Industry signals reversal in down-cycle

As the Alaska mining industry prepares for and kicks off exploration, development and production activities for 2017, the question on everyone’s lips at the recent Cordilleran Roundup mining convention in Vancouver, B. C., was the same: “Have we seen the bottom of this down cycle?”

While signs of life were seen for short periods during the 2008 to 2015 period, the reality was an overall downward spiral of commodities prices and global demand. However, in a recent edition of Casey Research’s “International Speculator”, Research Analyst Laurynas Vegys painted a very encouraging picture, starting in 2016.

As quarterly production figures from places like Red Dog clearly indicate, commodities prices have been on the rise for nearly a year, with varying degrees of price appreciation for gold, silver, copper, lead, zinc, aluminum, iron, nickel and tin.

Taken in total for 2016, commodities prices broke a six-year downward spiral, recovering an impressive 28 percent since the beginning of 2015. Much of this price appreciation can be attributed to a stabilization of the Chinese economy, combined with rising interest rates, a weaker U.S. dollar and real growth in economies in Europe, Southeast Asia and Africa. Unfortunately, this all sounds like the schoolteacher talking in a Charlie Brown cartoon until it is put into context with something tangible, if not measurable.

For me, it was the fact that technical representatives from mid-tier and major producers made no attempt to hide their presence or interest in acquiring new projects of merit at the recent Cordilleran Roundup convention. Representatives of these companies normally stealth in and out of such conventions and then follow up on things they clandestinely found interesting. Not so at this year’s Cordilleran Roundup. Virtually without exception, producing companies openly and aggressively vetted projects, including those in Alaska, and invited property owners to “show me the beef.”

So, although predicting the future, using statistics from the past, is an exercise fraught with danger, real-time evidence tells me that once again, the game is afoot!

WESTERN ALASKA

Teck Resources Ltd. and partner NANA Regional Corp. reported fourth quarter and year-end 2016 results from operation of the Red Dog Mine in Northwest Alaska. Zinc production rose 7 percent in the fourth quarter compared with 2015 production. This was partially offset by lower grades and recoveries. Lead production, meanwhile, declined by 4 percent, primarily due to lower lead grades. In the fourth quarter, Red Dog produced 124,700 metric tons of zinc in concentrate and for the entire year, 583,000 metric tons of zinc in concentrate. Zinc ore grades improved slightly for the year, climbing to 17.2 percent, while mill recoveries held steady at 84.7 percent. The mine also produced 35,300 metric tons of lead in concentrate during the final three months of the year and 122,300 metric tons of lead in concentrate for all of 2016. The lead ore grade for the year increased slightly to 4.9 percent, while mill recoveries decreased to 56 percent. Operating costs at the mine also decreased by US$5 million in 2016 as a result of lower diesel costs and lower expendable supplies costs. Gross operating profit for the fourth quarter totaled US$288 million, compared with US$149 million in 2015. Gross operating profit for 2016 also rose to US$668 million, compared with US$537 million a year earlier. Mill throughput for 2016 jumped slightly to 4.25 million metric tons due, in part, to an extended annual mill maintenance shutdown that adversely affected production in 2015. Red Dog paid royalties in 2016 of US$282 million, up sharply from US$178 million in a comparable outlay in the year-previous period. The mine’s production of contained metal in 2017 is expected to range from 545,000 to 565,000 metric tons of zinc and 110,000 to 115,000 metric tons of lead. From 2018 to 2020, annual production at Red Dog is expected to range from 500,000 to 525,000 metric tons of zinc and 85,000 to 115000 metric tons of lead.

