Replacement cost of gold startles

I finally found something I have been thinking about for a long time but had not seen discussed in detail. We have all seen summaries of the declining rate of discoveries for new mineral deposits and have heard about the steadily increasing cost of production, now at a record US$727 per ounce, according to GFMS' Gold Survey 2012.

What I really wanted to know was the replacement cost of an ounce or a pound of metal.

Let's take gold for example: If I am a producing mine and I just produced an ounce of gold, what is the cost of replacing that ounce in my global inventory? CIBC Markets recently looked into this and came up with an arresting average of US$1,500 per ounce to replace that ounce I just sold on the spot market.

Costs included in that figure include US$700 in operating costs, US$275 in sustaining capital, US$150 in construction capital, US$125 in discovery costs, US$50 in overhead and US$200 in taxes.

Add a 10-12 percent profit margin and you are looking at something like US$1,700 as the sustainable gold price needed to fuel continued exploration, development and production.

Adding insult to injury is that fact that junior exploration companies, collectively responsible for 40-50 percent of exploration expenditures worldwide, are suffering through one of the worst financing environments in history.

How bad is it? Try this: The stock price for 80 percent of all junior mining companies listed on the Toronto Exchange currently is under C80 cents per share and 50 percent of all junior mining stocks are trading at less than C10 cents (a lousy dime!).

Looking into the crystal ball for 2013, it seems clear that exploration spending in Alaska is likely to be flat or down compared to 2012.

This means fewer companies working in the state and lower budgets for those who are working in the state.

The silver lining to the gray cloud is improved acquisition opportunities for those with the capital and foresight to buy their straw hats during the winter.

Western Alaska

Graphite One Resources Inc. pulled off a rare event this month at its Graphite Creek graphite prospect on the Seward Peninsula.

After only one year of drilling, they announced the prospect's first industry compliant resource.

Based on 17 or 18 holes drilled in 2012 and using a 3 percent cut-off, the project has an inferred resource of 107.2 million metric tons grading 5.7 percent graphitic carbon containing 6,196,160 metric tons of graphite.

The 2.2 kilometer-long northeast striking, 60-degree northwest-dipping resource remains open along strike and down dip.

The single drill hole that was not used in the resource estimate sits 2.2 kilometers west of the resource area and intersected 52 meters of 6.09 percent graphitic carbon suggesting immediate upside resource potential along strike.

No big surprise to most but the U.S. Environmental Protection Agency finally released results of a peer review of its Bristol Bay Watershed Assessment and found it seriously flawed in several areas.

The panel of experts concluded that the one-year study, rather than the four- to nine-year timeframe normally required by EPA for similar-size studies, suffers from a lack of sufficient data and information to support the conclusions reached.

The report authors in many cases overlooked the voluminous site-specific data provided by the Pebble project as part of its Environmental Baseline Document.

The reveiw also concluded that the draft EPA report over-estimates both the likelihood and consequence of a range of potential systems and operational failures, presents inappropriate and misleading case studies and stated that the hypothetical mining scenario presented in the EPA's report does not employ best mining practices, or the alternative engineering approaches, environmental safeguards and other mitigation strategies commonly used at modern mines to avoid environmental effects.

Liberty Star Uranium & Metals Corp. announced that it has signed a binding loan settlement agreement with Northern Dynasty Minerals Ltd. on Liberty Star's Big Chunk project in southwest Alaska. The settlement terminated joint venture agreements between the two companies, retired a previously arranged debt agreement between the companies, and settled on a new border between Liberty Star's south block and Northern Dynasty Minerals Ltd. and Anglo American plc's Pebble project. In concrete terms, the US$4 million-plus loan that Liberty Star owed Northern Dynasty was discharge in full and Liberty Star transferred 199 mining claims to Northern Dynasty.

Fire River Gold Corp. reported the final commissioning of its new carbon-in-leach circuit at the Nixon Fork gold project near McGrath.

In the first half of the year, the processing plant averaged 86 metric tons per day.

Mill throughput averaged 126 tpd in October with peak days over 200 tpd and is expected to increase in 2013.

