Mining industry faces business risks

As a busy year in the Alaska and global mining industry starts to slide closer to its end, I figured now was a good time to gaze into my crystal ball (rutilated quartz, of course) to see what next year might bring.

While strong metals prices promise another busy year for Alaska, a dose of global reality was provided by the financial giant Ernst & Young, who recently published a list of the top 10 business risks for the mining and metals industry for the coming year. Resource nationalism topped the list because of the mining industry's rapid recovery from the 2008 global meltdown and the propensity for cash strapped governments to tax the mining sector more heavily in order to provide subsidies and tax relief to less healthy sectors of their economies. Otherwise known as robbing Peter to pay Paul, this tactic is enthusiastically supported by Paul.

Close behind this primary concern was: 2) the ever-worsening skill shortage in the mining industry, 3) infrastructure access, 4) maintaining a social license to operate and rounding out the top five was capital project execution.

The bottom five positions in the survey were 6) price and currency volatility, 7) capital allocation, 8) cost management, 9) interruption to supplies and 10) fraud and corruption.

With reference to Alaska, two things struck me when I read the Ernst & Young report: I could quickly think of examples where the first nine risk items were or had significant potential to affect Alaska's mining industry, underscoring Alaska's place in the "global village." Secondly, I was surprised by the absence of concerns regarding the risk of depletion of reserves at a faster rate than they can be discovered, developed and produced.

The mining industry faces a tougher and tougher time discovering, defining and mining new resources, but that fact seems lost on the users of those mined products.

Western Alaska

Teck Resources Ltd. reported third-quarter 2011 results from its Red Dog mine, which turned in operating profits of US$213 million, versus an operating profit of C$171 million in the same period in 2010.

For the quarter, the mine generated 151,100 metric tons of zinc and 19,400 metric tons of lead in concentrate versus 137,000 and 26,300 metric tons of zinc and lead, respectively, during the same three months in 2010.

The mine sold 186,800 metric tons of zinc and 45,600 metric tons of lead during the third quarter.

Average zinc and lead grades mined were 19.3 percent and 4.8 percent respectively, versus 17.2 and 4.9 percent in the third quarter of 2010.

Mill throughput of 959,000 metric tons in the third quarter was identical to the 890,000 metric tons milled in the third quarter 2010.

The lower lead grades are due to partially oxidized ore from the Aqqaluk pit, mining of which will continue into 2012.

During the mid-July to late October shipping season the mine shipped a total of 1.01 million metric tons of zinc concentrate and 145,000 metric tons of lead concentrate.

During the third quarter, the mine paid out US$61 million in royalties to its partner, NANA Regional Corp.

Cedar Mountain Exploration Inc. announced drill results from its North Fox, Wolverine and Wolf prospects on its Kelly Creek gold project on the Seward Peninsula.

At North Fox the gold-bearing zones are strongest where sheared and brecciated quartz vein stockworks are present.

Significant intercepts include 4.5 meters grading 0.50 grams per metric ton gold in hole 11NF05 and 4.5 meters grading 0.70 g/t gold in hole 11NF06.

At Wolverine, significant intercepts include 4.5 meters grading 0.44 g/t gold in hole 11WO01.

The gold-bearing zones are predominantly hosted within sheared and quartz veined, partly calcareous, mica quartz schist and graphite quartz schist.

At Wolf prospect, significant intercepts include hole 11WF03 contained 1.5 meters grading 0.28 g/t gold.

The gold-bearing zones are sheared and quartz-veined intervals in partly calcareous mica graphite quartz schist.

Fire River Gold Corp. announced that it expects to have an updated resource estimate at the Nixon Fork mine by the end of 2011.

This new resource will include a total of 16,636 meters of new underground drilling and an additional 4,032 meters of surface drilling.

The company also announced that it plans to conduct a US$3 million surface exploration program in 2012.

The company also announced that it had received an advance payment of US$1,020,375 from Glencore International PLC for the second shipment of gold-rich copper concentrate.

This payment is a provisional advance for 21.2 dry metric tonnes of gold-rich copper concentrate that will eventually be smelter in the Philippines.

The company also reported drilling results from the new 3550 Zone.

Significant results include hole N11U-226 which returned 7.2 meters grading 46 g/t gold, 47.8 g/t silver and 2.9 percent copper, including 3.4 meters grading 93.8 g/t gold, 94.3 g/t silver and 5.8 percent copper and hole N11U-228 which returned 7.6 meters grading 32.8 g/t gold, 64.6 g/t silver and 2.7 percent copper, including 2.6 meters grading 92.2 g/t gold, 169.7 g/t silver and 7.2 percent copper.

