Miramar, Costa Rica — The long years of talk are over. More than five years after the completion of a positive feasibility study, construction of
Bellavista is 70 km northwest of the capital, San Jose, in a historic mining district within Costa Rica’s Central gold belt. The site is 3 km northeast of the town of Miramar (population 5,000) and 20 km north of the Pacific port city of Puntarenas.
The project is close to the country’s major infrastructure, including the Pan-American Highway, the national power grid, and Puerto Caldera, a deep-water container port in the Gulf of Nicoya.
Since December 2003, Glencairn has been busy building an open-pit, grind-agglomeration, heap-leach operation at a capital cost of US$25 million. Leaching is set to begin late in 2004, pouring of the first gold bars in early 2005, and commercial production next April.
The first six months of mining will exploit surface oxide ore. While that is going on, workers will be putting the finishing touches on a re-assembled ball mill that will process higher-grade ore beginning in about June 2005. The ball mill and a carbon adsorption, desorption, and recovery (ADR) plant were purchased and relocated from two of
“I’m happy that, given the huge rise in commodity prices and the price of other supplies, we’ve managed to keep this project on budget and close to our original schedule,” says Glencairn President Kerry Knoll. “Bellavista’s going to be a low-cost and very profitable mine that will be a real boon to the company.”
Operating at a daily average of 4,400 tonnes, the mine will produce an average of 60,000 oz. gold per year over a minimum 7.3 years of mining and 8.3 years of leaching. Another 722,000 oz. of byproduct silver will come off the pads over the life of the mine, based on a recovery rate of around 50%.
With low lateritic development (and therefore little residual clay), gold recovery from the leach pads is expected to be a high 78%, and the total cash operating cost, including several royalties, is pegged at US$198 per oz. gold.
The internal rate of return is 31% at US$375 per oz. gold, and the net present value is US$49 million at a zero discount rate.
Reserve base
Contract miners, yet to be selected, will exploit a low-sulphidation, epithermal gold-silver deposit hosting reserves of 11.2 million tonnes grading 1.54 grams gold per tonne, using a 0.5-gram cutoff grade and a US$325-per-oz. gold price. The figure translates into 555,100 contained ounces, of which 84% are in the proven category.
“That eighty-four per cent is one of the highest numbers you’ll see in the gold mining business, and it’s one of the reasons we have such a high confidence level in this project,” says Knoll.
There are another 376,000 oz. gold in the indicated category, at slightly lower grades. So if gold prices continue to stay at their current levels, the walls of the pit could be pushed back in later years to add about another two years of production.
Counting just the existing reserves, the overall stripping ratio is 1.3-to-1.
The reserve base was drilled off on a 25-by-25-metre grid spacing using reverse-circulation methods, and 2 km of tunnels were dug on section lines so that bulk samples could be taken and then compared with the drill data on a section-by-section basis.
Dunham Craig, vice-president of corporate development, agrees that the reserves are high-quality: “These reserves have been audited ad nauseum by Behre Dolbear and Pincock Allen & Holt, and three banks have done due diligences. The reserves have not changed one ounce during any of those processes. They’ve taken the geological and geostatistical models and brought [the deposit] right down to fundamentals and run it through different programs — so it’s been geostatistically tested up the wazoo.”
Bellavista’s gold and silver are hosted by the Tilaran Group — a 600-metre-thick, local expression of the more extensive Aguacate Group, a volcanic sequence of late Tertiary pyroclastic deposits with minor interbedded andesitic lava flows that stretches 120 km along the Pacific coast and hosts all of the Central gold belt’s mines.
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.
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.
While Wheaton is focused on getting Bellavista into production, the property holds several grassroots targets that will be drilled in the coming months and years.
An oft-rescheduled 3,000-metre, shallow-hole exploration program, last slated to begin this summer, has been delayed once again, to the fall, owing to a scarcity of available diamond drill rigs.
A few hundred metres west of the Bellavista deposit, Glencairn geologists will drill into the La Trinidad target — a large, undrilled gold-in-soil anomaly where limited gold mining took place in the 1940s and ’50s.
Some 500 metres south of the Bellavista deposit, drills will probe into, and east of, the abandoned Montezuma gold mine, which was owned and operated by the Johnson family from New York (of Johnson Wax fame) from 1909 to 1915. Exploiting ore that graded between 10 and 18 grams gold, the mine yielded about 100,000 oz. gold from shallow underground operations betweeen 1897 and 1916.
A third target to be drilled this year is at the intersection of the normal Liz fault, which defines the western boundary of the Bellavista deposit, and the La Lucha fault, which defines the eastern boundary of the La Trinidad anomaly.
