2013: A golden year for Alaska miners

Alaska miners are on the cusp of topping 1 million ounces of gold produced, an annual milestone that has not been achieved since Gold Rush pioneers recovered copious amounts of alluvial aurum at the turn of the 20th Century.

"When you think about what a million ounces of production means, it is all the more amazing that it was first accomplished by placer miners and a few lode miners, a few shovelfuls at a time, more than a century ago!" Curt Freeman, a well-known Alaska geologist and president of Fairbanks-based Avalon Development, reflected.

Unlike the tenacious Gold Rush sourdoughs that topped 1-million ounces in 1899 and again in 1906, the roughly 1-million ounces of gold recovered in 2012 was largely the product of 21st Century machinery.

"It always blows my mind when I think of a million-ounce year without the current technology and fleet of equipment," Sumitomo Metal Mining Pogo External Affairs Manager Lorna Shaw wrote. "The miners of yesterday were some amazing people!"

Alaska's five hardrock operations account for some 870,000 ounces of the gold produced in Land of the Midnight Sun during 2012. The bulk of this aurum, roughly 700,000 ounces, was recovered from Kinross Gold Corp.'s Fort Knox Mine located about 25 miles (40 kilometers) north of Fairbanks and Sumitomo Metal Mining's Pogo operation located some 60 miles (100 kilometers) southeast of Fairbanks. The Kensington, Greens Creek and Nixon Fork operations round out the hardrock mines that contributed to Alaska's gold production in 2012.

The hardworking individuals and families that make up the Last Frontier's modern placer mining community are expected to add roughly 100,000 ounces to the 2012 gold production numbers, bringing the total annual production to the brink of the 1-million-ounce milestone.

While it seems likely that 2012 totals will fall just shy of the seven-digit mark, increased gold output forecast at Fort Knox and Kensington for 2013 will likely result in contemporary Alaska miners matching the feat of their pioneering forebears.

This million-ounce-milestone could usher in a new Golden Age for Alaska. As the current class of miners challenges the million-ounce mark, a new generation of mega-gold deposits is on the horizon. Pebble, Donlin Gold and Livengood - enormous accumulations of gold that are measured in the tens of millions of ounces - could propel the Last Frontier to become the top gold-producing state in the United States

"I think it is significant that Alaska is the No. 2 gold producer in the United States. It is right behind Nevada and gaining ground. When you get projects like Donlin Gold into production, it will start rivaling Nevada," said NovaCopper President and CEO Rick Van Nieuwenhuyse.

Pogo reigns supreme

The 2,500-metric-tons-per-day mill at Pogo churns out around 1,000 ounces per day gold, enough for the high-grade underground operation to reign as Alaska's top aurum producer since 2008, the mine's first full year of production.

Pogo recovered 389,808 ounces of gold in 2009, a record that stands to this day. Gold production at the mine dropped to 383,434 ounces and in 2010 and 325,708 ounces in 2011.

Sumitomo Metal Mining Pogo LLC - a joint venture between Japanese firms Sumitomo Metal Mining Company (85 percent) and Sumitomo Corp. (15 percent) to operate Pogo - celebrated the first 2 million ounces of gold produced at the underground operation on July 31, 2012.

The first 2 million ounces of gold produced at Pogo were mined from the Liese zone - three flat-lying, parallel quartz veins that carry high-grade gold.

Although Sumitomo continues to expand Liese, the Tokyo-based miner has found new zones of high-grade gold that are expected to extend the mine life at Pogo well beyond 2019, which is what the current 2.9 million ounces of gold reserves support.

The gold-rich veins of the Liese zone end abruptly where they come in contact with a gold-barren body of diorite to the northeast.

Two years ago, the Pogo exploration team set out to see if it could find additional gold mineralization on the opposite side of the intrusive body.

Some road-based drilling just north of the diorite tapped a zone with quartz-vein structures with grades and thicknesses similar to those that have provided feedstock for the mill over the past six years.

The Pogo geological team now believes that the Liese and East Deep zones are the same ore body that became separated when the diorite split the two zones as it intruded along the Liese Creek fault about 95 million years ago, or about 12 million years after the zones were mineralized.

Through the end of 2011, Sumitomo had outlined 2 million ounces of indicated and inferred gold resource at East Deep. The US$4.80-per-ounce discovery cost of this gold is a fraction of the US$30-US$40 industry average for each ounce of gold found.

