THE FUTURE OF NORTH AMERICAN GOLD

Gold’s dominance as the preferred target of exploration and development over the past few years has resulted in a sharp increase in gold production for many countries outside of South Africa. This is especially true in North America and Australia, where production from increasing numbers of small-to-medium-sized developments is swelling yearly production totals. The trend is expected to continue as exploration budgets increase with improved prices and with the tremendous response in Canada from investors taking advantage of exploration tax incentives while they still apply. Table 1 shows projected growth levels for North American gold production, assuming a relatively stable gold price near the $450(US)-per-oz level. Higher prices could fuel a more vigorous rise in production, especially if existing operations decide to quickly expand. In any case, based on current information, we expect North American primary gold output to more than double in the 5-year period shown.

These conservative estimates are based on projected levels of gold output for currently active producers in the U.S. and Canada and on calculations for new gold production from projects known to be in earlier stages of development. The figures account for both reserves depletion at existing mines and for a percentage of development-stage projects to fall by the wayside. Conversely, we have included estimations for expansions that have not yet been announced at existing operations and for new mine developments that have been kept under wraps or that may be unexpectedly fast-tracked to production in the next few years. Our estimations can be examined in more detail in Tables 2 and 3.

Table 2 divides the contributors to future U. S. gold production into their current stages of development and shows expected increases between 1987 and 1990. The 1987 production figure represents an increase of close to 1 million oz over 1986 levels. The new 1987 production is coming from expansions at a number of operating mines and from 16 new mines now in their first year of operation. Newmont is increasing production rates at three of its existing mines in the Carlin belt of Nevada: Gold Quarry, Genesis, and Blue Star. American Barrick is expanding at the Mercur mine in Utah and at Goldstrike in Nevada, while Echo Bay is expecting increased production from the McCoy operation in Nevada. The largest of the new mines onstream in 1987 are Sonora’s Jamestown in California (130,000 oz per year) and Pegasus Gold’s Montana Tunnels (106,000 oz per year).

In the next three years, the greatest production increases from the 66 existing U.S. producers (including mines starting up in 1987) are expected at Echo Bay’s Round Mountain mine in Nevada (from 170,000 oz to 300,000 oz per year) and Gold Fields’ Mesquite operation in California (from 150,000 to 225,000 oz per year). The dip in overall production from producers shown in 1990 will result from expected reserves exhaustion at eight smaller mines.

The major portion of new output is anticipated to come from 32 projects that have announced official production go-ahead decisions and are now in the preproduction stage. The largest of these include Gold Field’s Chimney Creek in Nevada (150,000 oz per year); Amselco/Galactic’s Ridgeway in South Carolina (133,000 oz); Goldenbell’s Pine Creek in California (130,000 oz); frm’s Getchell in Nevada (120,000 oz); and Newmont’s Rain in Nevada (about 100,000 oz).

As mentioned above, our estimates of future production have been modified, based on our experience in tracking the progress of developing mines over the past six years. Many projects, especially those held by companies without solid experience in mine development and operation, encounter problems serious enough to prevent them from realizing successful production levels. One of the most common problems is failure to raise sufficient capital, which happens even to projects with reasonable merit. Other developers fail to prove up sufficient reserves to justify mining, although optimistic geologic estimates may have been published early on. Even large, experienced companies have fallen into misconceptions concerning geologic modeling, reserves calculations, or metallurgic recoveries.

With these problems in mind, we applied a “success factor” to our data, assuming that a certain percentage of projects would not attain production and using the stage of development and the highest level of experience of the companies involved as guidelines. Table 4 outlines these factors and shows the number of U.S. and Canadian projects to which they apply. The Success Factor

We considered the 16 U.S. projects in the pre-production stage that are being developed by experienced major or intermediate-sized companies to have at least an 80% chance of realizing successful production. For the seven pre-production projects being developed by junior companies with operating experience, the factor was 50%, and for the nine projects held by junior companies without operating experience, 20%. The estimates of future U.S. gold production shown in Table 2 reflect these modifications. We applied the same general principle to projects in the feasibility and reserves development stages. Since many of these projects are not advanced enough in their development to have released precise estimates of annual gold production, we assigned each of them the average annual rate for U.S. mines of 56,000 oz and then adjusted our totals according to the experience of the project owners. For the 22 feasibility-stage projects, the percentages used to estimate success rates were 60% for the seven projects held by major and intermediate companies, 20% for the eight junior companies with operating experience, and 10% for the seven junior companies without operating experience. For the 48 reserves development projects, those percentages were 25%, 5% and 2% respectively. As can be seen, major or intermediate companies held the largest number of the earliest stage U.S. projects (26), with the remainder evenly divided among the juniors.

In addition to future production from already publicized projects in the various stages of development, our experience has shown that a certain percent age of each year’s gold production comes from previously unannounced mine expansions and/or new mine development. To account for this unexpected output, we have added 2.5% to the total expected from all other sources in 1988, 5% to 1989 projections, and 10% to 1990.

Table 3 shows Canadian gold output projected from 1987 through 1990 and also divided into the current status of the anticipated source of production. The method of estimating was identical to that described above, except that the Canadian average annual rate assigned to projects in the feasibility and reserves development stages was 64,000 oz.

Canada’s 1987 gold output is receiving a major boost as Teck/Corona’s David Bell mine and Hemlo Gold’s Golden Giant mine in Ontario pick up speed. Nine other Canadian operations are increasing their 1987 output between 10,000 and 20,000 oz each. In addition, six new mines are expected onstream this year (1987), the largest of which is Mascot Gold’s Nickel Plate mine in British Columbia (160,000 oz per year).

No significant expansion plans have yet been announced for the 54 existing Canadian gold producers. The gradual decline in output for existing producers shown in Table 3 reflects expected reserves exhaustion at 13 mines, although it is possible that some of the underground operations will prove up more reserves in the meantime. Canadian Expansion

As in the projections for the U.S., we expect the bulk of new Canadian production to come from 19 projects currently (late 1987) in the pre- production stage. Of these, the largest is Hope Brook’s Chetwynd underground mine, which is expected to produce 126,000 oz per year when combined with production from its initial open-pit, heap leach operation. In addition, Amoco/Placer Dome’s new underground mine at Detour Lake, in Ontario, is scheduled to produce 115,000 oz per year, and American Barrick’s Holt-McDermott and erg’s Timmins Tailings operations in Ontario are expected to produce about 100,000 each. Of the 19 pre-production projects, eight are held by major or intermediate companies, one by a junior with operating experience, and 10 by juniors without operating experience. Compared with the same stage projects in the U.S., a greater percentage of the Canadian projects are held by less-experienced companies.

A similar situation exists with Canadian projects in the feasibility and reserves development stages, where 13 of the 32 feasibility projects are held by major or intermediate companies, two by juniors with experience, and 17 by juniors without experience. Of the 86 projects in the reserves development stage, the division is 24, 4, and 58 respectively. This proliferation of earlier-stage projects in Canada is a direct result of the government’s flow- through share program, which provides tax savings to individuals investing in Canadian minerals exploration.

However, with more projects in advanced stages of development and with those projects held by more experienced companies, it seems likely that the U.S. will produce considerably more gold than Canada by 1990. In fact, in 1986, U. S. primary gold production exceeded that of Canada for the first time in recent history.

However, Canada’s production may be higher than estimated here if many of its earlier stage projects, currently held by junior companies, actually come into production. * Reprinted from the October, 1987, issue of The Mine Development Bimonthly, Vol. 5, No. 2, a publication of Metals Economics Group of Boulder, Colo.