Mining News: Golden 2013 for Alaska miners

Banner year at Fort Knox hoists annual gold production above 1 million ounces for first time since early 20th Century Gold Rush

Shane Lasley

Mining News

Spurred by a record-setting pace at Kinross Gold Corp.’s Fort Knox Mine, Alaska gold production topped 1 million ounces during 2013, a golden milestone not achieved by Last Frontier gold miners since 1906.

Though more than a century lies between these monumental milestones, they are linked by a discovery made by Felice Pedroni, an Italian immigrant better known to Alaskans as Felix Pedro.

It was Pedro’s gold find in an Interior Alaska stream in 1902 that sparked the Fairbanks Gold Rush, an event that helped propel Alaska gold production above the 1-million-ounce mark in 1906. Today, the Fort Knox Mine, which accounts for more than 40 percent of the gold produced in Alaska during 2013, sits at the headwaters of Pedro Creek, the locale of the historic discovery.

Fort Knox and Alaska’s four other gold-producing hardrock operations accounted for some 954,000 ounces of the gold produced in the Far North State during the year. Roughly 780,000 ounces of this aurum was recovered from Fort Knox, located about 25 miles (40 kilometers) north of Fairbanks, and Sumitomo Metal Mining’s Pogo operation, located some 60 miles (100 kilometers) to the southeast. The Kensington, Greens Creek and Nixon Fork mines rounded out the hardrock contribution to Alaska’s gold production in 2013.

The hardworking individuals and families that make up the Last Frontier’s modern placer mining community easily tipped the scales of the state’s gold output over 1 million ounces.

Fort Knox tops 6M ozs

Kinross attributes this record gold production to improved heap-leach performance and a second carbon-in-column circuit brought online at the beginning of July. In fact, roughly 35 percent, or some 150,000 ounces, of the mine’s 2013 gold production came from the heap leach side of the operation.

While heap leaching – a process in which a weak cyanide solution dissolves gold from low-grade ore – is not itself innovative, the ability to operate such a facility without freezing during the brutal cold of Interior Alaska winters is a challenge.

“Heap leach is a common process in the ‘Lower 48’ but this far north in the Arctic environment the heap leach is quite the challenge. Good engineering and good teamwork here at site to overcome those challenges has been very successful for us,” Fort Knox General Manager Eric Hill told Mining News during a Jan. 13 interview.

This success is not only measured by the record number of ounces being recovered, but the low costs to extract that gold. It cost US$555 to produce an ounce of gold at the Interior Alaska mine during the third quarter of 2013, making the open-pit mine second only to the high-grade Kupol mine in Russia in terms of per-ounce cost among Kinross’ global operations.

As a result of the record-setting pace, the six-millionth ounce of gold was poured at Fort Knox on Dec. 18.

“I think that the thing that is quite exciting for us at site and the employees that are here is that when we started up late in 1996, we had only estimated about 4 million ounces of reserves,” Hill observed.

When Kinross began mining at Fort Knox in 1996, the deposit had 4.1 million ounces of proven and probable gold reserves; going into 2013, the operation had 3.6 million ounces of gold in reserves.

“We have poured now our six-millionth-ounce, and we have many ounces left in the ground for future reserves,” Hill added.

Also, with exploration continuing at and around the immediate mine area, it is expected that the company will continue to augment its reserves.

The Gil gold property, located about five miles (eight kilometers) east of Fort Knox, is a potential source of ore to extend the life of the mine. Kinross, which held a longstanding partnership with junior explorer Teryl Resources Corp. at Gil, bought full ownership of the property in 2011.

Shortly before selling its stake in the property, Teryl reported an NI 43-101-compliant heap leach resource of 514,916 ounces of gold contained in 19.86 million short tons of mineralized rock.

Kinross has not announced results from the drilling, trenching and other exploration completed at Gil since 2011.

More high-grade at Pogo

The 2,500-metric-tons-per-day mill at Pogo produces roughly 1,000 ounces of gold per day, a pace it carried through the year. While Sumitomo Metal Mining has not published Pogo’s final output for the year, the mine is projected to produce around 352,000 ounces of gold in 2013.

With 2.4 million ounces of gold in reserves (5.06 million metric tons of ore averaging 13.58 grams per metric ton gold) and 2.4 million ounces of gold in resources (6.84 million metric tons averaging 10.83 g/t gold), it is currently expected that Pogo will maintain this pace into 2019. In addition, the ongoing expansion of East Deep and other nearby deposits likely will add several more years to this projection.

Since the Pogo gold mine went into production in 2006, the feedstock for the mill has primarily been mined from the Liese zone – three flat-lying, parallel quartz veins that carry high-grade gold.

The gold-rich veins of the Liese zone end abruptly where they come in contact with a gold-barren body of diorite to the northeast. In 2010, the Pogo exploration team decided to drill-test an area just north of the diorite. This exploration drilling tapped East Deep, a zone of quartz-vein structures with grades and thickness that are strikingly similar to those that have provided feedstock for the Pogo mill over the past six years.

