The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Harmony Gold JVs Lucky Shot property, plans to spend US$15 million to bring historical high-grade gold mine back into production
With its sights set on becoming one of North America's newest junior gold producers, Harmony Gold Corp. has entered into a joint venture agreement with Full Metal Minerals Ltd. on that company's high-grade Lucky Shot gold property, about 145 kilometers, or 90 miles, north of Anchorage.
Vancouver B.C.-based Harmony Gold has the opportunity to earn a 60 percent stake in the high-grade gold project as it works toward putting the historic mine back into production.
During a Nov. 16 interview, Harmony Gold President and CEO Craig Michael Engelsman told Mining News that the newly formed company plans to begin commercial production at Lucky Shot within a year.
"I created Harmony Gold specifically to become one of the newest junior producers," Engelsman said.
Harmony Gold was listed on the NEX board - a separate trading board of TSX Venture Exchange for issuers that have fallen below TSX Venture's ongoing listing standards - of the TSX Venture Exchange under the symbol H.H Aug. 17.
Engelsman said he formed Harmony with the specific goal of bringing near-term gold projects online, while the yellow metal is selling at historic highs.
"If gold does go to US$2,000 an ounce you had better be pulling it out of the ground. These guys that are sitting on these big projects that would take at least three-to-five years just to get the development in, nonetheless the permitting and all the other issues, they could be missing the boat," he said.
Digging to the high-grade
Harmony Gold estimates it will take nearly US$15 million in capital to begin commercial production at Lucky Shot. Nearly US$9 million will be spent on driving a development ramp to high-grade gold ore in the Coleman Zone.
The highest grade gold intercepts of more than 30,000 meters drilled by Full Metal at Lucky Shot have been at this westernmost zone of the Lucky Shot Shear. These intercepts include hole C05-09 over 3.1 meters grading 62.2 grams per metric ton gold, hole C05-12 over 4.0 meters grading 219.1 g/t gold and hole C06-16 over 4.6 meters grading 51.5 g/t gold.
In order to tighten up the block model in preparation for driving a development ramp to Coleman, a 26-hole density drill program was completed in November. Harmony said assay results from the 4,300 meters of drilling will give it a more concentrated look at the high-grade portion of the structure.
"With these high-grade, nuggety type mineralization systems, it is very expensive and really not worth putting a feasibility on them. So you do enough core and density drilling into it that it delineates a high enough target that you get underground and you open it up," Engelsman explained.
A technical report developed for Full Metal envisioned driving a drift about 120 meters from a historical Lucky Shot Mine decline to the Coleman Zone. Harmony Gold plans to dig a much longer development ramp.
"Our technical team advises us to move forward on a development ramp. It will be roughly 1,500 meters in to access the ore-body," Engelsman said.
Harmony Gold estimates the nearly 1-mile, or 1.5-kilometer, long ramp will be complete by late-summer 2010.
"We have got the money to provide the capital resources to get in, and the technical expertise to develop the ramp, which should take us about 10 months. Next fall, we should be in for commercial production," Engelsman said.
Mill is in place
Once Harmony Gold drifts back to the Coleman zone, it plans to extract a 12,000-metric-ton bulk sample, which it will run through an existing gravity recovery circuit at the property.
The company plans to use a 240-ton-per-day mill purchased by Full Metal in 2008. The mill will be housed in a pre-existing building on the property.
Crews at the historic mine began refurbishing and setting up the used mill toward the end of the summer in 2008. Full Metal CEO Rob McLeod estimates construction of the mill is about 75 percent complete. He said the gravity circuit needs some wiring and plumbing.
The bulk-sample is already permitted and commercial production is currently being permitted, according to Harmony Gold.
The plan is to use the current mill and infrastructure for commercial production at Lucky Shot.
Engelsman said a flotation circuit would likely be added if the project is advanced into commercial production.
Projecting 44,000 ounces per year
Lucky Shot is located in the Willow Creek Mining District, which, according to the Alaska Division of Mines, has produced more than 620,000 ounces of gold from multiple veins and shears, at an average grade of around 1 oz/t, or 28.4 g/t.
