The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
New winning-driven budgeting strategy pays off with big dividends in high-grade gold discoveries in historically mined areas
When it comes to allocating a limited number of exploration dollars, Coeur Mining Inc.'s strategy is to funnel the money to projects that have demonstrated the ability to turn those dollars into precious metal. And, for 2014, the Kensington Mine in Southeast Alaska is where the bulk of the company's exploration dollars are flowing.
When Coeur put together budgets for 2014, the precious metal miner allocated roughly US$25 million for exploration at six operating mines, two feasibility projects and one advanced exploration project - substantially less than the US$40 million originally budgeted for 2013 and about 26 percent less than the US$34 million actually spent on exploration across its portfolio of projects last year.
Despite the overall cuts to exploration budgets, Kensington Mine got US$6.2 million, or about a quarter of the companywide budget. This healthy portion of Coeur's exploration dollars doled to the Southeast Alaska gold mine is the result of a strategy that rewards exploration success with a boost in funds.
"As we established the 2014 exploration budget we started with a smaller amount than 2013 and then launched a new program that incentivizes our exploration teams by waiting to 2014 to allocate money to them," Coeur Vice President of Exploration Hans Rasmussen explained in an online newsletter published by the company. "It is a success-driven approach to investing in new projects that aligns with our overall philosophy."
The budgeting tactic is paying dividends in the form of high-grade gold discoveries in a historically mined area of Kensington.
The Kensington property, situated some 45 miles (72 kilometers) north of Juneau, hosts two historical mines that date back to the dawn of the 20th Century - Jualin and Kensington. Jualin operated for roughly 30 years beginning in 1896 and Kensington produced gold for about four decades, starting in 1897. Together, these bygone mines produced some 40,500 ounces of gold from 75,200 short tons of ore, or about 0.54 ounces per ton.
At the end of 2013, Coeur reported 6.0 million tons of proven and probable reserves averaging 0.15 oz/t (902,000 ounces) gold. At roughly 30 percent of the historical grade, all of this ore is located in the area of the historical Kensington Mine.
Multi-ounce gold intercepts at the neighboring Jualin Mine, however, is showing the potential to boost the current mine's average gold grades closer to the ore mined a century ago.
"During the third quarter of 2013, exploration drilling began on the Jualin area. Based on what was found, we will increase investment in the Jualin area, which has the potential to provide high-grade feed to the Kensington mill," explains Rasmussen.
Continuing to tap high-grade gold during 2014 has prompted Coeur to further reward Kensington, boosting the mine's 2014 exploration budget to roughly US$9.1 million, a nearly US$3 million infusion into an already robust budget.
"Bumpy start-up"
Coeur began commercial production at the contemporary Kensington Mine in July 2010. The operation, however, hit several snags in the early days.
"It was a very bumpy start-up," summarized Coeur COO Frank Hanagarne, Jr. during Coeur's Oct. 6 Investor Day presentation in New York City.
As a result of this jostling start, the underground operation only produced 88,420 ounces of gold at cash operating costs of US$1,088 per ounce during 2011, well off the 125,000-ounce-per-year gold mine imagined.
Dissatisfied with this performance, Coeur decided to invest the time and money needed to improve the mine's production profile and to position the operation to deliver sustainable and consistent performance over the longer term.
To complete the needed work, the rate of production at Kensington was reduced by 50 percent at the beginning of 2012 and gradually scaled up to full capacity as the year progressed.
As a result of this retooling of the underground operation during 2012, Kensington produced 114,821 ounces at a cost of about US$950 per ounce during 2013. Through the first half of 2014, the Southeast Alaska mine has operated at similar performance levels, producing 53,517 ounces of gold at about US$1,000 per ounce.
The mill grade during the first six months of this year ran about 0.18 oz/t gold, an average that Coeur is endeavoring to increase.
With the mill consistently running at above nameplate capacity, Coeur's best option for upping gold output and lowering the per-ounce gold costs at Kensington is to find higher grade ore.
"If we were to increase our grade by 10 percent, to say 0.2 (ounces per ton gold), that would result in about a US$100 per ounce decrease in our cash costs," explains Terry Smith, vice president, North American operations, Coeur Mining.
To that end, over the past couple of years Coeur's exploration team has been seeking and finding high-grade zones at Kensington.
"Grade is all that I am focused on at Kensington. As they are limited to tons per day, all that we can do to improve economics is increase grade," Rasmussen explained at Coeur's Investor Day.
This focus on finding higher grade feedstock for the mill is already beginning to pay dividends. Despite an 11 percent drop in tonnage milled, Kensington produced 30,773 ounces of gold during the third quarter of this year. This roughly 10 percent increase in gold production is the result of mining higher grade ore at the main Kensington deposit and adjacent Raven deposit.
Geologists dream
As high-grade ore from the Raven deposit is bolstering the mill head-grades at Kensington, surface drilling at the neighboring Jualin Mine is outlining a zone that appears as if it will deliver even higher grades once fully delineated.