Graphite One Resources released the results of its preliminary economic assessment for its Graphite Creek project on the Seward Peninsula. The PEA indicated planned operations would have a pre-tax net present value of US$1.037 billion using a 10 percent discount rate, with an internal rate of return on capital of 27 percent. On a post-tax basis, the NPV is projected at US$616 million using a 10 percent discount rate, with an IRR of 22 percent. Annual production of coated spherical graphite and other graphite specialty materials from the deposit is projected to total 55,350 metric tons when full production is achieved in year 6. At full production rates, Graphite Creek has a minimum of 40 years of indicated and inferred resources, grading 7 percent carbon as graphite already outlined. Payback on investment would be four years at a mining rate of 1 million metric tons per year, grading 7 percent carbon as graphite. As might be expected, changes in the market price of graphite had the largest impact on operational economics. Following immediately on the heels of the PEA came the announcement that Graphite One had entered into a memorandum of understanding with the Alaska Industrial Development and Export Authority to explore opportunities to collaborate on the development of the project. The primary areas of focus to be examined include: exploration of opportunities to maximize job creation and economic development via the project; facilitation of project permitting and development of a framework for community and stakeholder dialogue; and exploration of options and opportunities for AIDEA to participate in infrastructure funding of project facilities related to the project. AIDEA has provided the company with a list of potential sites in Alaska to evaluate whether they might satisfy some or all of the relevant development and operating criteria.

Northern Dynasty Minerals Ltd. and its Pebble copper-molybdenum-gold project made news again this month, primarily in refuting potentially damaging information disseminated by Kerrisdale Capital Management LLC, an entity which made a series of apparently inaccurate statements regarding the project and the company. Behind the scenes, Northern Dynasty’s public shares have outperformed the broader base metals market since the November election of President Donald Trump. At the same time, Kerrisdale apparently holds or has held short positions in Northern Dynasty’s shares, positions which benefit Kerrisdale if the price of Northern Dynasty’s stock declines. As Northern Dynasty pointed out, “short selling” is the practice of selling borrowed shares and subsequently repurchasing them. In the event of an interim price decline, the short seller will profit, since the cost of repurchase will be less than the proceeds received upon the initial short sale. If you think this is a bit murky, read Northern Dynasty’s news release of Feb. 17, 2017, then look into the diabolically clever mechanism of short sales, and things will look clearer. While these developments were taking place, the U.S. House Committee on Science, Space and Technology called on the new Administrator of the U. S. Environmental Protection Agency to rescind the federal agency’s 2014 regulatory action under Section 404(c) of the Clean Water Act to pre-emptively veto the Pebble project. Stay tuned!

Novagold Resources Inc. released its year-end financial results and project update for its flagship Donlin gold project, owned 50 percent with Barrick Gold Corp. Major milestones for 2016 include material advancement of the permitting and technical work at the project, including completion of a six-month public comment period on the draft EIS completed by the U. S. Army Corps of Engineers, completion of public working sessions attended by all cooperating agencies to address comments on key topics and how to address them in the final EIS, which is expected to be completed in early 2018. Other permitting applications and submissions have been concurrently advanced with state and federal agencies. The partners also continue optimization efforts designed to enhance the value of the project and reduce initial capital expenditures. The partners anticipate spending $20 million in 2017 to advance the project.

Redstar Gold Corp. reported 2017 exploration plans for its Unga gold project near Sand Point. Plans include an initial 5,000 meters of diamond drilling during the spring program focused on step-out drill holes to the southwest of the Shumagin zone. Previous work at Shumagin indicates that high-grade gold-silver mineralization occurs along roughly 950 meters of tested strike length to a vertical depth of at least 330 meters. Follow-up drilling is planned in 2017 at Shumagin and other targets, based on spring drilling results. The company also plans to conduct a series of ground-based geophysical orientation surveys. Follow-up geophysical work is planned, pending evaluation of the most effective tool for targeting additional blind, structurally-controlled gold-bearing breccia bodies localized along structures to the southwest towards Orange Mountain. The company is also planning to conduct a preliminary metallurgical assessment of gold-silver mineralization hosted in the Shumagin zone. The metallurgical testing will include bulk mineral analysis, coarse gold particle studies, grind calibrations, gravity concentration testing, cyanide leach performance testing and flotation tests.

