Northern Gold Explorers Focus on Adding Bulk

Size matters, especially with regard to gold projects in Nunavut. As the yellow metal continues to languish below US$275 per ounce, gold explorers in this high-cost environment are focusing on adding bulk to their projects, rather than fast tracking them to production.

"Under current gold price scenarios there is nothing to do but make this thing as big as we can, " says Cumberland Resources (CBD-T) president Glen Dickson, of the Meadowbank project north of Baker Lake, Nunavut. Cumberland has a 100% interest in Meadowbank.

Cumberland's decision to return to the grindstone rather than consider development follows the results of a prefeasibility study completed earlier this year. The study reached the disappointing conclusion that Meadowbank was short of the ounces needed to make production worthwhile, despite years of drilling and adding new reserves at the remote gold project.

The conclusion is directly linked to the slump in the gold price, which reduces the amount of gold that can be placed in the reserve category. Gold has lost more than 30% of it's value since 1996, when the price averaged US$388 per ounce, and is not expected to move above US$300 per oz. anytime soon. Gold projects in the far north are particularly sensitive to lower gold prices because the cost of operating there is relatively high.

Undeterred, Cumberland continues to hunt for new resources that can eventually enhance the one-million-ounce reserve base and create economies of scale.

Cumberland's geologists have had some success in this regard. During the latest field season, their drills intersected a new zone, the Vault zone, when eight of ten holes cut shallow gold mineralization under a surface showing about five kilometres northeast of the known Meadowbank deposits.

Results included a 17-metre section grading four grams per tonne at a depth of 55 metres and a nine-metre section grading seven grams just below surface. The Vault mineralization has been traced over a strike length of 850 metres and a width of 300 metres and remains open in all directions.

Cumberland is now developing a resource estimate for the new zone, and has budgeted $1.3 million for further exploration at Meadowbank in 2001.

The new ounces will be a welcome boost to the 11.3 million tonnes averaging 5.73 grams gold - including proven and probable open pit reserves of 5.5 million tonnes grading 5.44 grams tonne (960,000 ounces) - in the four established zones at Meadowbank (Third Portage, Bay Zone, North Portage and Goose Island).

Cumberland is aiming to put at least 1.6 million ounces in the reserve category, says Dickson. Reaching this goal would allow a 10-year mine life with a 4.2 year payback period, based on a long-term gold price of US$325 per oz, about US$60 above the current price. At a daily milling rate of 2,500 tonnes, the open pit mine would produce 157,000 ounces per year. Capital costs are estimated at US$93 million and cash operating costs at US$187 per oz, according to the prefeasibility study.

A similar study is underway at the much larger Meliadine West project near Rankin Inlet, Nunavut, where Cumberland (22%) participates in a joint venture with Comaplex Minerals (CMF-T) and WMC International (56%), the operator. Expected to be complete by the end of the first quarter 2001, the study will update estimates of capital and operating costs and choose mining methods for production.

Meliadine West contains a resource of 23.6 million tonnes grading 8.5 grams gold per tonne, or 6.5 million ounces, in four closely-spaced deposits. WMC has invested more than $40 million in the project, including 110,000 metres of diamond drilling.

Partners Cumberland (50%) and Comaplex (50%) have been less successful at outlining new mineralization at the earlier-stage Meliadine East project along the eastern half of the Meliadine gold trend. The main Discovery zone contains resources of 2.1 million tonnes grading 6.9 grams per tonne, or 400,000 oz. A summer program intersected an extension of this zone, but came up empty handed elsewhere on the property.

Adding new resources is also a priority for partners Miramar Mining (MAE-T) and Hope Bay Gold (HGC-T), who have been working feverishly on their 1180-sq-km land package along the Hope Bay greenstone belt east of Bathurst Inlet, Nunavut.

Eventually, the partners hope to establish a gold mining camp that will produce more than 300,000 ounces per year at cash costs under US$200 per oz.