Total gold produced from both the CIL and flotation circuits during the three-month period between August and October 2012 was 3,048 ounces.

Plant availability also has increased to +75 percent with additional improvements anticipated in 2013.

Gold recovery has steadily increased and is expected to surpass the current 74 percent recovery rate early in 2013.

The company also announced results of its 2,976 meters, 38-hole 2012 surface diamond drill program targeting resource expansion at the Mystery Mine.

Twenty of 38 drill holes intercepted significant gold, silver and copper mineralization, including 7.62 meters grading 50.26 grams per metric ton gold, 42.36 g/t silver and 3.37 percent copper in drill hole N12-014, 8.31 meters grading 36.75 g/t gold, 22.55 g/t silver and 1.6 percent copper in drill hole N12-001 and 6.09 meters grading 31.83 g/t gold, 37 g/t silver and 2.28 percent copper in drill hole N12-012.

Interior Alaska

Freegold Ventures Ltd. announced final 2012 drilling results from its Golden Summit project. Significant new results from the Dolphin zone included 56.7 meters grading 0.477 g/t gold in hole GSDL1225 and 13.9 meters grading 0.757 g/t gold, and additional 19.7 meters grading 1.91 g/t gold and 1.2 meters grading 37.6 g/t gold in hole GSDL1226. These two holes are outside of the company's recently announced 6-million-ounce-plus gold resource in the Dolphin - Cleary area. The company plans to resume drilling in January with one resource expansion drill rig and a second drill rig devoted to exploration drilling.

International Tower Hill Gold Mines reported an update of metallurgical recovery results from its Livengood gold project.

Metallurgical studies have determined that the gold recovery for the four key rock types that comprise 70 percent of the deposit's gold resource will range between 77 percent and 88 percent.

The study program included tests to first determine the gravity recoverable gold, and then evaluated two alternative mill flow sheets for processing of the gravity tailing.

The tests showed a robust gravity recovery of between 43 percent and 55 percent.

The two post-gravity recovery tests were whole-ore carbon in leach recovery and flotation of the sulfides from the gravity waste stream and then carbon in leach treatment of just the flotation concentrate.

Gravity plus whole ore carbon in leach recoveries ranged from 76.7 percent to 87.7 percent while Gravity plus sulfide flotation carbon in leach recoveries ranged from 67.4 percent to 81 percent.

Based on these studies, the company has chosen the gravity plus whole ore carbon-in-leach methodology for inclusion in its feasibility study planned for completion in mid-2013.

Contango ORE Inc. announced the preliminary results on a portion of its 2012 exploration program at its Tetlin gold-copper project near Tok.

The approximately US$6.0 million 2012 exploration program included two diamond core drilling rigs primarily focused on the Chief Danny prospect where promising drill results were generated in 2011.

During 2012 the company collected 82 surface rock samples and 1,029 top of bedrock soil auger samples at the Chief Danny, Taixtsalda and MM prospects and completed 36,004 feet of HQ-size diamond core drilling in 36 holes at the Chief Danny prospect.

The 2012 exploration program has expanded on previously drilled areas and intercepted high-grade gold and copper mineralization in the newly discovered Peak Zone.

Significant results include 107 feet grading 3.735 parts-per-million gold, 2.6 ppm silver and 0.113 percent copper in hole 1216, 161 feet grading 11.218 ppm gold, 21.6 ppm silver and 0.085 percent copper in hole 1217, 192 feet grading 11.996 ppm gold, 9.1 ppm silver and 0.243 percent copper in hole 1218 including 14.5 feet grading 46.148 ppm gold, 25.9 ppm silver and 0.518 percent copper, 14 feet grading 15.218 ppm gold, 2.3 ppm silver and 0.114 percent copper in hole 1219, 56.8 feet grading 21.766 ppm gold, 7.4 ppm silver and 0.319 percent copper in hole 1235 including 14.8 feet grading 67.797 ppm gold, 10.2 ppm silver and 0.363 percent copper, 160 feet grading 14.717 ppm gold, 10.1 ppm silver and 0.244 percent copper in hole 1236, and 120 feet grading 0.309 ppm gold, 71.6 ppm silver and 1.114 percent copper in hole 1238.

