The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
North of 60 Mining News - August 2, 2024
The first bar of gold poured from the Manh Choh mine represents a major milestone for Kinross Alaska and Contango ORE.
Drill rigs and supplies being transported to Johnson Tract, a high-quality gold project on the west side of Alaska's Cook Inlet.
Contango CEO Rick Van Nieuwenhuyse hefts the first 600 oz of gold poured from Manh Choh ore.
By shortening the period it takes to assess an permit direct shipping ore mines, Contango ORE is shortening the Valley of Death period of the Lassonde Curve closer to the two- to three-year span of the 1990s.
Kinross Gold CEO Paul Rollinson speaks to a crowd gathered to celebrate the first Manh Choh gold pour.
The pouring of the first bar of gold from the Manh Choh Mine was a momentous occasion for Contango ORE Inc., Kinross Gold Corp., Tetlin Village, and others involved in the development of Alaska's newest gold mine. Two unique business models that led to the early July gold pour, however, could be more valuable than the 600 ounces of gold in the bar or the 1 million oz that are expected to be poured from Manh Choh ore over the next 4.5 years.
The hidden value of the Manh Choh gold pour has multiple interrelated facets that center on one overriding concept – processing high-grade ore from multiple deposits through one central mill.
This concept provides a path to developing high-grade orebodies that have been long overlooked because they were not large enough to endure the financial costs and arduous permitting process associated with developing a full-blown mining operation.
With the mill at its Fort Knox mine north of Fairbanks, Alaska, nearing the end of its natural life due to dwindling reserves of ore with grades high enough to process, Kinross decided to look at some of the orphaned deposits within a 300-mile radius that could feed high-grade ore into the hungry mill.
This search led the senior gold producer to Manh Choh, a more than 1-million-oz gold project being advanced by Contango with gold grades an order of magnitude higher than what is available at Fort Knox.
Seeing a win-win situation, Kinross and Contango forged a joint venture in 2020 to develop a mine at Manh Choh and process the ore through the Kinross Alaska mill at Fort Knox.
In exchange for a 70% JV interest in Manh Choh, Kinross took the lead on permitting and mining and is now processing the Manh Choh ore through its mill.
In just four years after the JV was formed, the partners permitted and developed a mine at Manh Choh.
Based on current reserves, the Kinross Alaska mill at Fort Knox is expected to produce roughly 225,000 oz of gold annually from Manh Choh ore for the next 4.5 years.
Contango CEO Rick Van Nieuwenhuyse hefts the first 600 oz of gold poured from Manh Choh ore.
Contango's 30% share of this annual gold output would be 67,500 oz.
Now, Alaska's newest gold-producing company is incorporating the direct shipping ore strategy that is working so well at Manh Choh into a "hybrid royalty" business model that could quickly triple its gold production without the long wait, expense, and risks associated with permitting and developing a mine complete with a mill and associated infrastructure.
"Our five-year plan is to grow production from our existing projects to 200,000 ounces of annual gold-equivalent production," said Contango ORE President and CEO Rick Van Nieuwenhuyse.
Beyond transforming Contango into a company that functions much like a junior exploration company but has metals-derived cash flow similar to a royalty company, the wider implementation of this business model could change the junior and senior mining company paradigm and unlock the value of smaller but high-grade deposits much faster than gaining the government and social licenses needed to develop the enormous mines that have become the mainstay of today's mining industry.
"(B)y transporting our ore to existing and permitted operating processing facilities, we will reduce our environmental footprint and thereby lower our permitting risk, as well as lower the overall capital requirements to achieve commercial production," the Contango CEO added.
As a longtime executive who has founded and led multiple successful mineral exploration companies, Van Nieuwenhuyse knows how to find the large and high-quality mineral deposits global mining companies are looking for.
In fact, as the top executive of Novagold Resources Inc., he advanced the Donlin Gold discovery in Southwest Alaska to a 40-million-ounce gold deposit and brought Barrick Gold Corp. on as a 50-50 partner to permit, build, and operate a mine at this truly world-class gold deposit.
As a seasoned junior exploration company executive, however, Van Nieuwenhuyse also knows firsthand just how long it can take to reap the rewards of world-class exploration success – more than 30 years after Donlin Gold was discovered and nearly 20 years after Barrick forged a partnership with Novagold, the partners have yet to break ground on developing a mine there.
The often decades-long stretch between discovering a quality mineral project that has all the hallmarks of a successful mine and the moment that mine produces its first metal is known as the "Valley of Death."
Pierre Lassonde, an engineer who founded the successful gold royalty company Franco-Nevada during the 1980s and later served as president of Newmont, graphed out the life cycle of a junior exploration company during the 1990s.
In short, this graph known as the "Lassonde Curve" shows how a junior mining company's value rises quickly during the exciting days of discovering and expanding a promising mineral deposit, then falls during the boring days of mine design and permitting, and rises again when the mine is finally developed.
