Miramar, Hope Bay complete merger

Analytst and geologists look at the surface outcropping of the Hinge zone of Miramar Mining's Doris deposit, where a "starter" open pit is in the planning stages.Analytst and geologists look at the surface outcropping of the Hinge zone of Miramar Mining's Doris deposit, where a "starter" open pit is in the planning stages.

With the merger of Miramar Mining (MAE-T) and Hope Bay Gold now a done deal, the new Miramar is confident its 100% ownership of the Hope Bay project in Nunavut will provide the platform for growth.

The merger was designed to consolidate the companies’ 50-50 ownership of the Hope Bay project, 865 km north of Yellowknife and 170 km southwest of Cambridge Bay.

Shareholders of Hope Bay Gold overwhelmingly approved the amalgamation and received 0.263 of a Miramar share in exchange for each share held. Miramar issued 39.5 million shares to Hope Bay Gold shareholders and now sits with 105.6 million shares outstanding.

“The combination creates a larger, more liquid gold company with ongoing gold production and significant exploration upside from its assets in the Canadian north,” says Miramar President Anthony Walsh. Among those assets are the Con and Giant gold mines, near Yellowknife, N.W.T.

The Hope Bay project covers almost all of the 80-km-long Archean greenstone belt that extends south from the Arctic Ocean and ranges from 7 to 20 km wide. Last year’s discovery of the Naartok and Suluk deposits in the Madrid area of the belt helped boost property-wide mineral resources to 4.3 million in situ ounces, up 30% over estimates at the end of 2000.

The resource is spread roughly evenly between the Boston, Doris and Madrid deposits. Measured and indicated resources total 3.4 million tonnes grading 15.4 grams gold per tonne, equivalent to 1.7 million oz. An additional 2.6 million oz. of inferred resources are contained in 6.7 million tonnes grading 12.3 grams.

The Hope Bay belt comprises mafic metavolcanics (mainly metabasalts) and metasedimentary rocks that are bounded by Archean granite intrusions and gneisses. There are some felsics, favouring the western side of the belt. The package has been deformed during multiple events and is transected by north-south-striking shear zones that appear to exert significant control over mineralization.

Hope Bay Gold purchased the Hope Bay project from BHP Diamonds in late 1999 for US$18.5 million cash. BHP had spent $85 million on exploration and underground development at the property between 1991 and 1998, during which time it outlined an inferred resource of 4.3 million oz. in three separate areas of the belt: Boston, Doris and Madrid.

BHP decided to sell the project after it deemed gold a non-core asset and withdrew from the sector worldwide.

During its involvement at Hope Bay, BHP went underground on the Boston deposit to define the geometry and grade of the mineralization, and to get a better handle on mining conditions. The largest of the three main deposits, Boston is shear-hosted and occurs at the southern end of the belt, about 65 km south of tidewater. A decline was driven to a depth of 185 metres below surface, and 27,000 tonnes of bulk samples of the B2 and B3 vein zones were collected from three different levels.

A preliminary scoping study evaluated the economics of a 190,000-oz.-per-year underground mine at Boston. The study was based on a potential minable resource of 1.2 million oz. at an average grade of 13.8 grams and projected cash cost of US$162 per oz. However, this model failed to provide an adequate return on BHP’s capital estimate of US$219 million. The scoping work highlighted the need to discover additional ounces.

Miramar came on-board in December 1999 and gained a half-interest in the project by paying US$13.3 million to Hope Bay Gold and contributing $2.9 million to exploration.

In 2000, the joint venture spent $17 million on a 46,000-metre program of core drilling, designed primarily to confirm the higher-grade component of the Boston and Doris deposits.

Doris sits at the north end of the belt, just 3.5 km from tidewater, and consists of a series of lode-style quartz veins in a 3-km-long section of folded and metamorphosed pillow basalts. The area contains the highest grades in the belt. Like Boston, it is on an inferred inflexion in the regional Hope Bay break. The project’s updated resource figures following the 2000 drilling program totalled 3.2 million oz., somewhat lower than the 4.3 million oz. originally estimated by BHP. The 2000 resource estimate reflected more conservative measures, including tighter geological constraints, the capping of higher-grade assays, a higher cutoff grade, and the elimination of certain deeper drill holes with poor survey control.