Mineralization remains open to expansion at depth.

Northern Dynasty Minerals Ltd. announced that the State of Alaska has filed a constitutional challenge in Alaska Superior Court to strike down a municipal ordinance recently enacted by ballot measure in Southwest Alaska's Lake and Peninsula Borough.

By a margin of just 34 votes (280 for, 246 against), local voters supported a ballot measure put forward by anti-Pebble activists that would restrict future development that affects more than one square mile of land within the 31,000 square mile borough.

The Alaska Department of Law argues that the Lake & Peninsula Borough ordinance is invalid as it seeks to "nullify state permitting processes and prevent the development of certain large-scale resource development activity….While boroughs have limited power to regulate some of the activities associated with resource development, a small majority of voters in a local community cannot usurp the more comprehensive state authority and eliminate the entire state permitting process."

Interior Alaska

Kinross Gold Corp. announced third-quarter 2011 production results from its Fort Knox mine near Fairbanks. For the quarter the mine produced 76,261 ounces of gold versus 108,680 ounces produced during the same period a year ago. Cash costs were US$712 per ounce versus US$501 per ounce a year earlier. The mine processed 9,415,000 metric tons of ore grading 0.49 g/t gold. Recovery from the mill for the quarter was 77 percent. Production decreased and costs increased as a result of planned mining and milling of lower grade ore.

Freegold Ventures Ltd. announced additional drill results from the last three holes of its 6,328-meters, 28-hole phase 1 drilling program for 2011 at its Golden Summit project. Significant results include hole GSDC 11-35 which returned 44.2 meters grading 0.61 g/t gold and an additional 37.2 meters grading 0.67 g/t gold, hole GSDC 11-43 which returned 200.3 meters grading 0.55 g/t gold and GSDC 11-45 which returned 77.5 meters grading 0.80 g/t gold and an additional 79 meters grading 1.12 g/t gold. These holes came from the Dolphin zone where a resource update is expected before year's end.

International Tower Hill Mines Ltd. announced results from 92 drill holes completed since June 2011 at its Livengood project.

New results from close-spaced infill drilling in the Core and Sunshine Zones confirm resource estimates and encountered locally higher grade mineralization.

Highlights include hole MK-RC-531 which intercepted 17.27 g/t gold over 4.6 meters in the Sunshine Zone, hole MK-RC-522 which intercepted 8.0 g/t gold over 4.6 meters in the Core Zone and hole MK-RC-537 which intercepted 8.7 g/t gold over 3.1 meters in the Tower Zone.

These findings enable the company to define the higher grade zones in the deposit which may be targeted during the initial phase of mining.

The new results also include data from drilling conducted for mine design and environmental purposes as well as step-out resource growth.

Potential infrastructure locations have been located with this drilling although new areas of significant gold mineralization also have been identified.

Examples include holes MK-11-119 (1.68 meters at 5.72 g/t gold), MK-11-120 (1.22 meters at 5.00 g/t gold), and MK-123 (9.77 meters at 0.83 g/t gold).

These holes intersected mineralized dikes over a broad area north and east of the deposit.

The company has also completed an initial district-wide three dimensional induced polarization geophysical survey which has confirmed strong resistivity highs over the currently defined Money Knob deposit.

This finding will be utilized to target additional exploration along the 10-kilometer-long strike length of the system.

The company also dumped 10 pages of drill results on-line, including 76.2 meters grading 1.56 g/t gold in hole MK-RC-522, 74.68 meters grading 1.31 g/t gold in hole MK-RC-523, 30.48 meters grading 3.34 g/t gold in hole MK-RC-531 and 51.81 meters grading 1.00 g/t gold in hole MK-RC-549.

Full Metal Minerals Ltd. announced results from initial sampling at its recently staked Circle Mining District project.

Preliminary ridge and spur soil sampling on the property was initiated in June 2011and a total of 2,013 soil samples and 264 rock samples were collected.

A soil line across the Fisherman Zone is highlighted by a 700-meter-long zone averaging 82 parts-per-billion gold with a peak of 295 ppb gold.

Five consecutive samples contain greater than 99 ppb gold.

Silver values are also anomalous in the area.

First-pass reconnaissance rock sampling returned individual values from trace values to 4.84 g/t gold with an average of 1.15 g/t gold.

The Pork Chop zone extends approximately 700 meters east-west by 1400 meters north-south, and is open to the north.

