Rough days may be ahead for mining

Last month we talked about economic impacts of the Alaska mining industry. This month, the world mineral exploration industry is in our crosshairs.

Halifax-based Metals Economics Group reported that 2008 worldwide nonferrous mineral exploration reached $13.2 billion, more than 2.5 times the previous peak exploration spending level reached in 1997. Add uranium exploration expenditures, and the total expands to $14.4 billion.

Exploration spending would have been even higher were it not for the global economic meltdown that started in September 2008. As expected, spending by major companies increased in 2008 versus 2007 while spending by junior companies decreased to less than 50 percent of the total spent around the world. In a sign of things to come, 2008 saw a $6 billion decrease in venture capital financings for junior exploration companies, the first such year-on-year decrease since the dark days of 2001.

MEG speculated that venture capital will be even harder to raise in 2009, and junior explorers with money will have to trim their expenditures significantly while junior companies "without cash will simply disappear." Destinations du jour for exploration in 2008 were about the same as in recent years - South America with 25 percent of the expenditures followed by Canada with 19 percent, Africa with 15 percent, Australia with 14 percent and the United States with 7 percent.

Not unexpectedly, MEG suggests that exploration expenditures in politically unstable countries will drop in 2009 by a more significant proportion than cuts in more stable parts of the world.

Given the precipitous drop in base metal prices and the relative stability of gold prices in the last 6 months, it is hard to understand how base metal exploration overtook gold as the leading commodity being sought worldwide in 2008.

Base metal exploration accounted for 40 percent of funds spent in 2008, while gold accounted for 39 percent of comparable spending last year.

As expected, the global economic downturn quickly translated to over-supply of industrial-use metals, such as copper, nickel, zinc, lead, palladium and molybdenum, while fears of inflation, deflation, stagflation and other poorly understood "flations" sent investors rushing back to gold as a preferred hedge against the uncharted economic waters of 2009 and beyond.

MEG foresees gold easily regaining its place as the top commodity for exploration in 2009, a conclusion that seems inevitable from our vantage point today.

So how does all this translate into Alaska-centric terms? Pretty simple, pretty ugly: Grassroots exploration, where much of Alaska's exploration occurs, will decline dramatically in 2009.

Mine-site exploration and advanced project exploration will be the focus of most exploration efforts with the major and intermediate producing companies accounting for most of this work.

Gold will take center stage as virtually the only metal of interest for Alaska-bound explorers; however recent increases in the price of copper suggest it may lead other base metals as worldwide supply and demand fundamentals return to something like normal.

On the bright side, labor, fuel, drilling rates, helicopter costs and virtually every other cost item related to mineral exploration have already decreased dramatically over 2004-2008 rates.

In short it is a buyer's market out there for those capable of "buying straw hats in the winter!"

Western Alaska

Teck Cominco American has announced that it is considering selling the 2.5 million ounces of silver it produces each year at its Red Dog mine as part of its companywide debt reduction plan. The silver sale, rumored to be going to Silver Wheaton Corp., is part of a series of measures designed to bring in more than $2 billion in asset sales and significantly reduce the company's $9.4 billion debt load.

NovaGold Resources provided an update on its Donlin Creek and Rock Creek projects as part of its first-quarter 2009 financial summary.

The company indicated that it is completing a technical report for the Donlin Creek project based on a feasibility study that was completed on behalf of the Donlin Creek LLC April 1.

The company expects to release the results of the feasibility study by the end of April.

The report will provide a detailed project description, outline the project economics and provide an additional resource increase.

At Rock Creek, the company is working with regulatory agencies to complete a revised water management plan and is also assessing the possibility of using wind cogeneration for a portion of the project's power needs, reducing both environmental impact and operating costs.

A recent resource update for the project expanded the deposit's resources by 24 percent, bringing total project resources to nearly 3 million ounces of gold.

The company indicated that it is deciding whether to resume start-up activities when the market becomes more favorable, bring in an operating partner or possibly sell the property.

The remaining care and maintenance budget at Rock Creek for 2009 is about $7 million.

