Western’s Hog Ranch: low-cost gold in Nevada.

The 140-mile drive from here to Nevada’s newest producing gold mine in the northwest corner of the state stretched into four hours when about 30 company officials and guests travelled the dusty route to witness the mine’s official opening Oct 3.

But that trek through the rugged beauty of Nevada’s desert seems to have been the only slow aspect in the development of Western Goldfields’ Hog Ranch mine. A year ago the company didn’t even exist: today, just six months after construction began, it’s a low-cost gold producer that few in the industry seem to be aware of. Western expects to receive up to 33,000 oz annually from the Hog Ranch mine.

Lack of visibility is probably just a result of the company’s recent formation (it was only listed on the Toronto Stock Exchange in late August). Partners in the project are well established in the financial community.

For example, Western’s principles are the prime movers behind the CMP funds based in Toronto and Montreal, although CMP does not have an interest in this property.

Samuel Montagu & Co., one of the five British merchant bankers that set the much-quoted London gold bullion price twice each working day, has taken its first equity interest in a mining operation by participating in this project. A group of West German funds known as Geomex, managed by Imperial Metals Corp., is the third partner.

Western holds a 60% interest in the mine and a wholly-owned subsidiary of Montegu designed as a resource based venture capital firm holds 10%. The remaining 30% is held by Geomex.

The project is not huge, but at one million tons of ore a year to produce about 55,000 oz of gold, it’s a good-sized mine. Capital costs amounted to $7.7 million while operating costs, based on a feasibility study contemplating nine months of operations a year, are estimated to be $9.27(US) per ton in 1987 or about $167(US) per oz of gold produced. Mining costs alone are estimated at $4.90(US) per ton.

A survey of heap leaching operations published in the August issue of The Northern Miner Magazine indicates that the cost-per-oz figure would be the fifth lowest of 14 mines for which figures are available.

A feasibility study shows that, based on 9-month operations per year, a diluted grade of 0.074 oz gold per ton and a recovery of 75%, net cash flow for all owners of the project will be almost $6 million (US) in 1987.

The gold bar poured to mark the opening was actually the third produced by the heap leach operation, the first produced Sept 14. It brought gold production to about 1,300 oz. Western’s passage from incorporation to production has been a product of boardroom management, its remarkably s mooth course to date an indication of what the people at Western’s helm can do with a clear objective in sight and a property that warrants the effort. The discovery of the property and subsequent exploration was carried out previous to the Western’s involvement, although it will now be examining the rest of the large property for its potential.

Although getting the mine to the stage of commercial production so quickly is a substantial accomplishment, there are still some questions about the operation that can only be answered after it has been up and running for a few months. President Dan Martin is the first to acknowledge that knowledge of the orebody gained through previous exploration and drilling on 100-ft centres can only be confirmed by actual mining.

Bringing Mr Martin on board was one of the first steps taken by Western’s management. He was previously the director of business development and manager of the Nevada operations for Tenneco Minerals, a company with a substantial presence in the state, so his knowledge of the area is considerable.

Potential problems he foresees include clay content in the ore. Clay has been the bane of several heap leach projects, most notably the Relief Canyon mine also in Nevada where high clay content reduced gold recovery to 48%. Clay can render the heaps of ore economically unleachable because it prevents the cyanide solution that captures the gold from reaching the gold-bearing material. In effect, the cyanide solution runs off the pile of ore instead of percolating through it.

The amount of clay in deposits on the Hog Ranch property may not be enough to cause problems — it certainly hasn’t yet — but gold production to date doesn’t mean the problem has been solved. Ore that has been crushed and leached so far doesn’t have the clay content the deposit is expected to contain on average.

But management knows it’s a potential problem and has already taken steps to deal with it. It already has equipment on site to agglomerate the ore. Agglomeration — mixing the crushed ore with cement and water so the clay forms small pellets — allows the leaching solution to permeate the ore pile and get to the gold.

Agglomeration means added expense, but Western has included those costs in a mining contract with Gilbert Western Corp. at a fixed cost. In other words, if the clay content proves to be a problem, the costs to Western won’t escalate out of control.