In general, all of the holes intercepted a 100- to 125-foot wide zone of alteration and mineralization.

The mineralization dips at a low angle to the north and trends northwest-southeast.

In addition to gold, silver and copper, other anomalous metals include arsenic, bismuth, cobalt, molybdenum and tin with lesser, more sporadic anomalous lead and zinc.

Following discovery of the Peak Zone, additional drilling was completed along strike to the northwest and southeast, eventually extending gold and/or copper mineralization over about 1,700 feet of strike.

The company hopes to identify sufficient mineral resources by the end of 2013 to justify initial reviews of economic and engineering parameters on the Chief Danny prospect.

Alaska Range

Westmountain Index Advisors Inc. announced positive assay results from the gold concentrates from the initial test run of its pilot mill at its Terra gold project.

The pilot mill gravity concentrates assayed indicate 5,561.52 ounces of gold per ton and 2,254 ounces of silver per ton with copper, tungsten, antimony and zinc values ranging from 0.8 percent to 2.7 percent.

From the concentrates of one ton of ore processed by the pilot mill, a total of 1.4 kilograms of gold concentrate were recovered which produced a 401-gram gold bar.

The company anticipates receipts of 9 ounces of gold and 4 ounces of silver from the test run.

Assay results from the concentrates indicate recoveries of 71 percent for gold and 29 percent for silver.

Northern Alaska

NovaCopper Inc. and NANA Regional Corp. Inc. announced metallurgical results from the Arctic deposit and final 2012 drilling results from the South Reef zone of their Upper Kobuk project.

Revised metallurgical results indicated copper concentrates recovered 88.6 percent of the copper, 5 percent of the zinc, 8.3 percent of the lead, 35 percent of the silver and 70.8 percent of the gold.

Zinc concentrates recovered 4.6 percent of the copper, 91.7 percent of the zinc, 3.4 percent of the lead, 7.5 percent of the silver and 5.8 percent of the gold.

Lead concentrates recovered 2.5 percent of the copper, 1.4 percent of the zinc, 83.9 percent of the lead, 49.7 percent of the silver and 2.1 percent of the gold.

These tests showed that high quality copper and zinc concentrates, averaging 29.5 percent copper and 59.2 percent zinc, could be created with conventional technology.

The copper concentrate also has a high proportion of the gold and silver at Arctic.

The company also reported their final drill results from their 15,457-meter, 22- hole South Reef prospect.

Significant South Reef drilling results using a 1 percent cutoff grade include 73.8 meters at a grade of 2.69 percent copper in hole RC12-214; 17.6 meters grading 2.05 percent copper in hole RC21-215; 15.9 meters grading 2.54 percent copper in hope RC12-215W; and 77.2 meters grading 4.27 percent copper in hole RC12-216.

Drilling at South Reef has outlined a 300-meter by 700-meter northeast trending zone of mineralization.

Copper mineralization remains open to the north and east and to the southwest.

An initial resource estimate for the South Reef prospect is expected in early 2013.

Southeast Alaska

Grande Portage Resources Ltd. announced additional 2012 results from its Herbert Glacier gold project near Juneau.

Drilling has now delineated Deep Trench vein mineralization over a strike length of at least 400 meters.

Drill hole 12H-1, an exploration step out 150 meters east of Pad G, intersected a sheared and hydrothermally altered zone over 12 meters in width that hosts gold-bearing quartz with abundant arsenopyrite, an important sulfide associated with gold mineralization.

A 1.17-meter interval within this zone averages 5.45 g/t gold.

Approximately 700 meters of the Deep Trench vein along strike to the east has not yet been drilled.

The company plans to release an update resource estimate in the first quarter of 2013.