Individual soil samples range from trace to 3.79 g/t gold.

To the south, mineralization in the Sinister Saddle is controlled by a northeast-southwest trending fault zone, cutting interbedded muscovite-schist and quartzites.

Individual soil samples ranged from trace to 293 ppb gold, with rock samples from trace to 0.63 g/t gold.

Mineralization is hosted within a silicified breccia and quartz veining with arsenopyrite and pyrite.

Other exploration highlights include greater than 1 g/t gold in soils at the Renegade zone, with an individual rock sample that returned 4.66 g/t gold.

Individual soils over a 700-meter zone were greater than 30 ppb gold with a maximum of 91 ppb gold in the Intruder prospect.

Follow-up work is planned for 2012.

Alaska Range

Corvus Gold Inc. and joint venture partner Ocean Park Ventures Corp. announced new drill and trench results from its summer exploration program at the Golden Range target on its Chisna project.

Results received for the Notch zone include 15.8 meters at 3.2 g/t gold, including 6.8 meters of 4.5 g/t gold in drill hole GR-11-09 and 17 meters at 2 g/t gold, including 5.1 meters at 4.6 g/t gold in hole GR-11-15.

Trench EN-TR-01 encountered 47 meters with an average grade of 1 g/t gold including 5 meters of 3.4 g/t gold and Trench EN-TR-03 near the hangingwall of the shear returned 10 meters of 6.5 g/t gold including an interval of 5 meters of 13.2 g/t gold.

Results indicate that gold mineralization found at surface continues down dip for at least 250 meters.

Surface mapping and trench sampling at Notch indicate that mineralization is hosted in a shear zone 40-60 meters wide which dips 40-50 degrees to the south.

Higher grade quartz-arsenopyrite zones of are hosted within the larger structural zone.

A total of seven holes totaling 1,674 meters and four trenches totaling 104 meters were completed at Notch during 2011.

Rhyolite Resources Ltd. reported results from the remaining 11 holes of its 14-hole 2011 reconnaissance diamond drill program on the Paxson gold project.

Significant results from the Shalosky zone include hole WG11-03 which returned 1.01 grams of gold per tonne over 100.1 meters and hole WG11-12 which returned 1.64 g/t gold over 70.1 meters.

In the Low zone, significant intercepts included hole WG11-06 which returned 4.03 g/t gold over 5.5 meters.

The Shalosky zone is associated with a regional east-northeast striking, steeply dipping structural corridor adjacent to a regional thrust fault and coincident with a 1,100-meter-long by 50- to 500-meter-wide, greater than 100 ppb gold-in-soil geochemical anomaly.

Gold values occur in quartz veins and breccias hosted in quartz sericite schist preferentially concentrated in the structural corridor, with associated silicification and minor pyritic sulfides.

At the Low prospect mineralization is hosted in a package of highly altered, oxidized calcareous metasediments intruded by mafic/intermediate dikes.

The company intends to conduct metallic screen assays from selected intervals to determine the extent of coarse gold nugget effect on the prospects.

Kiska Metals Corp. announced additional drill results from the Island Mountain prospect at its Whistler project.

Results include hole IM11-034 in the Breccia Zone, which averaged 1.37 g/t gold, 54.19 g/t silver and 0.04 percent copper over 100 meters within a 364.5 meter interval that averaged 0.53 g/t gold, 15.3 g/t silver and 0.03 percent copper.

Additionally, broadly spaced exploration holes up to 400 meters north of hole IM11-034 have revealed new zones of mineralization, including a 73.9 meter interval in hole IM11-030 that returned 0.72 g/t gold, 2.24 g/t silver and 0.09 percent copper.

Drilling at Island Mountain has now successfully outlined gold and gold-copper mineralization over a 300- by 300-meter area, to a depth of 500 meters.

The company completed 9,537 meters of core drilling in 26 holes on the project in 2011.

Millrock Resources Inc. and Teck American Inc. announced results from drilling at the Oxide Ridge prospect of the Estelle gold property.

Hole SE-001 was drilled into a coincident induced polarization chargeability anomaly and gold-arsenic soil geochemical anomaly.

Previously discovered gold mineralization is associated with structures and porphyritic dykes at two locations each about 1.5 kilometers from the drill hole collar.

Variably altered magmatic intrusive rock with quartz veins and stockworks were intersected over the entire length of the hole.

Significant results include 450.68 meters grading 0.38 g/t gold including 365.27 meters which returned 0.43 g/t gold.