Freegold Ventures announced preliminary results from geophysical surveys completed at its Vinasale gold project under lease from Doyon Ltd. Following airborne geophysics conducted in 2007, the 2008 program consisted of ground-based induced polarization/resistivity surveys to the north and northeast of the known mineralized zone. Results of the survey suggest that the anomaly associated with resources at the Central Zone continues to the north and north-east where widely spaced drill holes have encountered gold mineralization. These areas have potential for expanding the known gold mineralization. Plans for 2009 were not released.

Northern Dynasty Minerals Ltd. announces that the Pebble Limited Partnership (Northern Dynasty and partner Anglo American plc) has awarded grants in the aggregate amount of $1 million to 33 Alaska community groups.

The Pebble Fund was established in February 2008 as a five-year, $5 million commitment to support community-led initiatives that enhance the health of Bristol Bay fisheries and contribute to a sustainable economic future in southwest Alaska.

The fund is administered by the nonprofit Alaska Community Foundation.

Grant criteria and awards were determined by an independent advisory board of citizens representing communities from throughout the Bristol Bay region.

In total, some 50 nonprofit community organizations in southwest Alaska applied for grants in 2009 for projects related to community development, education, energy and fisheries.

The Pebble Fund board selected 33 successful applicants, including 26 small grants (less than $25,000) and seven large grants (greater than $25,000).

Projects receiving small grant awards include a community greenhouse development in Ugashik, alternative energy and wind development projects in the City of Chignik and Chignik Lagoon, and a vocational training program for clean diesel technology in the Bristol Bay School District.

Large grant awards will fund fisheries enhancement and education projects in Pilot Point and Ivanoff Bay, a renewable energy development project in Iguigig and a broad-based job internship program for students in the Lake and Peninsula School District.

Eastern Interior

Freegold Ventures announced preliminary results from bulk sampling completed in 2008 at its Golden Summit project in the Fairbanks District.

Exploration during 2007 and 2008 consisted of a mix of rotary air blast drilling (80,642 feet in 2,026 holes) and core drilling (10,061 feet in 26 holes) covering a mineralized, open-ended area about 1,900 meters by 275 meters in size.

A bulk sampling program was also undertaken over the past two years to determine whether bulk mining would be a possibility for the project and to determine average grades over larger volumes.

The bulk samples were processed through a gravity recovery plant.

Although problems with the plant configuration and over-grinding of the material led to the recovery of only about 400 ounces of gold in 2008, preliminary assaying suggests that the bulk sampling program confirmed the existence of bulk minable mineralization at potentially economic grades.

Due to the shortfall in gold collected, the company was unable to cover a significant portion of the costs of the bulk sampling program, and vendor debts totaling $2.6 million have now been accumulated.

Final assaying of the sampled material was halted in the fall, and the company expects to be able to release its final bulk sampling results shortly after and subject to the receipt of new funding.

Teck Cominco announced its intention, long talked about on the Tundra Telegraph, of selling its 40 percent stake in the Pogo mine (Sumitomo Metal Mining owns the other 60 percent). The sale is part of a series of measures designed to bring in more than $2 billion in asset sales and significantly reduce the company's $9.4 billion debt load. The Tundra Telegraph has indicated that something like 20 companies have already signed the deal to acquire Pogo. One, or none, of the rumored 20 companies may have acquired Teck's interest, so until the real buyer is announced, we'll keep the Tundra Telegraph rumors under wraps!

International Tower Hill Mines Ltd. announced additional drilling results from its winter 2009 program at its Livengood gold project.

In the previously undrilled southwest zone, hole MK-RC-0115 encountered 68.6 meters grading 1.1 grams of gold per metric ton, hole MK-RC-0116 returned 15.2 meters grading 2.1 grams of gold per metric ton and hole MK-RC-0118 returned 35 meters grading 3.0 grams of gold per metric ton.

These holes are spaced 100 meters apart and represent a step out of approximately 300 meters to the southwest from the nearest existing holes.

Mineralization in the southwest sector occurs in all units of the stratigraphy and at depths ranging from the surface to 300 meters.

In the northeastern sector, new assays from hole MK-RC-0112 have redefined the upper zone of mineralization, which now has 41 meters grading 1.7 grams of gold per metric ton on top of the previously reported 100 meters grading 1.1 grams of gold per metric ton.

Once all the assays are back from the winter drilling program a new resource estimate will be calculated and a preliminary economic assessment completed.