Ore at the Hog Ranch property is described as a mixture of hard, glassy rock and soft clays although the mixture is highly variable. The company says its process systems are capable of handling any ratio of clay to hard rock.

Mining is by standard open pit methods using 15-ft-high benches. Blast holes are drilled to a depth of 20 ft on 12- 14-ft centres. Broken ore is loaded by front-end loader into 50-ton trucks and transported to the crusher or waste dump.

Ore going to the crusher is crushed to 1.5 inches in two stages, then passed throgh a 10-ft diameter rotary agglomerating drum and conveyed directly to the heap in a single 25-ft-deep lift.

The heap pad is about 1,200 x 2,000 ft. Active leaching is continued for up to 60 days with 600 gallons per minute of cyanide solution applied. Gold is recovered using a carbon-in-pulp process.

The Hog Ranch property is about 12,000 acres in size in Washoe Cty at an elevation of about 6,200 ft. Although the high altitude is expected to cause some disruption of operations because of freeze-up, but management now expects to operate 12 months a year with only intermittent stoppages.

Precipitation is a scant nine inches, a positive factor because excessive rainfall can dilute the leaching solution. However, water for operations is not considered a problem with wells providing more than adequate flow rates.

The property was first explored by Noranda, acting as operator, and Ferret Exploration, a private U.S. company, after a 1979 airborne survey detected a radioactive anomaly.

“To say they stumbled over the ore wouldn’t be too far off,” says Western Chairman Robert Buchan. The first gold deposit was detected through soil geochemical testing while exploring for uranium.

The South Deposit was first discovered, although it is not being mined now. After Ferret took over as operator in 1982, it discovered the Section 24 deposit about four miles to the north, the current source of ore. Ralph Barnard, vice-president of Ferret and a director of Western, says there are at least four other known deposits on the property that have potential to be developed. They lie along that 4-mile stretch.

Geological reserves on the Section 24 deposit are estimated at 2.3 million tons grading 0.074 oz gold per ton. Including geological reserves from the other four known zones, total property reserves are set at 4.9 million tons at a similar grade.

Ferret bought out Noranda in 1985 and continued to stake ground right into 1986. Although the area saw some lead-silver mining years ago, it is virtually virgin territory — none of the Hog Ranch claims are subject to any royalties.

About a year ago, in September, 1985, Ferret approached Mr Buchan and some other Canadian businessmen involved in the mining industry. “They asked if we could take the property and put it into production,” says Mr Buchan.

He and Richard Renaud of Montreal, best known for setting up some of the earliest and most successful funds for raising flo
w- through money for mineral exploration under the CMP banner, were instrumental in forming Western (formerly a private U.S. company known as Maple Leaf Goldfields) as the vehicle to develop the property.

They bought Noranda’s 23% interest for $2 million (US) bringing their total interest to about 70%. Then the new management under Buchan sold 10% to Orofino Resources, a subsidiary of Northgate Exploration, and 10% to Montegu, each of them paying $1.5 million (US) up front and spending $700,000 as their share of the capital costs.

Western did its first public offering and gained a listing on The Toronto Stock Exchange in August. It sold one million shares at $5 per share to raise $4.65 million (a greenshoe option added another 150,000 shares to raise another $697,500).

In September, Western turned around and bought back the 10% interest it sold to Orofino paying $5.25(Cdn). A private placement of 865,000 convertible preferred shares at $6.75 each paid for that buyback, and Mr Buchan describes the deal like this.

Western Goldfields was entitled to a 50% interest in the mine once it reached commercial production. It had five million shares outstanding, so a 10% interest in the mine was worth one million shares. If the preferred shares are converted, however, the 10% will have been purchased for 865,000 shares, so the purchase is anti-dilutive.

“Shareholders are getting more gold per share,” says Mr Buchan.

Of the five million shares now outstanding, the public float is about one million, he says. Of the remaining four million, some three million are in escrow.

Mr Buchan says the company’s objective now is to consolidate its interests. “We won’t be making any more investments until we’ve confirmed our cash flow,” he says. At the moment the company only has a commitment to fund $150,000 for a joint venture on a property about 50 miles south of the Hog Ranch mine known as the Olinghouse property.