Through the end of 2012, 75 holes drilled into East Deep have outlined reserves of 2.36 million metric tons averaging 12.7 g/t (964,000 ounces) of gold and resources of 1.23 million metric tons averaging 13 g/t (514,000 ounces) gold at the newly discovered zone. This drilling provides strong evidence that the Liese and East Deep zones were once a contiguous ore body that became separated when the diorite split the two zones as it intruded along the Liese Creek fault about 95 million years ago.

These zones are believed to converge at the North zone, a high-grade gold deposit located at the northwestern end of the diorite. The North zone is distinctive due to the vertical orientation of the veins found there. These narrower but higher grade veins are believed to be feeders that provided a conduit to deliver the gold-rich fluids to the Liese zone to the south and the East Deep zone to the east. The 2013 exploration drilling at Pogo focused on tracing East Deep to the North and Liese zones.

With the mill sitting about where these three zones meet, accessing the ore at East Deep will be essentially the same as the zone for which the operation was built. In 2012, Sumitomo drove two drifts through the some 300 meters of diorite that separate Liese from East Deep.

These access drives have provided a platform for further expanding the new zone as well as early access to the gold-rich ore found here. A bulk sample of East Deep ore was processed during the third quarter of 2013. To mine the high-grade gold at East Deep, Sumitomo is developing the 2150 portal. With permits in-hand, Sumitomo Metal Mining Pogo plans to begin processing ore from East Deep in 2014. In addition to expanding East Deep westward to the North Zone, Sumitomo Metal Mining Pogo said the deposit remains open to the north, a target of future exploration.

Expanding East Deep and other nearby deposits is expected to augment the reserves at Pogo, ensuring the underground deposit continues to contribute some 1,000 ounces a day to Alaska’s gold production for years to come.

Consistency at Kensington

Unsatisfied with this performance, Coeur decided to invest the time and money needed to improve the production profile and to position the operation to deliver sustainable and consistent performance over the longer term.

To complete the needed work, the rate of production at Kensington was reduced by 50 percent at the beginning of 2012 and gradually scaled up to full capacity as the year progressed.

One of the key initiatives during this scaled back production was the acceleration of underground development aimed at creating more working faces and greater operational flexibility. The company also implemented an underground paste backfill plant and related distribution system, providing access to stopes located in previously mined areas; upgraded the electrical infrastructure; and completed construction of several new surface facilities – including a new administrative building, warehouse, worker dormitory, and expanded kitchen and dining facilities.

During the first quarter of 2013 Kensington produced 25,206 ounces of gold at US$1,055 per ounce. Second quarter gold production at the Southeast Alaska Mine dropped eight percent to 23,162 ounces at US$1,115 per ounce.

Average mill head grade of 0.18 oz/t was 10 percent lower than the first quarter 2013 due to the processing of lower-grade stockpile ore at the Southeast Alaska operation. Improving gold grades as higher-grade stopes are mined and processed in the second half of 2013 increased production and lowered operating costs.

“The Kensington gold mine in Alaska is now demonstrating its ability to operate more consistently as planned,” Coeur Mining President and CEO Krebs said at mid-way through 2013.

The increased consistency and improved efficiency continued through the final six months.

Fourth quarter cash operating costs at Kensington are expected to be US$746 per ounce, approximately 24 percent lower than the third quarter 2013.

The increased ounces at lower costs are expected to push full-year cash operating costs down to around US$949 per ounce.

For the full year, Kensington produced 114,821 ounces of gold, a 40 percent increase over the 82,125 ounces produced in 2012 and beyond the 108,000-114,000-ounce guidance set forth by Coeur earlier in the year.

“Gold production in 2013 exceeded our guidance range due to a strong fourth quarter at our Kensington mine in Alaska and represented nearly half of the company's estimated 2013 metal sales,” said Krebs.

The Chicago-based miner anticipates producing 105,000-112,000 ounces of gold at the Southeast Alaska mine in 2014.

A golden role at Greens Creek

While final 2013 production numbers have yet to be released, with 42,735 ozs of gold recovered from the volcanogenic massive sulfide deposit at Greens Creek through September, the full year output from the underground operation is anticipated to be around 56,000 ounces.

This gold, along with the zinc and lead recovered, helps place Greens Creek among the lowest cost silver producers in the world. After by-product credits, the cost of production at the mine was US$4.18 per ounce through the first nine months of 2013.

Going into 2013, the Greens Creek Mine had 94.6 million ounces of silver and 719,500 ounces of gold in reserves.

“This mine currently has a mine life of about 10 years, but we know that where we are drilling that we will, over the course of the next two years, move material into reserves,” Hecla President and CEO Phillips S. Baker Jr. explained in August.

