The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
To meet Kinross' initiative to generate free cash flow, Alaska mine targets record annual gold production, lower energy costs
Kinross Gold Corp.'s Fort Knox Mine is on pace to retake the position of the top gold producer in Alaska. The open-pit operation situated about 26 miles (42 kilometers) north of Fairbanks reigned as the state's most prolific gold operation for a decade before relinquishing the title to the Pogo Mine in 2008.
During the third quarter of this year, however, Fort Knox churned out 106,698 ounces of gold, a 48 percent surge from 71,952 ounces produced in the second quarter and a 40 percent increase from 76,261 ounces produced during the third quarter of 2011 - a presage to a record-setting year coming in 2013.
David Quandt, technical services manager at Fort Knox, told attendees at the 2012 Alaska Miners Association annual convention in early November that the operation is on track to produce about 360,000 ounces of gold in 2012 and 425,000 ounces in 2013. The latter projection would top the previous record of 411,220 ounces of gold mined at Fort Knox in 2001.
As the Interior mine settles into a record-setting gold production pace, Kinross has launched a company-wide capital and project optimization initiative aimed at growing its global gold mining business and generating free cash flow.
"As we go through our budgeting process for 2013, and looking beyond, we are seeking every available opportunity to control costs, with a focus on margins and free cash flow across our operations," Kinross CEO Paul Rollinson said in commenting on the company's third-quarter performance. "To that end, we have launched a systematic, long-term program which we call internally, 'The Kinross Way Forward,' with the objective of delivering greater value at both our mines and projects. Our focus will be on quality, and not just quantity, in our mine planning, production, exploration and resource strategy, and on margins and free cash flow in all of our business decisions."
Fort Knox General Manager Dan Snodgress told the mining community gathered at the 2012 AMA convention that his team's priorities are in line with Kinross' global initiative.
"Our priority is generating free cash flow," he told the crowd. "It is not necessarily that we are going to mine 360,000 ounces, which is what will happen in 2012, or 425,000 ounces, like we believe we will be doing next year - it is quality versus quantity and that theme is permeating through our organization now."
The Kinross Way Forward
"The Kinross Way Forward" has seven key elements:
mine plan optimization;
continuous improvement;
cost management and labor productivity;
capital efficiency;
supply chain management;
energy management; and,
working capital management.
Though Fort Knox is not without its challenges, especially in the realm of energy management, in terms of meeting the objectives of this project optimization initiative, the Alaska gold mine provides a blueprint for how the Toronto-based mining company can increase efficiencies in its operations in other parts of the world.
"Fort Knox is by far the lowest cash-cost (open-pit) producer within the Kinross portfolio," touted Snodgress.
Rollinson, which was promoted from Kinross CFO to CEO at the beginning of August, took a tour of the company's global operations.
"As I moved from West Africa to South America to North America, I witnessed a gradual but clear step-up in our operational efficiency," Rollinson observed.
He hopes to apply the efficient mining methods being exercised in places like Fort Knox to its more challenged operations.
"We know we can improve in West Africa and South America and we are increasing our focus on operating performance in those regions. That said, both regions have growth opportunities in the medium term, and we will continue to work with our teams to bring lessons learned in North America and Russia into those regions," said the Kinross chief executive.
This is not the first time Kinross was inspired by success at Fort Knox.
"We have successfully executed this knowledge transfer between our regions before. For example: our experience at Fort Knox in Alaska combined with our long history in northern Russia was invaluable as we launched Kupol, where today our team is operating at the top of their game," Rollinson noted.
The theme at the 2012 AMA convention was the "Business of Mining," providing Snodgress an opportunity to outline why Fort Knox is Kinross' lowest cash-cost producer despite being located in a region that is notorious for high costs.
The Fort Knox manager framed his discussion on the business of mining at Fort Knox within the context of Kinross' core values:
putting people first;
outstanding corporate citizenship;
high performance culture; and
rigorous financial discipline.
"Kinross has established four core values; every planning and business decision that is made, whether you are in Africa or Alaska, need to be in alignment with these values," explained the Fort Knox general manager.
Upfront investment and planning is a single theme that resonates across all four sectors of Fort Knox's adherence to these values.
People and community
Snodgress said the safety and well-being of the Fort Knox employees is his No. 1 priority and a key component of the Interior Alaska's contribution to Kinross' corporate citizenship.
Being proactive in investing the time and money needed to foster a culture of safety is a primary objective at Fort Knox.
"Safety and the incentives and bonuses paid are not cheap. I would rather spend the money upfront with the employees on those types of things versus the backend," said the Fort Knox general manager.
Snodgress said the upfront investment in safety has a direct effect on the bottom line and to make this point he cited the steep drop in workers compensation cases from some 65 in 2003 to just two so far in 2012; resulting in less workers compensation expenses.
The investments in the work force resonate beyond the workplace.
"Our actions define whether or not we are seen as a responsible company," Snodgress said. "We realize we operate under a microscope, and we accept that; it is not something we shy away from, it is not something our employees shy away from."
He said the same ideology applies to assuring workers are trained for the job at hand.