In early October, Coeur released the results from a number of holes that tapped grades topping 1 oz/t gold at the Jualin No. 4 Vein, including (at estimated true thickness):
10.2 feet grading 0.62 oz/t gold, including 2.5 feet averaging 1.36 oz/ton gold in hole JU13-011;
5.8 feet grading 1.61 oz/t gold in hole JU13-020
1.7 feet grading 7.3 oz/t gold in hole JU14-X012;
8.6 feet grading 5.54 oz/t gold in hole JU14-X015; and
7.9 feet grading 0.701 oz/t gold, including 0.9 feet averaging 3.2 oz/t gold in hole JU14-X029.
"This is a geologist's dream - it is actually real but it is a dream - to see these kinds of results in a consistent section like this," Rasmussen said of the drilling on the Jualin No. 4 Vein.
Though Jualin is a separate mine, the historical portal is actually positioned next to the mill and other surface facilities at Kensington.
Coeur said the No. 4 Vein remains open at depth and to the north towards Kensington, reaching within 300 feet (100 meters) beneath the Jualin portal. The company is wasting no time in transitioning this high-grade vein from a geologist's dream to a miner's dream.
"Operating consistency has improved at Kensington in the past two years, which has allowed us to increase our effort on exploration and long-term planning," explains Hanagarne. "The discovery at Jualin has the potential to significantly boost production grades, reduce unit costs, and increase free cash flow."
To realize this potential, Coeur has applied for permits to re-open Jualin to allow for underground drilling and development at the historical mine.
In addition to providing a better vantage to fully delineate Vein No. 4, underground development will allow drills to more economically reach Vein No. 5, another high-grade zone about 500 feet (150 meters) deeper.
Though Coeur has not finalized its 2015 budget for Kensington, management estimates it will invest roughly US$10 million in further development at the Southeast Alaska operation, most of which will be allocated to Jualin.
Drilling in Vein 4 is expected to continue in 2015 and 2016 with initial production expected in 2017.
In the interim
As Coeur readies to re-open the historical Jualin Mine, drilling closer to the current mining area on the Kensington side looks to continue to increase grades in the interim.
Drilling at zones 10 and 20 of Kensington South has encountered high-grade gold immediately beneath current production areas and about 100 to 200 feet (30 to 60 meters) away from current mine development.
Highlights from drilling in this area include (estimated true thickness):
2.4 feet of 4.03 oz/t gold in hole KX13-069;
15.2 feet of 0.97 oz/t gold in KX13-071; and
4.1 feet of 3.416 oz/t gold in hole K14-1560-270-X05.
Coeur said grade and thickness of mineralization is improving at depth and to the southern portion of the ore body.
Zones 10 and 20 are expected to be further drilled and developed over the next year and bring additional high-grade production into the mine plan beginning in 2016.
Coeur expects to complete a new resource-reserve estimate for Kensington by year's end 2014 and anticipates releasing a new mine plan in early 2015.
The new mine plan is expected to reflect higher-grade production, lower unit costs, and higher cash flow over the life of the mine.
Ore sorting
Increasing the grade of the ore being fed into the mill is not the only means by which Coeur is endeavoring to bolster cash flow from Kensington. The company is also integrating ore sorting technology into the milling circuit.
Currently, about 15 percent of the material gets rejected as waste between the mill and flotation circuit. While this skimming off of low grade material allows for a higher grade feed to flotation, some higher grade chunks of ore also get sent to the waste pile.
The ore sorting technology that Coeur is testing at Kensington involves the use of XRT (x-ray transmission) technology to identify these high-grade pebbles that report to the tailings and separate them from the true waste material with a blast of high-grade air.
This technology is used in other types of mining and is being considered as part of a mine-plan at Ucore Rare Metals' Bokan Mountain rare earth project in Southeast Alaska. But it is not readily used in gold mining.
"Ore sorting is sort of a novel technology to the gold industry," said Coeur's Smith.
A pilot of the sorting technology completed at Kensington at the end of 2013 recovered 65 percent of the high-grade pebbles that would have been lost to the waste pile, while allowing 90 percent of the reject material to continue on to the waste pile. As a result, the sorter produced a pile of 0.3 oz/ton gold from the 0.04 oz/t waste material.
"Which is better than our mill head-grade," explained Smith.
Kensington already boasts gold recoveries in the range of 96 percent, the sorter will boost this to nearly 98 percent.
"I don't know of any other gold projects that can boast that kind of recovery. So, it is kind of a special thing we are doing at Kensington that will enhance our performance up there," touted the North American operations VP.
With the pilot project considered a success, Coeur ordered a full-scale ore sorter to add to the circuit, which is currently en route to Kensington.
Initially, this new technology will be operated independently of the mill by being fed stockpiled reject material, which can be fed back into the circuit. In 2016, however, the company hopes to fully integrate the new technology directly into the mine's recovery circuit.
Assuming a head grade of 0.2 oz/t ore and the mill operating at 2,000 tons per day, the ore sorting machine is expected to add roughly 7.8 ounces to the daily gold take at Kensington.
This 2,800 extra ounces of gold per year, which comes with almost zero added operations costs, would help pay for the more than 100,000 ounces of gold per year already produced at Kensington - another way Coeur is getting the most out of its gold mine in Southeast Alaska.
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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