Wheaton River advances Bellavista — Prefeasibility study foretells of low cash costs

Wheaton River Minerals (WRM-T) is making a name for itself by acquiring underdeveloped gold properties and breathing new life into them through canny management and the introduction of low-cost heap-leaching technology.

Wheaton, which successfully reopened its Golden Bear gold mine in northwestern British Columbia last fall, has since focused its attention on the development of the Bellavista gold project in Costa Rica.

Bellavista is situated about 70 km west of the capital, San Jose, in a historic mining district within Costa Rica’s Central gold belt. The project site lies about 3 km northeast of the town of Miramar and 20 km north of the Pacific port city of Puntarenas.

Bellavista is close to the country’s major infrastructure, including the Inter-American Highway, the national power grid and a deep-water container port in the Gulf of Nicoya, Puerto Caldera.

Bellavista’s epithermal gold-silver mineralization is hosted by the Tilaran Group, which is a local expression of the more extensive Aguacate Group — a volcanic sequence of late Tertiary pyroclastic deposits with minor interbedded andesitic lava flows. The Aguacate Group, which stretches 120 km along the Pacific coast, hosts all of the Central gold belt’s mines.

The Tilaran volcanic sequence, which is over 600 metres thick at Bellavista, has been intensely faulted, hydrothermally altered and weathered. Its extensive hydrothermal alteration is due in part to the emplacement of the Guacimal pluton, which is intermediate to felsic in composition.

Over a portion of the Bellavista property, the Aguacate and Guacimal rocks are overlain by the Monteverde formation, which is composed of andesitic-basaltic lava flows interbedded with volcanic debris flows.

Structurally, the property is dominated by faults, the most significant being the Liz fault, which strikes roughly north-south and dips 82 east.

Gold is concentrated immediately east of the Liz fault, in a 300-metre-wide zone of near-vertical quartz veins, veinlets and stockworks. Significant gold mineralization occurs in the Bellavista and nearby Montezuma deposits, both of which have been exploited on a small scale since the late 19th century.

Mineralization at Bellavista consists of quartz-adularia, gold and silver (in a 2-to-1 ratio as electrum) with minor pyrite, galena, sphalerite, native copper and chalcopyrite.

Last October, Wheaton bought a full interest in the Bellavista project from Minera Rayrock (MRN-T) at a fire-sale price: 2 million special warrants convertible into Wheaton treasury shares, 2 million share purchase warrants exercisable at $1 each for five years, $100,000 cash and a commitment to pay a further $1 million upon commercial production.

In March 1996, Rayrock completed a feasibility study — using a gold price of US$400 per oz. — for a combined open-pit and underground gold-silver mine that would produce up to 80,000 oz. gold annually.

That study, prepared by consulting firm Fluor Daniel, was based on US$14-million worth of reverse-circulation (RC) drilling, bulk sampling, metallurgical testwork and engineering studies. As well, Rayrock had spent about US$1 million acquiring surface land rights.

Rayrock had envisioned building a grinding facility at Bellavista from which a slurry would be transported via pipeline to a processing facility southeast of Miramar. However, the project had such high capital costs that the rate of return was too marginal to be accepted by the Costa Rican authorities. As well, Rayrock’s Environmental Impact Assessment (EIA) was rejected twice by the National Technical Secretariat for the Environment (SETENA), the technical branch of Costa Rica’s Ministry for the Environment and Energy (MINAE).

Frustrated after years of work, Rayrock took a US$14.1 million writeoff on the property in early 1997 and then optioned it to Wheaton in April of that year.

Wheaton controls a 40-sq.-km project area in Costa Rica comprising 9 sq. km of exploitation concessions that have been granted in perpetuity, and 31 sq.

km of exploration concessions and applications for concessions.

In addition, Wheaton holds the surface rights to 952 ha, including the land needed for the proposed open-pit, heap-leach pad, waste dump, recovery plant, crushing plant, mill, warehouses, shops and offices.

Wheaton recently completed a prefeasibility study at Bellavista that strongly indicates a profitable open-pit and underground gold mine can be developed at the site using heap-leach technology.

“This is something we can build a company on,” said Wheaton Chairman Ian McDonald during a recent analysts’ tour of the project.

Proven and probable reserves exploitable by open-pit methods stand at 9.59 million tonnes grading 1.66 grams gold per tonne, for 511,848 contained ounces. This figure includes 1.1 million tonnes of shallow oxide ore grading 1.85 grams gold. The stripping ratio is pegged at 1.28 to 1.