"If you want a quality work force you are going to have to invest in training," he said.
This will be an important element as Fort Knox expands its work force from 550 workers this year to 624 in 2013.
In addition to having 550 ambassadors circulating in the community, Fort Knox provided tours to 488 3rd and 4th grade students and some 300 locals and visitors in 2012.
High performance
Though Snodgress outlined a number of initiatives being implemented at Fort Knox that meet Kinross' high performance culture core value, the acceleration of heap leach production is the one aspect that is most directly contributing to the record-setting gold production at Fort Knox.
Going into 2012 Fort Knox had 4.3 million ounces of gold reserves, slightly more than when the mine went into operation in 1997. While this gold is locked up in nearly twice the ore at about half the grade, the company now has the Walter Creek Heap Leach, a facility that can economically process low-grade material, while the higher grades reserves can continue to be fed through the mill.
"This was a game-changer for Fort Knox," Snodgress told the crowd at the 2012 AMA Convention.
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.
During 2010, the first full year of production, roughly 83,000 ounces of gold was recovered from about 14 million tons of lower grade ore was stacked on the heap leach pad. With the surety the system works well at its Interior Alaska operation, Kinross has stepped up the heap leaching operation. In 2012, about 33 million tons of ore is being stacked on the heap leach pad, contributing a projected 125,000 ounces to the 2012 gold production at Fort Knox.
To accommodate the additional ore, a larger pumping system and recovery capacity is needed.
"Instead of circulating and processing 8,000 (gallons per million), we are now pumping 16,000. We are increasing our pregnant solution grade, and we are building a second CIC (carbon-in-column) plant that will be able to take care of all 16,000 gpm," Snodgress explained.
The new CIC plant is scheduled to be completed in July 2013.
Expensive power
Rigorous financial discipline is the one area in which Fort Knox is most challenged. Not because management lacks fiscal restraint, but due to the fact that Interior Alaska is an expensive place to operate a mine.
"For us, a huge issue is power," Snodgress explained.
The light bill at Fort Knox in 2012 is roughly US$110,000 per day, or about US$40 million for the year.
Snodgress has been charged with finding ways to bring down the power costs at Fort Knox. While the general manager has worked to bring down electrical consumption at the operation, he said the real savings can be found in lowering the per-unit cost of electricity.
"When I am paying 78 percent more for the same unit cost of power than my sister mine in Washington and 68 percent more than they are in Nevada, I struggle with that," the Fort Knox manager protested. "If this mine was located near Anchorage, near Southcentral, versus the Interior of Alaska, the cost differential of power is substantial."
He said one of the potential ways to lower the price is to make better use of the intertie between the Southcentral and Interior Alaska power grids. Trucking liquefied natural gas down from the North Slope to fuel Interior Alaska power plants is another possible scenario.
Snodgress said lowering power costs in the Fairbanks region is not only important to the bottom line at Fort Knox but is crucial to developing other projects in the area.
"Mining in the Interior is expensive and if we are going to develop new mines, we are going to have to figure out how we reduce the power rate," he told the mining community.
The Fort Knox Way Forward
Considering that Fort Knox ranks as the lowest cash-cost gold producer amongst the open-pit operations in Kinross' portfolio and management is looking at longer term solutions to energy costs, it is hard to imagine the sun setting on the Interior Alaska operation.
According to Kinross' most recent projections, there is enough ore in the immediate Fort Knox mine area to feed the mill until 2018 and to continue the heap leach operation through 2021.
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.
While Kinross has not announced what work it has done on the property since the purchase, Teryl reported an NI 43-101-compliant pre-feasibility resource estimate for Gil shortly before selling its stake in the property.
According to this estimate, Gil has a heap leach resource of 514,916 ounces of gold contained in 19.86 million tons of mineralized rock. A cut-off grade for a hypothetical heap leaching scenario for the Gil ore is expected to be 0.51 grams per metric ton gold, which corresponds to the heap leach cut-off grade currently being used at Fort Knox. A grade cut-off for material that could be sent to the mill is 0.77 g/t gold. Teryl said total gold resources at Gil for a run-of-mill scenario are 309,304 ounces of gold contained in 8.51 million short tons of ore.
Another potential source of ore near the Fort Knox mine is Freegold Ventures Ltd.'s Golden Summit property, situated about five miles (eight kilometers) north of the Kinross operation.
According to a resource released by Freegold on Nov. 1, at a 0.35 g/t gold cut-off grade, the Dolphin zone at Golden Summit has an indicated resource of 62.62 million metric tons averaging 0.73 g/t gold for 1.46 million ounces and an inferred resource of 191.92 million metric tons averaging 0.67 g/t gold for 4.1 million ounces.
Though Kinross has not publically expressed an interest in Golden Summit, the nearly 6 million ounces outlined so far at the neighboring project could point the way forward for Fort Knox.
"Our way forward is focused on quality versus quantity and let me stress that this focus on quality also applies to our exploration and resource-base strategy," Rollison commented during Kinross' third-quarter report.
Time will tell if Golden Summit or other Interior Alaska gold deposits meets this criterion.
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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