The main phase drilling program will recommence in June, when two RC drills and a core drill will begin drilling out the eastern and northeastern areas of the deposit.

A total of 45,000 meters of drilling is planned for 2009.

The company also announced results of additional metallurgical tests which utilized a combination of grinding, gravity concentration and cyanide leaching of the tails to increase average recoveries by 15 percent in the oxide/transition rock and by 30 percent in the un-oxidized rock.

The resulting global average gold recovery was 89 percent.

The increase in gold recovery indicates the economics of the deposit could be greatly enhanced by a high recovery milling operation for the higher grade ore and a heap leach operation for the lower grade material.

Southeast Alaska

Ucore Uranium announced mineralogical studies of uranium and rare earth element mineralization at its Bokan Mountain project near Ketchikan.

The three Bokan Mountain samples assayed 1,700 to 20,000 parts per million uranium (0.2 to 2.3 percent U3O8) and averaged 0.13 percent light rare earth oxides, 0.27 percent heavy rare earth oxides, and 1.27 percent yttrium oxide (total of 1.67 percent rare earth oxides).

Mineralogical testing identified coffinite and uranothorite as the dominant uranium-bearing minerals, and tombarthite, limoriite, synchisite, and bastnaesite as the dominant REE-bearing minerals.

Liberation of the rare earth minerals ranged from 49 percent to 83 percent at minus-30 microns.

You won't find most of these rare earth minerals in your average mineralogy text book, but if you are interested in their chemical compositions, they are all out there on the web.

CBR Gold Corp. announced a 457,000-metric-ton expansion to resources at its Niblack massive sulfide deposit on Prince of Wales Island.

The updated resource incorporates 19 new underground drill holes completed in 2008 within the Lookout 1 (L1) and Lookout 2 (L2) mineralized zones.

Revised indicated resources now stand at 2,272,000 metric tons grading 2.42 grams of gold per metric ton, 34.66 grams of silver per metric ton, 1.27 percent copper and 2.36 percent zinc and an inferred resource of 1,502,000 metric tons grading 2.22 grams of gold per metric ton, 34.62 grams of silver per metric ton, 1.68 percent copper, and 3.43 percent zinc, based on a block cut-off grade of $50 per metric ton Net Smelter Return Royalty.

Highlights of the new resource base include upgrade of inferred resource metric tons to an indicated resource category, a 457,000-metric-ton expansion of the Lookout zone resources, expansion of indicated resources to 60 percent of the total resource, increased copper and zinc grades within the indicated and inferred resource categories and increased copper, zinc, gold and silver grades within the inferred resource category.

The 2009 resource estimate is based on 42,520 meters of drilling in 174 diamond drill holes.

Bravo Venture Group reported that it has agreed to issue 200,000 shares of its stock at a deemed price of $0.375 per share to pay advance minimum royalty payments to Petersburg-based Olympic Resources for advance royalties due on the Woewodski Island project near Petersburg.

Bravo has fulfilled all obligations to earn title to the claims which are now owned by Bravo's Alaska subsidiary subject to a continuing obligation to pay annual minimum royalty payments of $50,000.

Bravo is planning a 2009 exploration program consisting of two to three drill holes for approximately 1000 meters at an estimated cost of $400,000.

The program is designed to test the basal portion of the East Lake "paleo-graben," where 3-D induced polarization geophysics and recent drilling suggest a radical re-interpretation of the published geological setting.

The new geologic model interprets surface exposures and previous drill intercepts of volcanogenic massive sulfide-style base and precious metal mineralization.

This mineralization is thought to be hosted by an argillite unit occurring along the northern and southern margins of an east-west-oriented paleo-graben.

The center of that graben, where the thickest accumulations of massive sulfide are expected to occur, has not yet been tested by drilling.

The mineralization at East Lake is hosted by the same package of Triassic-age rocks that host the Greens Creek mine on Admiralty Island.

Author Bio

Curt is President of Avalon Development Corporation, a mineral exploration consulting firm based in Fairbanks, Alaska. He is a U.S. Certified Professional Geologist with the American Institute of Professional Geologists (CPG #6901) and is a licensed geologist in the State of Alaska (Lic. # AA 159).

• Email: [email protected]
• Phone: 907-457-5159
• Contact Curt Freeman