INTERIOR ALASKA

Kinross Gold Corp. reported fourth quarter and year-end 2016 results from its Fort Knox Mine near Fairbanks. The mine produced 409,844 ounces of gold at a cost of $741 per ounce in 2016 versus 401,553 oz gold at a cost of $629 per ounce a year earlier. During the fourth quarter of last years, the mill processed 3,235,000 metric tons of ore grading 0.79 grams per metric ton gold. Mill recoveries averaged 83 percent for the quarter. During the fourth quarter, the mine placed 7,226,000 metric tons of ore grading 0.28 g/t gold on the valley leach facility. The mine reported record production from the heap leach, along with higher grades for both mill and heap leach ore during the fourth quarter. The mine also announced year-end revised resource estimates, including proven and probable reserves of 104,689,000 metric tons, grading 0.40 g/t gold (1,506,000 oz). Measured and indicated resources at the mine total 95,024,000 metric tons grading 0.50 g/t gold (1,440,000 oz). The inferred mineral resource equaled 13,036,000 metric tons grading 0.50 g/t gold (193,000 oz). The company indicated the exploration drilling of the East and South Wall of the existing pit returned positive results and anticipation of additions to the inferred resource during 2017.

International Tower Hill Mines said it approved a US$6.3 million 2017 budget for its flagship Livengood gold project. The company also indicated that it completed a US$14.7 million acquisition of certain mining claims and related rights in the vicinity of the deposit. The 2017 work program is designed to follow up on improvements announced with the Oct. 24, 2016 prefeasibility study. Efforts will focus on improving the mineralization and alteration models used to support the resource block model; evaluating alternative block models for production schedule opportunities; and completing several phases of metallurgical work to better define and optimize the flowsheet and recovery parameters. The 2017 work program has been specifically designed to target those aspects of the project that could deliver the highest net present value increase for the least expenditure. And last but not least, the company reported that it has appointed Karl Hanneman as its chief executive officer.

ALASKA RANGE

Miranda Gold Corp. reported that its joint venture partner and operator Gold Torrent Inc. has secured financing to put the Lucky Shot gold project into production with an intended startup date of December 2018. At a 5 g/t gold cutoff, measured and indicated mineral resources at the project stand at 121,500 oz of gold contained in 206,500 metric tons grading an average of 18.3 g/t gold. An additional 35,150 oz of gold contained in 59,000 metric tons that averaged 18.5 g/t gold is classified as inferred mineral resources. Last summer’s preliminary feasibility study laid out a mine plan and cost estimate with annual gold production of about 25,000 oz of gold per year at an underground mining rate of 200 metric tons per day. The plan includes 87,612 oz of gold contained in 174,500 metric tons at a grade of 15.6 g/t gold in the proven and probable reserve categories. Historic milling achieved 89 percent gold recovery with gravity processing alone, and recent metallurgical work shows gravity-only milling should be sufficient for acceptable gold recoveries. All-in sustaining costs are estimated at US$675 per ounce. Gold on the Lucky Shot project is found in low-sulfide, mesothermal quartz veins within an east-west, shallow, north-dipping, shear zone. Historical records, geologic evidence, and recent drilling indicate that quartz veins plunge at about 30 degrees to depth. An exploration drift below the level of historic mining cuts the vein and indicates open extensions of mineralization to depth. Recent exploration suggests the vein system at Lucky Shot may extend over 2.5 kilometers, or about 1.5 miles to the southeast where the Bullion Mountain Mine attained historic production of 77,000 oz of gold.