To this end, the joint venture recently spent an extra $4 million on exploration, in addition to an original budget of $15 million. The added funds were used to test for structural extensions of known gold mineralization at the high-grade Boston and Doris deposits, investigate possible extensions of high-grade zones within the Madrid deposit and drill new targets in the Hope Bay belt and the neighbouring Elu greenstone belt.

The Boston deposit is a shear-hosted gold deposit where the partners drilled 144 holes from underground in the first half of 2000. Resources currently stand at 5.7 million tonnes grading 13.1 grams gold per tonne, or 2.4 million contained ounces within three principal mineralized zones: B2, B3 and B4 The Doris deposit contains an additional 2.1 million tonnes grading grading 17.8 grams gold or 1.2 million contained ounces.

The summer program cut several narrow mineralized intersections. "These relatively narrow, but high grade intercepts in the B2 Zone at Boston confirm indications from our underground drilling and prior BHP surface drilling that there is potential to expand the Boston deposit to the north and south," said Tony Walsh, Miramar's President and CEO.

The joint venture expects to announce a new resource estimate for Hope Bay by year-end. At presstime, the partners were also working out the details of next year's program, which will be "substantial", says Walsh.

The partners have a "conceptual" reserve target of 2-3 million ounces for Hope Bay, or enough to support a 2,000-tonne-per day operation, says Walsh.

Meanwhile, Kinross Gold (K-T) is trying to boost tonnage and grades at Wheaton River Minerals' (WRM-T) George Lake project, 70 kilometres south of Bathurst Inlet. Current resources are estimated to be 6.5 million tonnes grading 9.76 grams gold per tonne, equivalent to two million contained ounces.

Kinross can earn a 70% interest in George Lake by spending $20 million on exploration before Nov. 30, 2004. The latest 40-hole program hit high-grades at depth along the property's Main and East zones, suggesting that these zones continue to plunge to the north.

Although the cost of operating in the far north is high because the projects are remote and the seasonal exploration window is short, the Meadowbank, Meliadine, Hope Bay and George Lake projects enjoy the advantages of ocean access, shallow deposits, uncomplicated metallurgy and relatively high grades. Now all they need is a few more ounces, a higher gold price, or - better yet- a combination of the two.

Junior Sector Quickly Running Out of Cash

Although the PDAC convention drew more than 30,000 registrants from 125 countries to its 81st convention – about the same number as the record set last year – there was speculation that for some juniors, the 2013 gathering may be their last.

According to independent U.S. analyst John Kaiser, roughly 20% of the 527 junior companies registered for the PDAC have less than $200,000 in the bank, enough to maintain an office for a few more months, but not nearly sufficient to finance exploration. He warned that the flight of equity capital has undermined the value of junior projects so severely that the sector is vulnerable to takeovers by cash-rich foreign entities. 

“There’s going to be a massive binging buyout, maybe by the Chinese, of ounces and pounds in the ground,” he said at an international panel luncheon on March 5th where the fate of the junior sector was debated.

Equity investors averse to risk and disappointed by the progress of several gold projects are abandoning the sector, resulting in a 20% drop in the value of the S&P/TSX Venture Composite Index – the bellwether of the junior mining sector – in 2012. Even though commodity prices remain robust, only juniors with the most advanced projects are able to turn to the stock market for cash.

As a result, a 3-year boom in exploration that took spending to record levels of $21.5 billion globally in 2012 is likely to come to a halt this year, according to a special report on exploration trends by the SNL Metal Economics Group, even though the research group expects spending by producers to remain steady.

“Due to the limits imposed by ongoing market volatility, the size and scope of many junior budgets remain dependant on investor interest over the first few months of 2013,” the report concludes. “We forecast that the junior sector as a whole will spend less than in 2012….”