This initial resource, according to Pogo General Manager Chris Kennedy, could be the tip of the iceberg when it comes to East Deep. The total extent of this zone is unknown and the deposit remains open to the west, north and northeast.

Sumitomo has driven two drifts through the some 300 meters of diorite that separate Liese from East Deep. These access drives linking the East Deep zone to the established underground workings at Pogo are accelerating Sumitomo's ability to mill the gold-rich ore found here.

At the end of 2011, Sumitomo reported resources and reserves of 12.32 million metric tons of ore averaging 12.5 g/t gold for 4.95 million ounces of the precious metal. With East Deep and other zones near the mill expected to add significant quantities of high-grade ore to the resource, it is expected that Pogo will continue to contribute 1,000 ounces a day to Alaska's gold production for years to come.

Fort Knox vies for title

Fort Knox, which reigned as Alaska's top gold producer until being overtaken by Pogo in 2008, is vying to regain the title.

Fort Knox General Manager Dan Snodgress told the mining community gathered at the 2012 Alaska Miners Association Convention in November that the open-pit, bulk-tonnage operation north of Fairbanks is set to mine gold at a record-setting pace, all the while bolstering Kinross' bottom line.

"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 (2013) - it is quality versus quantity, and that theme is permeating through our organization now."

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, Kinross now has the Walter Creek Heap Leach, a facility that can economically process the low-grade material, while the higher grades reserves can continue to be fed through the mill.

During 2010, the first full year of production, roughly 83,000 ounces of gold was recovered from about 14 million tons of ore 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 being added to the circuit.

"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.

With the CIC plant scheduled to be completed in July, Kinross expects Fort Knox to shatter the previous record of 411,220 ounces of gold recovered from in 2001, bringing new vitality to the aging mine.

Kensington regroups

After enduring a permitting process measured in decades and culminated in a U.S. Supreme Court ruling in favor of the operation, Coeur d'Alene Mines' Kensington Mine is Alaska's third-largest gold producer.

Situated some 45 miles (72 kilometers) north of Juneau, the Kensington gold mine began commercial production in July 2010. During 2011, the high-grade underground mine produced 88,420 ounces of gold at cash operating costs of US$1,088 per ounce.

Late in 2011, Coeur cut processing rates in half to provide an opportunity to undertake several key initiatives aimed at improving the mine's safety and production profile. To accomplish this, Coeur completed construction of a backfill plant and related distribution system; upgraded several underground and surface facilities; and improved the overall safety of the operation.

The scaled-back production resulted in skyrocketing operating costs.

During the first three months of 2012, 7,444 ounces of gold was recovered at Kensington at cash operating costs of US$2,709 per ounce. Returning to full-scale production of about 1,500 tpd in April, the Southeast Alaska operation improved to 21,572 ounces of gold at cash costs of US$1,348 per ounce during the second quarter. The production profile continues to improve. During the third quarter, Kensington churned out 24,391 ounces of gold at US$1,298 per ounce. Fourth quarter gold production hit 28,717 ounces; production costs were not available at the time of this report.

All told, Kensington produced 82,125 ounces of gold in 2012. Coeur anticipates the Southeast Alaska mine will continue the production pace set in the fourth quarter and churn out 108,000 - 114,000 ounces of gold at US$900-US$950 per ounce in 2013.

At the end of 2011, Kensington tallied proven and probable gold reserves totaling 1.3 million ounces, plus 587,320 ounces in measured and indicated resources and 169,680 ounces in inferred resources.

Gold pays for Greens Creek silver

While Hecla Mining Co.'s Greens Creek Mine is primarily a silver producer, the roughly 54,000 ounces of gold recovered from the volcanogenic massive sulfide deposit was enough to make the Southeast Alaska operation the state's fourth-largest aurum producer in 2012. In fact, the gold, lead and zinc recovered at the Juneau-area operation largely paid for the mine's roughly 6 million ounces of annual silver production.

During the first nine months of 2012, Greens Creek produced 4.3 million ounces of silver at an average cash cost of US$2.34 per ounce, net of by-products. So, Hecla was able to bank US$30.93 per ounce from silver sold during the first three quarters of 2012.

While the cash generated from Greens Creek is helping fortify Hecla's healthy treasury, the Idaho-based miner is investing heavily in the Southeast Alaska mine and other silver assets in Idaho, Colorado and Mexico.