And, these reserves are expected to include significant quantities of high-grade gold.

“The 13 years that I have been looking at Greens Creek, the best drill results that I have seen from the mine have come in the last four quarters – grades of over half-ounce gold and widths of more than 35-40 feet,” Baker touted.

Last gasp at Nixon Fork

With the plant availability, head grades and plant recoveries all running lower than expected, roughly 8,800 ounces of Nixon Fork gold was sold during 2012, substantially less than the 30,000 ounces the company had forecast.

With the challenges that plagued Nixon Fork carrying over into 2013, the lower-than-projected gold recoveries continued.

Gold production at Nixon Fork peaked at 2,032 oz in January.

Laden by heavy debt and unable to reach commercial production Fire River, in late June, said it was placing Nixon Fork on care and maintenance “until a revised operating plan has been developed and market conditions improve.” While this is not good news for the struggling operation, the worst was yet to come.

At the end of April, Fire River Gold reported assets, including C$5.83 million for the Nixon Fork property and equipment, of C$10.44 million; versus liabilities, including C$22.27 million in loans and advances, of $32.07 million. The company’s cash had dwindled to C$157,762, according to the quarterly statement.

In August, the company revealed that it missed a C$796,875 principal payment due to Waterton Global Value Limited Partnership, a fund managed by Waterton Global Resource Management. The payment is related to a US$12.75 million gold-backed credit facility that is secured by a lien and a first priority security interest in substantially all of Fire River Gold’s assets, including the Nixon Fork Mine.

In October, 2013, Fire River announced it had defaulted on a payment to Waterton Global Value, L.P. that was secured by Fire River’s Nixon Fork gold mine in Alaska.

By the end of 2013, Fire River Gold’s shares were delisted from both the TSX-Venture Exchange and OTCQX.

Out of cash and weighted down by debt, Fire River joins a century-long procession of miners who have attempted to successfully mine the high-grade but exceedingly complex gold deposits at Nixon Fork.

A resurgence in placer

Placer gold production in Alaska has increased by more than fourfold compared to the 23,600 ounces recovered in 2003. During 2012, 100,041 oz of alluvial aurum was recovered from across the state, a 21 percent increase over 2011.

While small family-owned operations and individuals currently make up the bulk of placer gold production in Alaska, larger companies and more complex operations are joining the Last Frontier’s mining community.

During 2012, roughly 53,550 ounces of the placer gold was recovered from operations that produced less than 2,500 ounces on the year, the remaining 46,500 ounces was from mines producing more than 2,500 ounces.

Goldrich NyacAU Placer, LLC – a joint venture placer mining company owned equally by Goldrich Mining Company and NyacAU, LLC – is targeting the recovery of up to 20,000 of placer gold annually from the rich alluvial gold deposits that blanket the valleys of the vast Chandalar land package located some 200 miles (320 kilometers) north of Fairbanks.

Goldrich brings the vast placer potential of the 22,840-acre (9,243 hectares) Chandalar Mining District to the partnership, including a 250,000-ounce drill-tested alluvial gold deposit on Little Squaw Creek and a multitude of undefined gold-rich streams with the potential to increase the resource several times over.

Nyac, a private mining company owned by Dr. J. Michael James, an Anchorage-based physician and fourth-generation Alaskan, is offering more than two decades of placer mining experience and some US$7.2 million in capital to get the mining venture into production.

While the Goldrich NyacAU partnership seeks to recover aurum locked in the frozen gravels of Alaska’s North, a global-scale venture is exploring a massive placer deposit roughly a mile beyond the golden beaches of Nome.

Placer Marine Mining Inc. – a joint venture that combines the gold mining expertise of AngloGold Ashanti Ltd. with the marine mining experience of De Beers – is investigating the potential of dredging a vast placer gold deposit lying beneath the icy waters of the Bering Sea.

Placer Marine Mining picked up its Nome offshore properties during a lease sale held by the Alaska Department of Natural Resources in 2011. These tracts start about a mile (1.6 kilometers) offshore and run out to about the three-mile (4.8 kilometers) limit of state-owned land and for some 20 miles (32 kilometers) parallel to the shoreline.

While the Nome beaches and near-shore marine gold deposits have been continuously worked and reworked for more than a century, the depth of the icy water covering the deposits leased by Placer Marine Mining has prevented individuals and small-scale operations from dredging there.

Since the discovery of gold there in 1899, the Nome Mining District has produced roughly 5 million ounces of placer gold.

Based on historical exploration, it is believed that the 16,581 acres of offshore leases secured by Placer Marine Mining about a mile beyond the golden beaches of Nome could hold as much gold as has been recovered from the legendary Nome Mining District over the past 114 years.

The AngloGold-De Beers partnership, which has invested several million on exploration and baseline studies at the Nome Offshore property since securing the lease, is hoping to have the permits needed to begin mining Bering Sea gold by the 2017 season.