Because gold accounts for more than 50% of global exploration spending, one factor that could revive the junior sector is a rising gold price. Although the price dropped below the US$1600 per oz. level recently as investors became more optimistic about global economic conditions, all three panellists at the international panel luncheon –Kaiser and financiers Eric Sprott and Ned Goodman – expect gold to continue its multi-year ascent in 2013.

Sprott, who oversees about $10 billion in investments as CEO of Sprott Asset Management, estimates that for every 10% move in the price of gold, gold stocks respond with a 20-30% adjustment. That correlation has damaged the sector so far in 2013 as gold has tracked downward, but could just as easily buoy gold stocks if momentum shifts to the positive.

“I’m buying gold stocks everyday,” agrees Goodman, president and CEO of Dundee Corporation.  “Gold is real money, a hedge against the stupidity of the markets.”

Meanwhile, expect much more consolidation in the junior sector as companies pool their cash and assets to survive, and more joint ventures as miners try to “derisk” their projects, said PricewaterhouseCoopers' John Nyholt in a special session on financing in volatile markets.

Quebec's Northern Frontier Awakens

Years of mapping, sampling and drilling may finally be paying off for juniors determined to make an economic discovery in the underexplored frontier of Quebec's north.

Two gold projects and an impressive diamond discovery have attracted industry attention to the multi-mineral potential of the region, although the market remains unresponsive to companies holding ground there.

The gold plays, including Eastmain Resources' (ER-T) Clearwater and Virginia Gold Mines' (VIA-M) La Grande Sud are located along the Eastmain and La Grande belts, two underexplored greenstone belts east of Hudson Bay. Recent discoveries have boosted the potential mineability of both properties, which contain established resources that have taken years to delineate.

Twin Gold's (TWG-T) diamond discovery in the Torngat mountains on the east side of Ungava Bay is even more intriguing because the project is brand new and has returned results that rival some of the early exploration work in the diamond fields of the Northwest Territories.

These types of projects are an endorsement of Quebec's support for companies willing to launch exploration programs outside known mining camps. In addition to one of the most generous flow-through share programs in the country, the government offers grants of up to $100,000 per property for exploration in remote areas.

"This year we are entitled to receive about $300,000 in grants," says Andre Gaumond, president of Virginia. "You can do much more work for the same dollar."

At Clearwater, Eastmain and Soquem recently uncovered several new high-grade veins by stripping surface outcrops. Results from channel samples included a 17.6-metre intersection grading an uncut 16.2 grams per tonne across the Tourmaline Zone and high-grade, visible gold in veins O, P and Q. These discoveries could add significantly to the known resource of just over half a million tonnes grading 11.3 grams gold per tonne contained in multiple, parallel quartz-tourmaline veins within the Eau Claire deposit.

"Westmin started in this belt in 1983 and work has been almost continuous ever since," says Don Robinson, president of Eastmain. "These results show that you can make a discovery on a project at anytime, be it year one or year twenty."

The project is a 50-50% joint venture between Soquem and Eastmain. The partners are planning to complete detailed follow-up drilling at 25-metre centres in order to evaluate the tonnage and average grade of the deposit.

At Virginia's La Grande Sud, till sampling returned a record number of gold grains and drilling intersected a mineralized zone averaging 0.5% zinc over 23 metres. The intersection lies south and east of zone 32, which contains a resource of 6.5 million tonnes grading 1.5 grams gold per tonne and 0.2% copper.

Cambior is earning a 50% interest in the project from Virginia by spending $7 million over six years. In January, the gold producer will launch a 300,000-metre drilling program to determine if the felsic volcanic- intrusive contact that runs through the property is as promising as similar geology in the Bousquet-Doyon mining camp to the south where Cambior operates the Doyon gold mine.

Compared with old timers like Virginia and Eastmain, Twin Gold is a newcomer to Quebec's remote north. The junior, better known for its advanced gold project in Idaho, became involved in diamond exploration in the Torngat Mountains of northeastern Quebec after identifying a cluster of kimberlite dykes on computer-enhanced aerial photographs.