Gold is associated with arsenopyrite and minor chalcopyrite.

Sulfides were seen in narrow veins and veinlets and disseminated in small grains throughout the intrusive.

Additional drilling results are pending at the Shoeshine, Shadow and Discovery prospects.

Northern Alaska

NovaGold Resources Inc. and NANA Regional Corp., Inc. announced 2011 results from a 6,000-meter drilling program on the Bornite project in the Brooks Range.

Verification drilling has encountered grades and thicknesses similar to those reported by Kennecott, which explored the property during the late 1950s and 1960s.

Mineralization encountered showed very high-grade chalcocite and bornite mineralization with cobalt and precious metal mineralization surrounded by broad lower grade zones of chalcopyrite and distal pyrite.

The company also carried out an initial deep dipole/dipole induced polarization geophysical survey which showed highly promising results in defining stratigraphy and mineralization.

Significant results from infill drilling include hole RC11-181 which intersected 17.6 meters grading 8.4 percent copper and hole RC11-182 which intersected two mineralized intervals totaling 93.2 meters averaging 2.1 percent copper including 18.9 meters grading 3.4 percent copper and 15.9 meters of 3.6 percent copper.

While superb numbers, they were expected given past results.

Where the excitement came was in hole RC11-187 in the South Reef prospect which intersected a continuous interval of 178 meters grading 3.9 percent copper including 34.7 meters grading 11.4 percent copper.

Results are pending from 7 additional exploration holes.

The companies also announced details relating to the underlying terms of their recently signed exploration and lease option agreement in the Ambler Mining District.

Terms of the agreement include a one-time payment of $4 million after which NovaGold has the exclusive right to explore and develop the combined 180,000 hectare Ambler district.

NovaGold will have a 100 percent interest in any mining project subject to NANA's right, exercisable at the time of any construction decision, to purchase between 16 percent and 25 percent of any project on the combined property for a percentage to be determined by past expenditures.

Alternatively, NANA can elect to retain a 15 percent net proceeds royalty.

These rights to participate would apply to each mining operation constructed on the consolidated land holdings.

In addition, NANA is entitled to receive a Net Smelter Returns royalty ranging between 1 percent and 2.5 percent from production originating from the combined property with the exact percentage depending on the specific area where the future production originates.

NANA would also receive annual payments in relation to properties permanently used for access or operations.

Goldrich Mining Co. reported completion of its seasonal exploration program at its Chandalar gold project. The company drilled 25 diamond core holes totaling about 15,000 feet in five target areas. The company also collected over 1,100 soil samples on a reconnaissance scale grid over approximately 65 percent of the 23,000-acre property. The company also completed approximately 750 line miles of airborne geophysics along 100 meter spaced lines. Results are pending.

Southeast Alaska

Hecla Mining announced third-quarter production results from its Greens Creek mine on Admiralty Island.

The cash cost per ounce of silver for the quarter was a negative US$2.98 compared to a negative US$3.05 in the third quarter of 2010.

The average grade of ore mined during the quarter was 9.64 ounces of silver per short ton, compared with 12.76 ounces of silver per ton for the same period a year earlier.

During the third quarter, the mine produced 1,350,609 ounces of silver, 14,217 ounces of gold, 5,799 tons of lead and 17,318 tons of zinc.

The decrease in silver production year-over-year is due to lower silver ore grade and reduced ore volume.

The increase in total cash cost per ounce quarter-over-quarter is due to higher production costs, treatment costs, and mine license tax with the increase in production costs mainly attributable to lower silver ounces produced, and to a lesser extent, higher power costs due to increased reliance on more expensive diesel-generated power.

Underground definition and exploration drilling during the third quarter focused on the Gallagher, 200 South, and Northeast Contact zones.

The drilling designed to test the down plunge extent of the main Gallagher mineralization to the west and south has defined a broad zone of mineralization over approximately 150 feet of strike and 400 feet down dip containing narrower 2.3 to 7.4 feet high-grade intervals.

At the 200 South, recent definition drilling at the northern extent of the ore trend intersected a 7 to 12-foot wide mineralized ore zone on the upper limb and a 7 to 22-foot wide zone on the lower limb.

Drilling of the Northeast Contact intersected a 2.4-foot wide interval that graded 0.08 oz/t gold, 9.63 oz/t silver, 3.21 percent zinc and 1.19 percent lead.

This is the first ore grade intercept encountered along the Northeast Contact since its discovery.

Surface drilling in the third quarter continued until late September with three core rigs.