By shortening the period it takes to assess an permit direct shipping ore mines, Contango ORE is shortening the Valley of Death period of the Lassonde Curve closer to the two- to three-year span of the 1990s.
For most geology-driven junior mining companies, the Valley of Death between delineating an economically viable mineral deposit and breaking ground on a mine that will unlock the geological promise of the deposit is unbearable.
There are three typical outcomes for junior exploration companies that successfully advance their mineral project to a feasibility study, which marks the threshold to the Valley of Death:
• The lucky few get bought out by a senior mining company as they enter the Valley of Death, providing a healthy payday for shareholders and freeing the management team to look for the next big deposit.
• A partnership is forged with a senior mining company in hopes of a bigger payday when a mine is developed on the other side of the Valley of Death.
• The junior and/or project does not survive the perilous trek across the Valley of Death, a journey that has expanded from two to three years when the Lassonde Curve was first sketched to five to more than 15 years in the current environment of longer risk reduction and permitting timeframes.
Contango prefers to think of this Valley of Death as the Orphan Period, a time when many quality projects get adopted by a senior or left homeless because they do not fit within the stereotypical mine development model.
Valley of Death orphans provide the company with an opportunity to apply its hybrid royalty model to adopt high-quality projects that can be advanced quickly to production by shipping ore directly to existing mills, tailings facilities and other mine infrastructure.
"We believe this is a unique model and a right-fit for these continuing challenging capital markets for miners," said Van Nieuwenhuyse.
By directly shipping ore to an existing mill, Contango's hybrid royalty model substantially lowers the capital costs, environmental footprint, and permitting risks associated with developing a mine at high-quality deposits that are much higher grade than the industry average but may not have the size to support their own mill.
Lowering the financial, environmental, permitting, and engineering complexities that come with the development of a mill and tailings storage facility offers the added benefit of shortening the trek across the Valley of Death.
The Manh Choh mine offers a prime example. The permitting process for this operation took less than three years, and the time span between breaking ground and pouring the first bar of gold from this mine was less than a year.
As a result, Manh Choh crossed the Valey of Death in less than five years and was advanced from a completely greenfield discovery that had never been drilled to a 225,000-oz-per-year gold-producing mine in about 16 years.
Contango sees the potential to apply the same direct shipping ore model to other more advanced projects with deposits at the cusp of or orphaned in the Valley of Death.
The company has outlined a set of criteria for projects to fit within its model:
• Three metals – Gold, copper, and silver.
• Grade is king – The deposit must have high enough grade ore that it supports the cost of being shipped to an existing mill for processing.
• Available infrastructure – The orebody must be close enough to rail, road, or water transportation to keep shipping costs down.
• Simple permitting – The ability to permit the project quickly and efficiently is key to lowering risks and costs.
"The trick here is to get to cash flow with the least amount of headaches – the least amount of capital and the least amount of permitting," Van Nieuwenhuyse said during an April interview with Romeo Maione at 6ix Inc.
Now, Contango is looking to apply its hybrid royalty model to two more orphaned Alaska gold projects that have the potential to be directly shipping ore to already permitted mills in the next five years.
"With the Manh Choh project now in production, the Lucky Shot and Johnson Tract projects provide a solid portfolio for growing gold production using our unique direct ship ore model," said Van Nieuwenhuyse.
On the day after the first Manh Choh gold bar was poured, Contango closed a deal to adopt the 1-million-ounce Johnson Tract gold project in Southcentral Alaska through the acquisition of HighGold Mining Inc.
Under an agreement announced in May, Contango acquired HighGold in an all-shares deal valued at roughly $33.6 million (C$45.7 million), based on the price of each company's shares on the July 9 closing of the deal.
Over the four years leading up to the acquisition, HighGold had been building resources and exploring the wider potential of Johnson Tract, a long-overlooked polymetallic gold project on land owned by Cook Inlet Region Inc., an Alaska Native regional corporation more commonly known as CIRI.
Former HighGold Mining CEO Darwin Green says Contango is ideally suited to continue advancing JT toward development and exploring the wider Johnson Tract potential.
"Contango's management has a strong track record of achievement in Alaska, most recently with their near-production Manh Choh project, in partnership with Kinross, which was permitted and built in 2.5 years," he said. "With Contango's experience, financial capabilities, and projected robust cash flow we are confident in their ability to propel the Johnson Tract project forward."
For Contango, the 20,942-acre Johnson Tract property checks off all the boxes of its hybrid royalty model.
First, the JT Deposit at Johnson Tract hosts 3.49 million metric tons of indicated resource averaging 5.33 grams per metric ton (598,000 ounces) gold, 6 g/t (673,000 oz) silver, 5.21% (400.8 million pounds) zinc, 0.59% (43.1 million lb) copper, and 0.67% (51.5 million lb) lead.
When you add up the value of all the metals, this comes to 9.4 g/t (1 million oz) gold-equivalent.