An exploration team lead by James Bourne, a geology professor at the University du Quebec in Montreal, made the diamond discovery after staking ground in the area for Twin Gold in late June. Grab samples from one of the dykes yielded a total of 42 diamonds, including nine macrodiamonds. One of the macrodiamonds is an impressive 1.85 millimetres in diameter. The 1.5-km long dyke contains G10 garnets and is part of a cluster of 12 dykes.

The company will finance ongoing exploration through a recently announced private placement of special warrants, priced at 45 cents a warrant, to raise $3-5 million. The warrants will be issued in two classes. The first class allows the holder to acquire one flow-through share and half a warrant of Twin Gold. The other class entitles the holder to acquire one common share plus half a warrant.

There are other pockets of activity throughout the vast area between James Bay in the west and Ungava Bay in the east. La Grande Sud is the most advanced of Virginia's projects, but the company has several other gold and base metal prospects that warrant follow-up.

Among them is the Gayot property south of Ungava Bay, where Virginia recently increased its land position to 325 square kilometres after discovering four nickel-platinum-palladium showings. The property lies along a newly discovered ultramafic belt that is said to show geological similarities to the Raglan and Kambalda nickel belts. Zones of disseminated sulphides have returned 1.0-2.7% nickel and up to 0.4% copper, 0.1% cobalt and 1.18 grams per ton platinum group metals.

Virginia has a 100% interest in Gayot and will begin drilling there this winter after completing a ground geophysical survey to generate targets.

Winter drilling is also scheduled to get underway on Virginia's Duquet project, where Cambiex Exploration (CBX-T) and Soquem are earning a 33.3% interest. Duquet is a gold-copper-silver prospect containing massive sulphide lenses that have never been drill-tested.

Virginia will move the drills to the Chute-des-Passes and Payne Bay nickel prospects after the winter campaign is complete.

Also active in the region is Sirios Resources (SOI-M). The junior is taking till samples as part of a diamond exploration program in the La Grande River area and recently closed a deal with Soquem for exploration on the nearby Aquilon property. Souquem will spend $470,000 over three years to earn a 50% interest in the gold project.

Sirios and Soquem also plan to follow-up encouraging gold results from a till sampling program at their joint venture Tilly Centre property in the La Grande region.

And near Radisson, prospecting by Dianor Resources (DOR-M) has turned up six surface gold showings. Results from grab samples ranged from 2.83 to 66.99 grams gold per tonne.

Chile to Join Ranks of Top Ten Gold Producers

It is no secret that the roof of the Chilean Andes is made of copper. For years, mining heavyweights have been aggressively exploring “porphyry alley”, a 2,500-kilometre string of copper deposits stretching along the mountaintops of northern Chile. As a result, Chile contains the largest copper reserve in the world and by the end of the decade, copper production is expected to double to 4 million tonnes - almost half of total world production.

What is often overlooked amid the copper boom is the country’s growing contribution to gold production. By the end of the decade, Chile expects to join the ranks of the world’s top ten gold producers as several new projects bear fruit. According to projections of the Chilean Copper Commission, Cochilco, Chile will produce more than 69 tonnes of gold in 2000, a 32% increase over 1996 levels and a 79% gain over 1994 production. Although some of this new output will be a by-product of copper mining, most will stem from the discovery of major gold deposits over the past 20 years. Many of these discoveries are located along the El Indio belt, a 175 km X 10 km corridor of copper and gold rich rocks in central Chile.

Not since the 18th century has gold played such an important role in the South American country. Then, a near-bankrupt Spain introduced economic reforms to encourage mining and trade in its colonies. These measures coincided with the discovery of a number of gold deposits in northern Chile and, by the first decade of the 19th century, annual gold production reached an all-time high of about 3 tonnes. With help from Chile, Latin America became the world’s largest source of gold.