Harmony Gold is under no illusions that it will be able to mine ore that matches the same gold grades as the old-timers that hand-mined the area in the past, Engelsman said.
"That Willow Creek produced over 600,000 ounces, most of it is high-grade ore-chutes or high-grade veins where the old-timers would get in there and chip out the high-grade," he said.
"The historic numbers show about 600,000 ounces with an average grade of about an ounce per ton, but the dilution wasn't there because they were concentrated on taking the high-grade out. When you are in your more modern methods of production you have to add 15, 20 (or) 30 percent of dilution just given you are taking out a lot more material," he explained.
When projecting its annual revenue Harmony Gold estimates recovering 19 grams of gold per metric ton. Operating the plant at 95 percent capacity, the company foresees producing 44,000 ounces of gold per year. Using these figures and US$1,000 per ounce gold, Lucky Shot would generate about US$44 million a year, roughly half of which would go toward operating costs, and the other half would be operating profit.
"Essentially we are preparing ourselves for the minimum, which is a three-year mine-life," Engelsman said.
The Harmony team
The Harmony Gold front man said he knows his way around the venture capital business. He has co-founded and helped finance several mineral exploration companies over the past decade. Known for his knack of structuring and restructuring junior companies, Engelsman said he has built relationships with top tier financiers and managers in the mining business.
The executive also said he assembled a technical team with 133 years combined experience working with some of the largest companies in mining. In addition to Engelsman, the Harmony Gold board of directors includes two top executives from Electrum Capital Inc. - Electrum Capital President and CEO Robert John Harrington and Electrum Capital Vice President Alan Carter. Harrington opened Rio Tinto Corp.'s first office in Peru. Carter is currently a director for Peregrine Diamonds Ltd., a company he helped found and for which he served as chief operating officer for two years.
Rounding out the Harmony Gold directors is economic geologist John Mark Staude, who led exploration groups to build strong portfolios and profitable businesses through prospect generation, early stage partnering, and drill discoveries. Staude is currently president and a director of Riverside Resources Inc.
Harmony Gold also has a two-member advisory board. The advisors are David Drips, who specializes in taking on underperforming, or distressed, operations and managing them back to profitability, and Andrew Lee Smith, who founded True North Gems and is a director of Scorpio Gold Corp.
"These guys have a lot of experience, and we are looking at some big projects that we can create more value within Harmony's structure than where they currently operate in," Engelsman said.
He told Mining News that now is the time to be producing gold. He said profits made from production during the strong gold market can be used to fund exploration when gold prices retract.
"It was an easy decision for me to say, 'Hey guys, you all run great companies, but let's pull together. We have capital access. We have access to the advanced production properties. Let's get a production company going," the Harmony Gold president explained. "If it lasts two years at the Lucky Shot we will be US$50 million to $60 million cash-flow-positive and we can go shopping or leverage that into a bigger project. If we have a 10-year mine-life we continue to make a lot of money; we become rich."
Engelsman said to expect to see some familiar names added to the Harmony Gold team as the company and the Lucky Shot project advance.
"My technical team will continue to grow. We have some people coming on which I am sure you are very familiar with and the market is very familiar with," the Harmony Gold CEO said.
New vehicle
Prior to changing its name to Harmony Gold, the British Columbia-based corporation was known as Avantec Technologies Inc., a business involved in the manufacturing, developing and marketing antimicrobials and sanitation products for the food industry. According to Sedar filings by the company, Aug. 17, Avantec changed its name to Harmony Gold Corp. and consolidated all of the issued and outstanding common shares of the company on a 9-to-1 basis.
In August, the company also closed a private placement of 8.89 million units at C10.125 cents per unit for a total of C$900,112.
"I'm a market guy. I have created the vehicle, the people; I'll create the awareness and the story, and once we begin commercial production, I'll back off and put the right operating people in. And hopefully, I will create another venture down the road for my investors," Engelsman said.
Full Metal reported on Nov. 9 that Harmony Gold has agreed to use its best efforts to cause its shares to be elevated from the NEX board and become listed as a Tier 2 issuer on the TSX as soon as practicable. The two companies have 90 days to complete their due diligence.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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