and low production rates, and so, upon taking over management of the property in June 1999, Placer quickly determined that a revised development strategy was required. Other snags included the complex, structural nature of the deposits, poor ground conditions and refractory mineralogy.
By July 1999, Placer had suspended mining at Turquoise Ridge and shut down the mill in order to focus on exploration and development; it also set about improving the infrastructure to allow for larger-scale, more cost-efficient ore extraction.
‘Over-optimistic’
“Frankly, we were over-optimistic about the amount of time we would need to map out the plan for realizing the property’s tremendous potential,” Placer President Jay Taylor told shareholders at the company’s annual meeting in April. “As a result, the market has been expecting a quicker turnaround than we are providing.”
When Placer suspended operations in July, Getchell had, for the year, produced 110,954 oz. by milling of 452,000 tons averaging 0.28 oz. at a cash cost of US$394 per oz, or a total cost of US$494 per oz. The mine had an operating loss of US$24 million in 1999.
Underground operations continued through to February 2000 at the Getchell mine, with 150,000 tons of ore grading 0.43 oz. stockpiled for later processing. Mining and milling at existing plant capacity will remain suspended at least until 2002, pending further development drilling, test-mining and the completion of an expansion study that will examine combining production from the Getchell, Turquoise Ridge and N zone deposits in order to increase mill throughput and reduce future costs.
New model
“We expect full-scale operations to resume between 2003 and 2005,” said Taylor.
To the end of April, Placer had completed more than 674,000 ft. of drilling and geological testing, resulting in a new geological model with more predictive capabilities.
“This is a large, complex mineral system and I believe we have a good handle on it,” Taylor said at a recent Merrill Lynch conference in Phoenix, Ariz. “We have discovered several new high-grade zones open in all directions, and we are developing the infrastructure.”
Gold mineralization is associated with intrusive rocks and hosted in carbonate and siliclastic sedimentary rocks of the Comus and Preble formations. The mineralization is controlled along the corridors of high-angle fault zones that strike north, northeast and northwest. Key mineralized structures are upgraded to ore where intersected by multiple controls — for example, low-angle faults and axial zones of folds.
Placer has classified four types of deposits at the property:
high-angle mineralized faults;
intersecting high-angle and low-angle mineralized faults;
stratabound, fold and fault controlled ore; and
composite breccia-hosted ore.
Upon taking control of the property in June 1999, the company began exploring the N zone, where four separate areas of mineralization have been identified. All of these areas remain open along strike to the north and south. Drilling also intersected what is believed to be southern extensions of the N zone directly underneath the existing Turquoise Ridge mine, more than doubling the strike length of the zone.
Long-hole mining
Engineering studies have confirmed that the N zone is potentially minable on a large scale. The size, dimensions and ground quality of the structure all lend themselves to long-hole mining, which will have a significant impact on operating costs.
“Our priority has progressed from resource definition to gaining underground access in order to delineate reserves and conduct test mining in the N zone,” said Taylor.
Of the US$87 million earmarked for the property this year, US$45 million will be capitalized. In 2001, expenditures are expected to be US$52 million, of which US$19 million will be capitalized and US$20 million spent on further exploration.
The 1250 level backfill plant and ventilation have been upgraded, and a maintenance shop on that level is being constructed. A shaft bottom decline has also been completed. Development work completed to the end of April included 5,100 ft. at the Getchell mine, 6,800 ft. at Turquoise Ridge and 4,000 ft. at the N-zone.
A scoping study, prepared in February, examined a range of operating scenarios for mining of up to 6,500 tons per day and determined that the existing 3,000-ton-per-day plant would not suffice. Capital costs are projected to range from US$190 million for a 4,000-ton-per-day operation that utilizes existing infrastructure, to US$300 million for a 6,500-ton operation that includes a new mill and a deeper No. 2 shaft. Production would range between 400,000 and 800,000 oz. per year, with cash costs estimated at US$180-200 per oz. and total costs, at US$240-260 per oz.
Once in production, mining costs would range between US$33 and US$50 per ton, depending on ground conditions and mining method. Milling costs are expected to range from US$15 to US$20 per ton, reflecting the the refractory nature of the ore, whereas general and administrative costs would likely not exceed US$6 per ton. Recoveries are pegged at 90%.
“I know the market has been disappointed that we aren’t going to see production immediately,” said Taylor, “but we will proceed with a prudent development plan that will deliver the highest value to our shareholders. We have a strong team at Getchell, and they have made significant progress over the past 12 months.”
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