But a number of factors conspired to devastate the growing industry. First, the mines were disrupted by a series of wars associated with Chile’s independence in 1823. Later in the century, Chilean gold miners fled to take part in gold rushes in California, Canada and New Zealand. Meanwhile, the growing demand for metals to feed the industrial revolution and the coincident development of new technology to process copper ore encouraged copper production at the expense of gold. By 1880, gold production had dropped to less than half a ton per year.

Almost a century passed before gold reemerged as an important commodity in Chile. The precipitous rise in the gold price during the 1970’s, ending with a peak of US$800 per oz. in 1980, provided the motivation for exploration. But it was the discovery of the El Indio deposit high in the Chilean Andes that is responsible for Chile’s current envious position among world gold producers.

El Indio sparks gold fever in Chile

In the summer of 1967, a group of prospectors exploring a remote section of the Andes Mountains in central Chile stumbled across some high-grade copper ore. They worked what is now known as the El Indio deposit throughout the summer, transporting their copper bounty down the mountain by mule. But it wasn’t until 1973, when the gold price was climbing, that a similar group of ‘pirquineros’ (high-graders) mined the deposit for its gold content.

Recognizing that these small-scale mines may be part of a larger gold province, the state mining agency, ENAMI, began a series of surveys over the surrounding belt of rocks in 1974. The results of the agency’s work showed that the area had potential for epithermal precious-metal deposits, a common source of gold in British Columbia, the western U.S. and Indonesia. At the time, Chile’s gold production was a scanty 3- 4 tonnes per year.

Just as in the 18th century, changes to the mining code in 1974 acted as a catalyst for increased gold production. The new code encouraged foreign investment and prompted a small Canadian mining company called St. Joe Minerals to dispatch a geologist to Chile on a scouting mission. In La Serena, the coastal town closest to El Indio, the geologist heard about ENAMI’s work in the nearby mountains and paid a visit to the site. The samples he collected returned values of close to 100 grams gold per tonne (extremely high-grade) and within a year, St. Joe had taken an 80% interest in the property and had launched an ambitious exploration program.

Although the program was successful in outlining a respectable gold deposit, it was the discovery of a “bonanza” vein grading 3,543 grams per tonne in 1979 that launched El Indio into the big leagues. Mining began almost immediately and the first concentrates from a 1,250-tonne-per-day mill were shipped in late 1981. El Indio became the first modern-day mine in Chile to have gold as the major component of production. This year, the mine is expected to produce 140,000 oz. of gold and 35,000 tonnes of copper. The nearby Tambo mine, which came into production in April 1995, will add another 175,000 oz. gold to 1997 output.

Like other major discoveries around the world, the El Indio find sparked an explosive rush for gold in Chile, particularly within the late Cenozoic volcanic rocks of the high Cordillera. The proof that large, high-grade gold deposits could still be found in Chile, coupled with favourable investment conditions, attracted exploration and mining companies from around the world. The story of gold in Chile was just beginning to emerge.

St. Joe Minerals, the owners of El Indio, were major players in this rush. They quickly assembled an extensive land package along the El Indio belt in the late seventies, including the Nevada property about 50 kilometres north of the new mine. At an elevation of 4,800-5,000 metres above sea level, Nevada was to become one of the most important gold deposits within the belt. But lack of interest from majors with deep pockets stalled exploration for years and almost killed the project entirely. First, South African powerhouse Anglo American Corp., St. Joe’s first partner, pulled out of the project. Subsequent attempts to attract new joint venture partners failed. In the meantime, St. Joe went through a series of ownership changes and was finally swallowed by Lac Minerals. Lac decided to proceed alone at Nevada, and drilled over 70,000 metres between 1992-95.

Meanwhile, the movers and shakers at Toronto’s Barrick Gold (then American Barrick) were beginning to rethink their conservative strategy of restricting operations to North America. With foreign investment rules loosening in geologically attractive countries throughout the developing world, Barrick began to see the logic of establishing off shore operations and started to shop around for acquisitions.