"We are rapidly advancing toward our targeted goal of 15 million ounces of company-wide silver production by 2017. Underpinning this growth is our very strong balance sheet, with US$232 million in cash and no significant debt," Hecla's President and CEO Phillips S. Baker, Jr. told investors at the end of the third quarter.

At Greens Creek, Hecla spent roughly US$90 million on improvements and upgrades, the largest investment in the history of the Southeast Alaska mine. Some of the key capital expenditures include Deep 200 South access development (US$18 million); mining fleet replacement and additions (US$14 million); tailings dam expansion (US$10 million); East Ore access and ventilation rehabilitation (US$6 million); definition drilling (US$5 million); and the construction of expanded and upgraded camp facilities (US$5 million).

Going into 2012, Greens Creek had about 98 million ounces of silver and 742,400 ounces of gold in reserves - enough to ensure the Southeast Alaska mine is a significant contributor to the state's gold production for about another 10 years, and Hecla sees plenty of potential to continue a tradition of replenishing these stores in the foreseeable future.

Encouraging signs at Nixon Fork

Fire River Gold Corp.'s Nixon Fork gold mine, the smallest of Alaska's hardrock gold producers, is expected to contribute nearly 25,000 ounces to Alaska's overall aurum production in 2012.

This high-grade operation, situated about 32 miles (50 kilometers) northeast of the gold mining town of McGrath in Interior Alaska, has been in and out of production since high-grade gold was discovered there in 1917.

Fire River, the latest company to make a go of it, fired up the 250-tpd mill at Nixon Fork in July 2011. The operation got off to a rocky start, and Fire River is continuing to ramp up the operation to its full potential.

Through the first half of 2012 the plant processed ore at a rate of about 86 tpd, but Fire River is reporting improvements. The company said the plant averaged 126 tpd during the final six months of the year and in October and in November, the plant enjoyed several 200-metric-ton production days.

Fire River is encouraged that the broad zones of high-grade gold mineralization and narrower zones of bonanza grades encountered during its 2012 underground drill program will help improve the production profile at Nixon Fork. Hole N12U-057 returned the best intercepts, including: 1.5 meters averaging 1,120 g/t gold and 3.34 meters averaging 219 g/t gold.

Fire River President and CEO Blane Wilson said, "We continue to encounter encouraging signs through our surface and underground in-fill drilling programs, as well as data that could present a more favorable view of the orientation of mineralization."

With operational efficiencies on the rise, Fire River is targeting 40,000 ounces of gold production in 2013, and ramping up to a projected 50,000 ounces in 2014.

Placer operators prosper

With gold averaging US$1,669 per ounce in 2012, Alaska is seeing an upsurge of individuals scouring its streams, beaches and the ocean floor for placer gold.

Alaska officials estimate that nearly 79,000 ounces of alluvial gold was recovered in the state during 2011, and this haul is expected to swell in 2012.

While small family-owned operations and individuals currently make up the bulk of placer gold production in Alaska, larger companies and more complex operations are joining the Last Frontier's mining community.

Goldrich NyacAU Placer, LLC - a joint venture placer mining company owned equally by Goldrich Mining Company and NyacAU, LLC - is set to mine some 10,000 ounces of placer gold annually from the rich alluvial gold deposits that blanket the valleys of the vast Chandalar land package located some 200 miles (320 kilometers) north of Fairbanks.

Goldrich brings the vast placer potential of the 22,840-acre (9,243 hectares) Chandalar Mining District to the partnership, including a 250,000-ounce drill-tested alluvial gold deposit on Little Squaw Creek and a multitude of undefined gold-rich streams with the potential to increase the resource several times over.

Nyac, a private mining company owned by Dr. J. Michael James, an Anchorage-based physician and fourth generation Alaskan, is offering more than two decades of placer mining experience and some US$7.2 million in capital to get the mining venture into production.

James' Nyac operation on Shamrock Creek in Southwest Alaska is currently considered among the top placer gold producers in the state.

With mine construction completed in 2012, the Chandalar partners are expecting to recover 8,500 ounces of placer gold in 2013 and 10,000 ounces in 2014 and in years to follow.

