NEVADA & THE WESTERN STATES — Partners make Rosebud bloom– Costs at underground mine proving to be low

Not every successful Nevada gold mine is a big, high-tonnage open pit. The Rosebud mine near Winnemucca, a joint venture of Hecla Mining (HL-N) and Newmont Mining (NEM-N), is seeing increased production and a solid operating profit despite the low gold price.

Rosebud, which started production in March 1997, may be a small underground mine by Nevada standards, but it poured a healthy 130,992 oz. gold and 556,580 oz. silver in 1998. More important, its cash production cost has remained low, at US$157 per oz., guaranteeing an operating profit in a year when gold prices fell to levels not seen since 1979. It was a tough year for non-hedgers among the gold companies: Hecla realized an average US$301 and Newmont an average US$310 per oz. produced in 1998, making cost control a vital issue.

Rosebud has a relatively high total production cost of US$274 per oz., reflecting the US$6.2-million capital expenditure incurred in 1997. Only US$118,316 was capitalized in 1998.

Both joint-venture partners “inherited” the project — Hecla, when it bought out Equinox Resources in 1994, and Newmont, in its merger with Santa Fe Pacific Gold in 1997. The two companies have a unique arrangement for operation of Rosebud, with Hecla operating the mine and shipping ore to Newmont’s Pinon mill.

The underground workings are accessible by two declines, and miners use a combination of overhand cut-and-fill and drift-and-fill mining methods. Pinon recovers 97% of the gold and 54% of the silver from the Rosebud ore. Rosebud’s good cost performance starts from the stopes, where mining costs were shaved to US$26.88 per ton in 1998, from US$28.33 in 1997. In the following year, millhead grade was 0.4 oz. gold and 3.06 oz. silver per ton.

Costs at the Pinon mill rose in 1998, to US$14.66 per ton from US$12.18 the year before. Part of the increase reflects lower millhead grades for gold: in 1997, Rosebud was mining high-grade areas that averaged almost half an ounce per ton.

Still, the mine’s operating costs came in at 17% below budget, partly on the strength of producing an average of 900 tons of ore per day in 1998, well ahead of its nominal rate of 750 tons. And the production came without any cost in safety: Rosebud workers lost no time to on-the-job injuries in 1998, and the mine has gone nearly two years without a lost-time injury.