SOUTHEAST ALASKA

Hecla Mining Company announced yearend 2016 production results from the Greens Creek Mine on Admiralty Island. Total cash cost per ounce of silver produced for the year dipped to US$3.84 per ounce, down from US$3.91/oz in 2015. The average grade of ore mined during the year was 14.55 oz/ton silver, up significantly from the average grade one year earlier of 13.50 oz/t. In 2016, the mine produced a record 9,253,543 oz silver, 53,912 oz gold, 20,596 short tons of lead and 57,729 short tons of zinc. Greens Creek’s 2016 silver output was the highest annual production achieved since Hecla acquired 100 percent ownership of the mine in 2008. The mill operated at an average of 2,229 tpd in 2016. The mine is forecasting 2017 production of 7.4 million to 8 million oz silver and 54,000 to 60,000 oz gold at a cash cost of $2.50/oz silver-equivalent. On the exploration front, Hecla had a stellar year, reporting gold and silver reserves remained basically unchanged over year-end 2015 levels, despite milling 815,637 tons of ore containing 11.9 million oz silver and 79,150 oz gold. Reserves increased for the 9A and NWW zones where roughly 8.3 million oz silver and 46,500 oz gold were added. Measured and indicated resources increased with additions in the 9A, NWW, SW, Gallagher zones, and the newly established Upper Plate resource. Inferred resources decreased by about 5 percent for silver and gold overall due to conversion to reserves and indicated resources from the NWW Zone. All other zones, except 200 South, showed increases in inferred gold and silver resources. Exploration drilling was concentrated on the Gallagher Zone and the Mine Syncline, a new exploration target area where the mine contact has been identified. Drilling of the southern extension of the NWW Zone continues to define mineralization along both the limbs and nose of the fold. Mineralization is represented by multiple distinct bands of massive sulfide mineralization in proximity to the mine contact. Assay results include 45.4 oz/t silver, 0.20 oz/t gold, 19.0 percent zinc, and 10.3 percent lead over 18.6 feet and 51.7 oz/t silver, 0.20 oz /t gold, 11.2 percent zinc, and 4.8 percent lead over 10.0 feet. Drilling also targeted the Upper Southwest Zone (USW) around previously mined levels and identified mineralization that extends down to the upper limb of the NWW. Assay results of the USW include 46.8 oz /t silver, 0.03 oz /t gold, 10.9 percent zinc, and 6.1 percent lead over 10.2 feet. The company also reported year-end 2016 reserves and resources for the mine, including proven and probable reserves of 7.594 million short tons grading 11.7 oz /t silver, 0.09 oz /t gold per ton, 2.9 percent lead and 7.6 percent zinc. In addition, the mine contains measured and indicated resources of 1,785,000 tons of indicated resources, grading 10.8 oz /t silver, 0.09 oz /t gold, 3.1 percent lead and 7.8 percent zinc. The mine also reported inferred resources of 3,397,000 tons, grading 11.9 oz /t silver, 0.08 oz of gold, 2.9 percent lead and 7.2 percent zinc. If you add up the silver in all resource categories, the mine is carrying over 148 million oz of silver in resource.

Coeur Mining, Inc. announced updated fourth-quarter and year-end 2016 production results from its Kensington gold mine near Juneau. Fourth-quarter production climbed to 33,688 oz gold, up significantly from the 26,459 oz gold produced in the year-previous period. During the fourth quarter, the mine processed 163,410 tons of ore grading 0.22 oz /t gold. Gold recovery averaged 94.4 percent. Average cash costs for the quarter totaled US$801 per oz. For 2016, production totaled 124,331 oz gold, down slightly from 126,266 oz gold produced during the same period a year ago. For 2016, the mine processed 620,209 tons of ore, grading 0.21 oz/t gold. Average recovery was 94.7 percent. Average cash costs for the year were US$790 per oz. The company indicated that accelerated 2017 surface and underground exploration would be focused at Kensington Main as well as at Jualin, Raven, and several new veins discovered through surface-sampling programs. Estimated 2017 total production from Kensington is 120,000 to 125,000 oz gold. The company also announced year-end resources and reserves at the mine, including proven and probable reserves at Kensington of 2,616,000 short tons grading 0.190 oz /t gold per ton (497,000 oz) and measured and indicated resources of 3,125,000 tons grading 0.279 oz /t gold per ton (871,000 oz ). Total inferred resources for Kensington are 1,579,000 tons grading 0.276 oz /t gold (436,000 oz).

Constantine Metal Resources Ltd. reported that Dowa Metals & Mining Co. Ltd., its partner at the Palmer volcanogenic massive sulfide project, has completed its US$22 million earn-in and has exercised its option to participate as a joint venture partner on the project. Constantine will own 51 percent participating interest and Dowa 49 percent participating interest in the newly formed joint venture. Some US$2 million in unspent funds will form the starting cash balance of the joint venture. Current resource estimates at the project include an inferred resource of 8.1 million metric tons grading 1.41 percent copper, 5.25 percent zinc, 0.32 g/t gold and 31.7 g/t silver.

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