Wheaton’s diluted estimate of the resources exploitable by underground methods is 1.6 million tonnes grading 4.37 grams gold per tonne, for 225,000 contained ounces. The study indicates that the company could mine the underground deposit, using mechanized long-hole sublevel stoping methods, at an annual mining rate of 300,000 tonnes.

The reserve and resource estimates were based on Minera’s 221 RC holes (33,015 metres), 3 diamond-drill holes (665 metres), 542 bulk samples (923 metres) and 16 confirmation holes.

Wheaton’s prefeasibility study was prepared by Mansfield, Conn.-based Bikerman Engineering and Technology Associates, whose president, David Bikerman, previously served as vice-president of engineering for Greenstone Resources. Other contributors were Golder Associates (for heap-leach pad stability and design) and McClelland Laboratories (metallurgy and processing).

The study examines two production scenarios: mining only the open-pit reserves (base case) and a combination of open-pit and underground production (case II).

The base case could produce 386,500 oz. gold over a 7.5-year mine life, while case II could produce 558,000 oz. gold over an 8.7-year mine life.

David Bikerman noted that while Wheaton’s pit design is significantly smaller that Rayrock’s original plan, Wheaton does not intend to extend the pit into a zone of primary growth forest, as Rayrock had envisioned.

“Wheaton will not encounter any environmental opposition using this pit design,” said Bikerman.

Added Dunham Craig, Wheaton’s vice-president of exploration and corporate development, “We’ll be leaving a bit of gold in the walls, but if gold goes up in price, we can push back the walls and add two to three years of extra production.”

Wheaton has divided Bellavista’s ore into three types, each with its own recovery rate: near-surface oxide ore with a 70% recovery rate; low-grade ore (less than 1.75 grams gold) with a 67% recovery rate; and high-grade ore with an 82% recovery rate. The overall silver recovery rate is estimated at 40%.

Wheaton’s intention is to crush the low-grade ore to 80% passing 6 mm and then blend it with high-grade ore milled to 80% passing 0.21 mm.

During the first year of operation, the pit will provide oxide ore to a one-stage crushing plant which will produce a product passing 100 mm. After the first year, all ore will be crushed to 80% passing 6 mm through a three-stage crushing facility.

The crushed and milled ore will be agglomerated with both lime and cement before being stacked on the heap leach pads.

The plan is for a 120-day leach cycle and then gold recovery at a carbon adsorption-desorption recovery facility, for an overall, conservatively estimated 75% recovery rate.

While the design of the pads still needs to be optimized, Golder found stability to be best with the pads at a higher elevation than the waste dump, which will be at the same elevation as the mill, and 1 km from the pit.

With a pre-production capital investment of US$16.6 million, construction of initial site facilities could be completed during 2000 and startup could occur as early as January 2001.

Another US$5.1 million would be required for the final crus
hing and grinding circuits, scheduled for startup in January 2002.

In case II, the underground operations are scheduled for start-up in 2004, following a capital expenditure of US$11.3 million in 2003.

Initial working capital is estimated to be US$2.2 million for the base case, with an additional US$538,000 in 2004 for case II.

The base case has the following pre-tax cash flow results: an internal rate of return (IRR) of 29%; a net present value (NPV) of US$27.9 million, discounted at a 5% rate; a total cash cost of US$181 per oz. gold; a total production cost of US$239 per oz. gold; and a payback period of 3.4 years.

For case II, the scenario is as follows: 28.2% IRR, US$41.6 million NPV; US$168 per oz. total cash cost; US$231 per oz. total production cost; and a 4.3-year payback.

These figures were generated using a gold price of US$350 per oz., although the project still shows profitability at US$280 per oz.

The property is subject to four royalties; three are net profit interests and the fourth is a fixed annual amount. Over the life of the mine, these royalties are projected to total US$6.7 million for the base case and US$9.5 million for case II.

The total capital cost (including administration and working capital) for the base case is estimated at US$25.7 million; for case II, the total capital cost is estimated at US$39.2 million. Included in the projected development costs are required improvements to infrastructure, including a new bridge and upgraded roads.

As part of a US$2.2-million feasibility study, Wheaton will begin a US$1-million, 7,600-metre underground diamond-drilling program in June aimed at upgrading underground resources into the reserve category.

Already, Wheaton has driven a 220-metre adit northwards towards the underground resource and has cut out drill stations on 25-metre spacings.

The first 4,000 metres will serve to confirm the resources and the remaining 3,600 will be geared to-pwards infilling and gathering geotechnical data.

Of particular interest is the northernmost surface hole, which graded about 2 grams gold over 200 metres. Craig said that while the hole could not be included in the resource estimate, “it does show that the mineralizing system to the north is large and powerful.”