Miramar and Hope Bay spent $15.4 million in 2001 continuing to explore the Hope Bay belt, completing 40,000 metres of core drilling and 6,000 metres of reverse-circulation work. The joint venture targeted the expansion potential at Boston South and Doris Connector, while making two new blind discoveries at the west and east ends of Madrid (Naartok and Suluk). The Madrid area, 10 km south of Doris, had received little work by 2000. It was considered a lower-priority target containing some 300,000 oz. of lower-grade resources related to iron-carbonate alteration in interbedded basalt, komatiitic volcanic flows, gabbros and black argillites.

The Naartok discovery was made in an area where one of the final holes from the 2000 exploration season returned 6.9 grams over 34.8 metres (true width), including 21.4 grams across 7.6 metres, in a previously unrecognized zone of gold mineralization west of the Madrid deposit. Thirty-eight holes at Naartok have defined an indicated resource of 230,000 oz. in 558,000 tonnes grading 12.8 grams, along with an inferred 312,000 tonnes grading 11.9 grams, or 120,000 oz.

Multi-phase

The Naartok mineralization occurs in a zone of multi-phase brecciation, quartz stockworking and silicification in the hangingwall of a zone of intense ductile deformation. Miramar believes it has traced the Deformation zone over a distance of 8 km based on a re-interpretation of previous data.

“This is an important new trend, which we believe drives mineralization in the area,” says Miramar Vice-President Stephen Quin.

The Naartok zone is defined by a broad zone of gold mineralization characterized by better-than-1-gram material over a strike length of 300 metres and a thickness of 10-30 metres. The zone contains three steeply dipping higher-grade lenses. Better mineralization appears to be localized in an area where the Deformation zone is flexed, providing a possible dilation zone for the passage of mineralizing fluids. Last year’s drilling defined a steeply plunging zone of intense silicification adjacent to the contact of the Deformation zone, with gold values running 15-25 grams over widths of 5-25 metres while extending 75-150 metres along strike and greater than 200 metres to depth.

With the discovery of the Naartok zone, the joint venture began stepping out on the Deformation zone. A second area of high-grade mineralization was subsequently discovered while drilling a large magnetic low in the Suluk area, 1 km southeast of Naartok. Wider-spaced drilling traced three parallel, steeply dipping mineralized lenses adjacent to the Deformation zone for 350 metres of strike. Suluk contains an inferred resource of 1.3 million tonnes grading 12.1 grams, equivalent to 508,000 oz.

Geology

Gold mineralization is associated with brecciated, silicified and sulphidized mafic-to-ultramafic volcanic rocks, with minor graphitic horizons. The best grades at Suluk seem to be where there is a combination of higher sulphides and intense pervasive silicification near the argillites. Quin says that while the Suluk mineralization is locally refractory and locally carbonaceous, it does yield acceptable overall recoveries.

Metallurgical tests on each of the other zones at Boston, Doris and Madrid show that gold recoveries in the range of 88-98% could be expected from a combination of gravity and cyanidation processing. Up to 40-45% of the gold in the Boston and Doris deposits could be recovered by gravity methods alone.

Quin believes there is still a good opportunity to find additional mineralization along the entire trend of the Deformation zone, which remains open to the south. At the end of 2001, the joint venture had increased th
e resource base of the project to 4.3 million oz.

During the latter part of 2001, the Hope Bay joint venture considered a couple of mining plans before opting to fast-track the project by developing a smaller-scale, stand-alone surface and underground operation on the near-surface, higher-grade Doris North zone. This proposal offered lower risk, lower capital costs and a rapid payback that could generate cash flow to fund continued exploration and development.

A scoping study calls for a small open pit followed by ramp access and underground room-and-pillar mining of most of the Doris resource. Mineralization at Doris consists of an anticlinal fold, dubbed the Hinge zone, and a generally narrow high-grade western limb (Central vein) plus a wider but moderate-grade eastern limb (Lakeshore vein).

Crusher

The ore would be delivered to a crusher set up beside the portal and then fed to a modular mill at the daily rate of 600 tonnes. The modular mill would be pre-constructed off site, brought in by barge and reassembled on-site. The mill would utilize conventional crushing and grinding, with an integrated gravity recovery circuit followed by flotation and cyanidation to produce 270,000 oz. over 2.1 years, based on a 97% recovery. The minable resource stands at 471,600 tonnes averaging 18.5 grams gold per tonne, including 9,000 tonnes of high-grade material stockpiled at the Boston deposit in the southern end of the belt. The open-pit component consists of 82,500 tonnes grading 12.1 grams; the underground portion, 380,100 tonnes at 19.9 grams.