Barrick’s new strategy led them into a bidding war with Royal Oak Mines for control of Lac Minerals. In September 1994, Barrick captured Lac and its important land position around El Indio for $2.3 million, or $15.60 per share. In retrospect, the selling price looks cheap – since Barrick took control, reserves at the Nevada prospect (now called Pascua) have skyrocketed from 1.8 million oz. to 10 million oz. while resources stand at 6.7 million oz., a huge deposit by any (post Bre-X) standards. Largely as a result of exploration at Pascua and the Pierina property in Peru, Barrick’s reserve base jumped 40% to 51 million oz. last year.

And the potential to expand the Pascua deposit is “too tempting to be true”, says Alan Hill, Barrick’s executive vice-president of development. “This is going to be a very big deposit”, he says. The company is currently pumping $11 million into Pascua to expand reserves, including driving a tunnel through the lower portion of the deposit to investigate the potential at depth. Based on current reserves, Pascua is expected to produce an average of 400,000 oz. gold per year for 20 years at a cash cost of US$220 per oz.

There have been challenges. Pascua sits at an altitude of 5,000 metres, about 1,000 metres higher than the El Indio mine. It takes at least a day for workers coming in from the coastal town of La Serena to adjust to the thin air at this elevation. Barrick must also budget about 10-15% downtime to account for the viscous storms that lash these mountaintop locales. And not only is Pascua one of the highest exploration properties in Chile, it also straddles the border with Argentina. Although the two countries are working on a protocol to deal with cross-border exploration and development, Barrick has not yet been allowed to drill on the Argentinean side of the property. Hill expects the protocol to be signed by the end of the year.

The original El Indio mine that sparked Chile’s latest gold rush is now a mature mine with 17 years of operation behind it. But its discovery in the late 1970’s led to the exploration and redevelopment of several other major gold deposits including Choquelimpie, La Coipa, El Hueso, Tambo, Marte, San Cristobal and El Guanaco. More recently, Bema Gold opened the Refugio gold mine and, in partnership with Arizona Star Resource, is drilling off Cerro Casale, a major deposit in northern Chile. As a result of these and other projects, Chile’s gold production is expected to skyrocket, overtaking current production from the world’s ninth and tenth top producers – Peru (65 tonnes) and Brazil (64 tonnes).

Foreign investment in Chile’s Mining Industry

Although Chile’s mining potential has always attracted investment from outside the country, the past decade has been exceptional in this regard. More than 80% of the total foreign investment in Chile’s mining industry - $9.5 billion at last count - has materialized since 1988.

The catalysts for this investment boom were political and economic reforms introduced during the 1970’s and 1980’s coupled with rising prices for Chile’s two main commodities, copper and gold. In particular, new foreign exchange rules provided the legal framework that guaranteed the rights of foreign investors by establishing maximum tax rates and a minimum period before profits could be repatriated. The government’s current mining policy strives to promote private investment and increase productivity while protecting the environment through new regulation and investment in clean technologies.

This new policy has established Chile as a market economy and set a precedent for mining laws in other emerging nations. Indeed, the current trend towards globalization of the mining industry can be traced back to initial investments in Chile during the 1980’s. Favourable experiences there gave foreign companies more confidence in investing in other developing nations, including those in Southeast Asia and Africa.

But Chile cannot afford rest on its laurels. Competition among emerging nations for first-world mining capital is fierce and in many a miner’s eye, Chile is beginning to look ‘picked over’ and expensive. In 1996, foreign investment in the country’s mining industry plummeted to $886 million from $1.7 billion the year before as most of the copper megaprojects reached final development. Although this figure is expected to climb again with investments in the Collahuasi, Lomas Bayas and Yolanda projects, Chile’s ability to attract the biggest piece of the foreign investment pie may be on the wane.