Funding for the feasibility study will come from Wheaton’s cash flow from Golden Bear, which will exceed $3 million this year. The company also has a cash position of $8 million.

Wheaton hopes to be finished drilling by October, with both the final feasibility study and the EIA to be submitted by Jan. 1, 1999.

Once the new year begins, Wheaton has scheduled a relatively quiet 11 months that will be devoted to project discussions and reviews. Ideally, Wheaton hopes it can jump its last bureaucratic hurdle, an environmental approval, by December 1999 — the onset of the region’s dry season, and thus, an ideal time to begin pre-stripping the deposit.

While Wheaton’s focus this year will be on the Bellavista feasibility study, its land position includes several grassroots exploration targets that may be explored in coming years. One lies south of the Bellavista deposit in the old Montezuma mine, where mineralization has yet to be tested at depth, while other targets exist along a structural trend that extends northwards from Bellavista for about 4.5 km.

Though Wheaton effectively owns 100% of the Bellavista project, the ownership structure remains complex in order to take advantage of tax and ownership benefits, including potential free-zone status in Costa Rica.

Rayrock had negotiated a preliminary agreement with Zona Franca, the country’s free-zone authority, to allow its subsidiary, Metales Procesado (now indirectly owned 100% by Wheaton), to buy and process Bellavista ore, and then export gold under free-zone status.

Under that agreement, the deposit was to be mined by another subsidiary, Rio Minerales (also now held 100% by Wheaton), which does not have free-zone status, with the crushed ore being sold to Metales Procesado at a transfer price of 27.5% of the value of the metals recovered from the ore. Rio Minerales, which holds the Bellavista concessions and some surface rights, would operate the mine, waste-rock dumps and crushing facilities. All current project exploration, feasibility and permitting are carried out by Rio Minerales.

On the environmental front at Bellavista, citizens of the nearby town of Miramar have voiced the concern that developing Bellavista will cut off about 10% of the town’s water supply.

To compensate, Wheaton helped local authorities locate and develop new water sources that more than compensate for the loss from Bellavista.

“Mining companies have come to this area for 20 years and promised great things and nothing’s ever happened,” said Craig. “Wheaton’s not going to BS them anymore — they’ve had enough of it. I hate to say it, but a lot of Canadians have done a hit-and-run in Central America. We want to make them forget the heartache.”

Miramar, a poor town with a population of about 5,000, stands to gain from future employment opportunities at the mine, which will require about 160 employees.

Raymond Gagnon, Wheaton’s general manager at Golden Bear, is expected to play a large role in developing Bellavista, drawing on his experience training local First Nations members to work at Golden Bear and his work as general manager of Greenstone’s heap-leach gold mine in Panama.

Gagnon said Wheaton is committed to training locals with no prior mining experience for jobs at Bellavista, commenting that “some people say you can’t do it, but we’ve proven you can at Golden Bear. How do we do it? We just treat them as human beings.”

During the analysts’ tour, Wheaton hosted a breakfast meeting attended by Wheaton officers, SETENA’s Secretary Alan Astorgia, Costa Rica’s Mines and Geology Director Jose Francisco Castro, as well as a group of about 20 Canadian and British mining analysts, bankers and brokers.

During the meeting, Castro outlined his country’s position towards granting exploitation permits and environmental approvals to foreign mining companies: “We are not interested in giving permits to companies that don’t give benefits to our country. We want to be certain that a project works, otherwise we’ll stop it in the beginning. We want to stop “paper mining” while, at the same time, help companies that are interested in becoming our mining partners.”

In response, one Toronto-based broker commented that if Castro ever figured out how to stop paper mining, could he “please let us know, so we can do it in Canada.”

As a guide to how long it takes to acquire an environmental approval for a heap-leach operation in Costa Rica, one need only look at Lyon Lake Mines (LLL-M). The Montreal-based junior required about a year to obtain both its environmental approval and its exploitation permit for its Beta Vargas heap-leach gold mine, which recently began commercial production in the vicinity of Bellavista (T.N.M. Apr. 6/98).

“Lyon Lake has helped us a lot — they’ve broken the ice for us,” said McDonald, noting that Wheaton, with its exploitation permit already in place, awaits only environmental approval.

Asked if Wheaton would be interested in acquiring Placer Dome’s Cerro Crucitas gold deposit (now up for sale in northeastern Costa Rica), McDonald replied, “We’re interested observers, but it’s a little big for us — I equate it to going tuna fishing in a canoe.”