While the Goldrich NyacAU partnership seeks to recover aurum locked in the frozen gravels of Alaska's North, a global-scale venture is exploring a massive placer deposit roughly a mile beyond the golden beaches of Nome.

Placer Marine Mining Inc. - a joint venture that combines the gold mining expertise of AngloGold Ashanti Ltd. with the marine mining experience of De Beers - is investigating the potential of dredging a vast placer gold deposit lying beneath the icy waters of the Bering Sea.

Placer Marine Mining picked up its Nome offshore properties during a lease sale held by the Alaska Department of Natural Resources in 2011. These tracts start about a mile (1.6 kilometers) offshore and run out to about the three-mile (4.8 kilometers) limit of state-owned land and for some 20 miles (32 kilometers) parallel to the shoreline.

While the Nome beaches and near-shore marine gold deposits have been continuously worked and reworked for more than a century, the depth of the icy water covering the deposits leased by Placer Marine Mining has prevented individuals and small-scale operations from dredging there.

Since the discovery of gold there in 1899, the Nome Mining District has produced roughly 5 million ounces of placer gold.

Based on historical exploration, it is believed that the 16,581 acres of offshore leases secured by Placer Marine Mining about a mile beyond the golden beaches of Nome could hold as much gold as has been recovered from the legendary Nome Mining District over the past 113 years.

The AngloGold-De Beers partnership spent some US$6 million during the short summer season of 2012 to begin to find out just how much gold lies below on its portion of the gold-rich placer deposits in the Bering Sea.

The company believes it will have collected the geological and environmental data needed to advance the project into permitting by mid-2014.

If all goes well, Placer Marine Mining plans to begin mining Bering Sea gold by the 2017 season.

Mega-mines on the horizon

The first of Alaska's next generation of mega-mines - Donlin Gold, Livengood and Pebble - are expected to come online around 2020.

In August, Donlin Gold LLC - a partnership owned equally by NovaGold Resources Ltd. and Barrick Gold Corp. - initiated the permitting process for its 40-million-ounce Donlin Gold project in western Alaska.

Once in production, the 53,500-tpd mill at Donlin is projected to recover an average of 1.1 million ounces of gold annually at a cash-cost of US$585 per ounce during its initial 27-year mine-life.

By feeding the mill higher grade ore, the massive project is scheduled to produce 1.5 million ounces of gold annually at an average cash-cost of US$409 per ounce during the initial five years of operation. This increased gold production during the onset of operations will help reduce the payback period for the estimated US$6.7 billion of capital costs needed to build the mine.

It is expected to take about four years to gain the 100 or so permits needed to develop Donlin and, if the partners decide to move ahead with development, construction will take about as long.

Although International Tower Hill Mines Ltd. has not submitted permit applications yet, the company believes the highway accessible Livengood project north of Fairbanks could begin producing gold at about the same time as Donlin.

According to a preliminary economic assessment completed in 2011, a 91,000-tpd mill at Livengood would crank out 12.9 million ounces of gold over 23 years.

International Tower Hill President and CEO Donald Ewigleben said the 560,000-ounce-per-year operation anticipated in the PEA is at the low end of various scenarios being contemplated.

A feasibility study expected to be completed in 2013 is investigating the appropriate size operation for Livengood.

With permitting slated to begin in 2014, Tower Hill is targeting 2017 to begin construction, and hopes to begin commercial gold production at Livengood by 2019.

While best known for its 80.6 billion pounds of copper, the colossal Pebble deposit in Southwest Alaska also hosts 107.4 million ounces of gold.

The Pebble Partnership - a 50-50 joint venture between Vancouver B.C.-based Northern Dynasty Minerals Ltd. and London-based Anglo American plc - has not published a mine plan for the project. A preliminary assessment prepared for Northern Dynasty in 2011 gives an indication of the deposit's gold producing potential.

In a 45-year base case scenario contemplated in the assessment, Pebble's annual production is envisioned to be 690 million pounds of copper, 667,000 ounces of gold, 31,000 pounds of molybdenum, 27,000 kilograms (58,000 pounds) of rhenium and 20,000 ounces of palladium.

The Pebble Partnership invested some US$107 million to advance the project in 2012, with the objective of initiating permitting in 2013. Conceivably, this would put Pebble on track to begin production as early as 2021 but given the contentious nature of this project, it will likely take longer to realize the potential of this massive deposit.

Author Bio

Shane Lasley, Publisher

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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