Arrowstar Resources Ltd. released geochemical results for 105 rock samples collected at its Snettisham iron project near Juneau. The samples average 21 percent iron and 5.2 percent titanium, while the sulfur, phosphorus, silicon dioxide and aluminum oxide grades on samples containing high iron conformed with commercial grades. The company also conducted a series of magnetic separation tests using different grind sizes. At the 0.15-millimeter size, concentrate grades of ranged from 80.0 percent and 85.2 percent iron oxide. These high concentrate grades may be suitable for dry magnetic separation.

Pure Nickel Inc. announced initial assay results for the recently completed drilling program on the company's 100 percent owned Salt Chuck copper-gold -silver-palladium property on Prince of Wales Island.

The 2012 six‐hole drilling program encountered high-grade gold mineralization in a previously unidentified gold‐bearing structure in the North Pole Hill area of the property.

High-grade intersections include 127.8 g/t gold, 57.6 g/t silver and 2.78 percent copper over 0.35 meters apparent width.

The newly discovered mineralization is associated with previously untested soil geochemical and induced polarization geophysical anomalies which extend 1.5 kilometers along strike to the east and west.

A second gold-in-soil anomaly splays southward and continues a further 1.7 kilometers.

The soil anomalies extend to the limits of the surveys - therefore the potential mineralized structure is open in all directions.

The new discovery area is road-accessible and only 10 kilometers from Thorne Bay, Alaska.

In addition to the re-mobilized gold‐copper mineralization, broad zones of anomalous palladium concentrations were encountered at greater depths in the westernmost drill holes, including NPH‐12‐02 where a weighted average concentration of 234 parts-per-billion palladium was intersected over 12.85 meters apparent width.

These anomalous palladium intersections appear to reflect primary magmatic mineralization not previously identified in this area.

Heatherdale Resources Ltd. announced positive results from drill holes designed to increase the resources at the Trio deposit on its Niblack volcanogenic massive sulfide deposit.

The 10-hole, 15,500 feet of surface core drilling program was originally designed to also test the Lookout zone, but early success at the Trio zone prompted the company to focus on the Truio zone in 2012.

The drilling intercepted two or three mineralized horizons separated by a unit called the 'white rhyolite.' The white rhyolite unit (which is absent at Lookout) also resulted in the local development of a brittle-fracture network in-filled with sulfides to produce a classic stringer zone in a rhyolite flow dome sequence.

Significant results from this drilling include hole S167 which intercepted 32.1 feet grading 0.27 percent copper, 0.29 g/t gold, 1.42 percent zinc and 4 g/t silver and hole S172 which intercepted 20.3 feet grading 0.23 percent copper, 0.40 g/t gold, 2.75 percent zinc and 6 g/t silver.

Ucore Rare Metals Inc. announced its long-awaited preliminary economic assessment for the Dotson Ridge zone at its Bokan Mountain heavy rare earth property in Southeast Alaska.

Highlights of the PEA include a net present value of US$577 million at a 10 percent pre-tax discount rate, internal rate of return of 43 percent with a 2-3 year payback period, capital costs of US$221 million including a complete on-site rare earth oxide separation plant, and a contingency provision in the amount of US$25 million, a mining rate of 1,500 tpd with 75 percent of mill feed eliminated via the use of Dual Energy X-Ray Transmission sorting and magnetic separation resulting in approximately 375 tpd reporting to the leach circuit.

Average total rare earth recoveries are estimated at 81.6 percent with deployment of Solid Phase Extraction technology to generate high purity individual rare earth oxides at the site.

Annual rare earth oxide production is projected at 2,250 metric tons per day during the first five years at full production, including 95 metric tons of dysprosium oxide, 14 metric tons of terbium oxide, and 515 metric tons of yttrium oxide.

Mine life, using current resource estimates (5.3 million metric tons at an average grade of 0.65 percent total rare earth oxides) is 11 years with employment pegged at 170 fulltime employees.

The design contemplates trackless mining with adit access and blasthole stoping with all tailings will be placed underground via cemented paste backfill.

The processing plant will generate about 735 tpd of tailings, significantly less than the mine requirement of approximately 1,030 tpd.

Nitric acid that is not consumed in the leach circuit will be recycled through the use of diffusion dialysis, reducing acid consumption by more than 75 percent.