The capital cost of this mine plan is estimated to be less than $27 million, with a projected cash cost of US$114 per oz. and a total cost of US$177 per oz. Assuming a gold price of US$280 per oz., the project offers an 85% rate of return and a payback period of 13 months, which falls to 12 months at a gold price of US$300 per oz.

Miramar says the next logical development is to target the Doris Connector and Doris Central zones. According to Quin, there is about 400,000 oz. in these areas. From there, operations could progress out to the large, partially developed 1.6-million-oz. resource at Boston, or into the more proximate gold deposits at Madrid containing a further 1.3 million oz.

Miramar is advancing Doris North through feasibility studies scheduled for completion by year-end. This spring, Miramar completed 140 drill holes in 11,213 metres on a closely spaced 10-by-12.5-metre grid pattern at Doris North. The program was designed to improve the understanding of the deposit, to allow for improved mine design, and to test for grade and structural continuity. Miramar says the results confirm the high-grade nature of Doris North.

In addition, Miramar completed 3,941 metres of exploration core drilling and 2,283 metres of reverse-circulation drilling on several new targets. Assay results are pending.

A preliminary project description has been filed with the Nunavut Impact Review Board and the Nunavut Water Board. Provided permits and financing are secured, startup could occur by late 2004.

Meanwhile, at the Con mine, Miramar temporarily suspended autoclave operations in mid-March after the roof of the building containing the autoclave’s oxygen plant collapsed. In the meantime, free-milling operations have continued, and refractory gold-bearing concentrates are being stockpiled until the autoclave resumes operation in late June. Despite the setback, which will affect second-quarter production, Miramar still expects to meet its 2002 production target of 130,000 oz.

Con mine

The Con mine has been in production since 1938; Giant started 10 years later. Miramar purchased the former mine in 1993, and it currently has a proven and probable reserve of 324,000 oz. contained in 860,000 tonnes grading 11.8 grams gold per tonne. Plans call for the mine to continue operations into 2003, when final reclamation would commence. The company is considering various options to extend the operational life of Con into 2004, provided it can be shown to generate positive cash flow.

Miramar acquired the Giant mine assets in December 1999 for a nominal sum after the mine’s former owners, Royal Oak Mines, went into receivership. Under the terms of a reclamation security agreement with the federal government, Miramar was released from all past environmental liabilities associated with the Giant mine. The company initially agreed to operate Giant as a satellite mine (to Con) for two years. With the original agreement set to expire, the federal government agreed to reimburse Miramar $300,000 per month for environmental compliance and holding costs, allowing for the extension of the Giant operations beyond 2001. Proven and probable reserves at Giant are estimated at 94,000 tonnes grading 11.96 grams, equal to just 36,000 oz.

The French Guiana gold assets of Hope Bay Gold were excluded from the Miramar merger and transferred to a newly formed company called Ariane Gold. Shares of Ariane will be distributed to former Hope Bay Gold shareholders, with a rights offering to follow. Earlier this year, Hope Bay Gold struck a deal to buy the Grupo Mexico subsidiary, Asarco Guyane Francaise, which owns the 2-million-oz. Camp Caiman gold project, for US$16.4 million due in instalments. Asarco’s French Guiana unit spent US$15.8 million on Camp Caiman, conducting extensive drilling, metallurgical testing, environmental monitoring, permitting and initial prefeasibility work.

A measured and indicated resource, using a 1-gram-per-tonne cutoff grade, stands at 18 million tonnes grading 3.3 grams, equivalent to 1.9 million contained ounces. Saprolite material accounts for 723,700 oz., with the remainder held in hard-rock or sulphide material. Ariane intends to spend US$3 million on drilling in order to delineate the oxide resource.

For the recent first quarter, Miramar produced 31,749 oz. at a cash cost of US$240 per oz., compared with 29,177 oz. at US$262 per oz. in the corresponding period of 2001.

The company earned $600,000 (or 1 per share) in the recent quarter, versus a $2-million loss (3 per share) a year earlier. Operating cash flow between th two periods rose to $2.5 million from $48,000.

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