In addition to grades that fit within Contango's model, the deposit is located alongside Alaska's Cook Inlet, which means the project benefits from the lowest cost of transportation for direct shipping ore to a third-party mill.
Drill rigs and supplies being transported to Johnson Tract, a high-quality gold project on the west side of Alaska's Cook Inlet.
The geometry and other characteristics of JT Deposit also check off the simplified permitting box and add the bonus of potential lower-cost mining.
The plan is to mine the JT deposit from underground, which inherently lowers the environmental footprint when compared to open-pit mines.
The lower-cost mining advantage comes from the fact that the deposit is inside a mountain above a valley floor. This means that gravity can be leveraged to lower the energy and costs of mining and transporting direct shipping ore from a future mine to the valley below.
Prior to the buyout by Contango, HighGold had advanced JT Deposit to the point where the development of an underground exploration ramp to complete the drilling needed to establish reserves to support a mine plan is necessary.
Contango recently began a drill program to upgrade additional resource, collect samples for more detailed metallurgical testing, and gather geotechnical and hydrologic data to develop a roughly 1-mile-long tunnel to the bottom of the currently outlined JT Deposit.
The tunnel will serves a platform for the underground drilling needed to complete a feasibility study for a mine at JT.
"Contango now has a solid set of assets to become a significant Alaska gold producing company," Van Nieuwenhuyse said upon the July 9 closing of the HighGold acquisition.
Contango's solid set of assets includes the high-grade Lucky Shot gold project in Southcentral Alaska, which the company believes could be a second gold producer and cash flow generator for the company in two or three years.
Located 112 road miles north of Anchorage, Lucky Shot encompasses three pre-World War II era underground mines – Colman, Lucky Shot, and War Baby – that produced gold from a high-grade vein system that extends for at least 1.5 miles across the property.
It is estimated that from 1922 until being shut down by the federal War Production Board in 1942, Lucky Shot produced 252,000 oz of gold from 169,000 tons of ore averaging around 40 g/t (1.6 oz per metric ton) gold. Additional gold was produced from the Colman and War Baby mines.
Since acquiring the project in 2021, Contango has been working toward establishing a resource that would support a high-grade direct shipping ore gold mine at Lucky Shot. This includes the rehabilitation and extension of the historical Enserch tunnel, which served as a platform for a 29-hole drill program the company carried out at the project in 2022.
According to a 2023 calculation, Lucky Shot hosts 226,963 metric tons of indicated resource averaging 14.5 g/t (105,620 oz) gold and 82,058 metric tons of inferred resource averaging 9.5 g/t (25,110 oz) gold.
The next step at Lucky Shot is to carry out close-spaced underground drilling focused on expanding the high-grade Luck Shot Vein to around 400,000 oz of gold in preparation for developing a mine that is expected to produce around 40,000 oz of gold per year.
"It will be modest, but it will make money and I think that is the point," Van Nieuwenhuyse said during his interview with 6ix.
The point is that this moneymaker can flow cash to Contango in the next two to three years instead of bleeding capital and dehydrating shareholder values while carrying a world-class mining project through the Valley of Death.
"I don't want to do that again," Van Nieuwenhuyse said of his experience with Donlin Gold, a 40-million-oz gold project that remains in the Valley of Death 11 years after he left Novagold.
Kinross Gold CEO Paul Rollinson speaks to a crowd gathered to celebrate the first Manh Choh gold pour.
Contango's hybrid royalty model hinges on the availability of an existing mill to process direct shipping ore.
In Alaska, Kinross was willing to process third-party ore and is still actively seeking feed for its hungry mill at the Fort Knox Mine.
In 2020, the major gold mining company introduced its Kinross Alaska strategy, which is an active search for high-grade gold deposits within a 300-mile "economic radius" that could deliver ore to the underutilized 14-million-metric-ton-per-year mill at Fort Knox.
This Kinross Alaska strategy is what led the company to enter into a JV with Contango, which culminated in gold being poured from Manh Choh from directly shipped ore.
"To be here today is very special – it really means that Manh Choh is an integral part of the Kinross Alaska operation," Kinross Gold President and CEO Paul Rollinson said during a ceremony commemorating the first Manh Choh gold pour.
When combined with gold recovered from the lower-grade ore mined and stacked on heap leach pads, the Manh Choh ore being processed through the Kinross Alaska is expected to boost Fort Knox's gold output to more than 400,000 oz of gold per year through 2029.
Rollinson indicated that Kinross Alaska would like to continue operations long after the initial Manh Choh reserves are processed.
"We are an international company and work in many different countries, and I can honestly say Alaska is a world-class mining jurisdiction," he said.
This means the company is looking for the next source of direct shipping ore to feed into its Kinross Alaska mill.
Rollinson laid a subtle hint that some of that ore may come from Lucky Shot or other Contango projects.
"Hopefully, this is just the beginning of lots more that we can do together," Rollinson said to Van Nieuwenhuyse during the Manh Choh gold pour celebration.
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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