Drilling at Cub #4, 2,000 feet north of the mine portal intersected 3-foot and 5-foot wide mineralized zones on the Northeast Contact.

The initial drill holes at West Bruin, two miles northwest of the mine portal, intersected a 5 to 14-foot wide mineralized zone with veins.

Significant drill results from the Gallagher zone include 6.6 feet grading 0.23 oz/t gold, 13.52 oz/t silver, 15.83 percent zinc and 4.12 percent lead, 26.3feet grading 0.10 oz/t gold, 5.59 oz/t silver, 6.38 percent zinc and 2.97 percent lead and 6.6 feet grading 0.302 oz/t gold, 114.26 oz/t silver, 6.85 percent zinc and 2.96 percent lead.

In the fourth quarter, two drills will continue definition and exploration work at the Deep 200 South and 5250 South zones while a third drill will complete follow-up drilling on the Northeast Contact zone.

Coeur d'Alene Mines reported third-quarter production results from the Kensington mine near Juneau.

During the third quarter, the mine produced 25,687 ounces of gold at a cash operating cost of $973 per ounce versus 15,155 ounces of gold at a cash operating cost of $1,199 per ounce in the third quarter of 2010.

The mine processed 116,255 tons of ore grading 0.24 ounces of gold per ton.

Average mill recovery was 91.7 percent.

The company indicated that the mine is expected to enter a six-month period where processing levels will be reduced by 50 percent to about 700 tons per day.

This is intended to allow the mine to accelerate underground development, complete an in-fill drilling program to better define the high-grade ore zones, convert existing resources into proven and probable reserves, complete and commission the underground paste backfill plant and upgrade construction of several underground and surface facilities As a result, mine production is expected to decrease to 85,000 ounces of gold for 2011 and 2012 with costs decreasing as production rises in the second half of next year.

Production levels for 2013 are estimated at 125-135,000 ounces per year.

Exploration at Kensington in the third quarter consisted of just over 1,000 meters of core drilling, mostly on the Raven zone, which is located approximately 685 meters due west of the Kensington ore body.

Late in the quarter, drilling commenced on a new target, Kensington South.

Heatherdale Resources Ltd. announced that they had entered into a non-binding letter of agreement with Niblack Mineral Development Inc. to acquire all of the outstanding common shares of Niblack on the basis of 0.50 Heatherdale share per Niblack common share.

Niblack has also granted Heatherdale a right to propose an amendment to the terms of the arrangement should Niblack receive a superior proposal from another party.

The arrangement agreement provides for a C$300,000 break fee.

The primary asset controlled by the parties is the Niblack volcanogenic massive sulfide deposit on Prince of Wales Island.

The partners also announced additional drilling results from their three-rig, 21,300 foot spring-summer program.

Significant results include hole U131which returned 26.8 feet grading 4.66 percent copper, 13.57 g/t gold, 15.26 percent zinc and 302 g/t silver, hole U132 which returned 44.6 feet grading 2.54 percent copper, 5.54 g/t gold, 10.96 zinc and 126 g/t silver, and hole U136 which returned 35.7 feet grading 4.60 percent copper, 5.68 g/t gold, 10.00 percent zinc and 141 g/t silver.

The program included surface and underground drilling on the Lookout, Trio and Broadgage zones.

Six of seven surface holes tested the felsic horizon in the Trio-Broadgage area, and one hole targeted the area proximal to the historic Niblack Mine.

Six of the seven holes intersected sulfide mineralization that will guide the next round of exploration drilling.

The mineralization encountered in hole S148, which intersected 22 feet grading 0.53 percent copper and 1.54 g/t gold, also provided information about the plunge direction of the mineralization in the Trio zone.

Drill core from this program will be utilized for metallurgical and engineering tests and incorporation into a new resource estimate.

Quaterra Resources Inc. and partner Grande Portage Resources Ltd. announced the formation of an operating joint venture on the Herbert Glacier gold project near Juneau.

Grande Portage now owns a 65 percent interest and Quaterra retains a 35 percent interest.

The partners have formed the joint venture for the further exploration and development of the project, with each party bearing their proportionate share of costs.

If any party does not contribute their proportionate share of such costs, then the joint venture agreement includes a dilution formula whereby if any party's interest is reduced to 10 percent or less, its interest will be automatically converted into a 1 percent net smelter returns production royalty, which may be acquired by the other party at any time for US$1 million.

Ucore Rare Metals Inc. announced an update on beneficiation studies of rare earth element-bearing samples from its Bokan Mounta

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