Thinking ahead, Glencairn has designed 1.5 million tonnes of excess capacity into its 13-million-tonne leach pads, so that if any new high-grade ore is found, it can simply be mined, run through the ball mill and agglomerator, and placed on the existing pads.
Ownership changes
While Glencairn has a 100% working interest in the property, Vancouver-based junior
Glencairn bought the Bellavista project in October 2002 from Wheaton River for US$250,000 cash and 750,000 shares with a fair-market value at the time of US$207,000.
The deal’s closing had been delayed for half a year, owing to a potentially project-killing moratorium on open-pit mining in Costa Rica — a ban from which Bellavista was subsequently judged to be exempt, since the project was already permitted.
A year earlier, in October 2001, the founding management of Wheaton — Ian McDonald, Kerry Knoll, Peter Tredger, Dunham Craig and John Kalmet — had vacated their positions to make way for a new team led by Vancouver-based merger-and-acquisitions guru Ian Telfer, who has subsequently transformed Wheaton into a major gold and silver producer.
Almost all the old Wheaton managers who worked on Bellavista in the late 1990s are now on board at Glencairn. The one remaining link between the two companies is Glencairn Chairman and director Ian McDonald; he remains a Wheaton director.
Wheaton, in turn, had bought Bellavista from Minera Rayrock in October 1997 for roughly $1 million worth of warrants and cash, plus a commitment to pay another $1 million on commercial production — a sum now owed by Glencairn to
In 1998 and 1999, Wheaton spent $7.4 million carrying out prefeasibility and feasibility studies which showed that a small, economically robust heap-leach oper
ation could be developed in a manner similar to the successful Ruby Hill mine in Nevada — a plan that contrasted with Rayrock’s larger, but sub-economic and environmentally risky, plan to build a conventional mill, a slurry pipeline, and an unlined tailings pond.
Rayrock’s plan, based on more than 1 million oz. of reserves, would have produced 80,000 oz. annually from underground and surface operations. However, it would have had a capital cost of US$55 million and generated only an 11% internal rate of return at US$400-per-oz. gold.
Hearts and minds
From the get-go, Wheaton and now Glencairn have put considerable effort into winning over the locals, whom Rayrock had reportedly alienated by using, as Craig describes it, a hardline “steel-toe-boot” method of community-relations.
To break the ice over the past half-dozen years, several thousand ordinary people from nearby communities have come to tour the Bellavista site. Glencairn has offered to contribute toward community projects, including: building a pipeline from a freshwater spring on company land; installing a new water tank; buying a garbage truck; donating land; funding student scholarships; and promoting tourism.
Most importantly for the community, Glencairn successfully lobbied the Costa Rican government to pass on half of its 2% royalty on revenue to the local community. The company has also agreed to hire 80% of its 240-person workforce at Bellavista from among residents of the county of Montes de Oro.
Glencairn is partly operating Bellavista under Costa Rica’s Free Zone regulations, which provide foreign companies with several advantages, including the right to bring equipment into the country duty-free, the right to buy fuel tax-free, and certain tax breaks.
To make the most of its position under the Free Zone program, Wheaton has created two major subsidiaries in Costa Rica: Compania Rio Minerales (outside the Free Zone), which will mine the deposit and carry out exploration; and Metales Precesados (inside the zone), which will process the ore and export the gold. Bellavista’s mill will be fenced off and designated a Free Zone.
Free Zones, however, are scheduled to disappear worldwide in 2008.
Limon mine
Meanwhile, in northwestern Nicaragua, Glencairn is a third of the way through a US$5-million, 40,000-metre exploration program at its sole producing asset, the 53,000-oz.-per-year Limon underground gold mine (for an in-depth report on Limon, see T.N.M., March 5-11/04). Glencairn acquired the mine by merging with Black Hawk Mining in October 2003.
“Limon has a short reserve life,” comments Knoll. “However, it has been going strong for 53 years with only two years of reserves ahead of it, so that gives us a lot of confidence that we can go on for several more years.”
Glencairn aims to drill off four years’ worth of reserves at Limon by the end of this year and eight years’ worth of reserves by the end of 2005.
“Exploration is the real story at Limon,” says Knoll. “Most of the targets are still undrilled, and that was an important factor in our decision to merge with Black Hawk last year.”
Unfortunately, drilling into one of the prime epithermal-vein targets on the property, Santa Rosa, has been hampered by technical difficulties, owing to the presence of excessive clay surrounding the target at depth. The company is now seeking help and advice from drillers.
Glencairn’s third and last substantial gold asset, the Vogel grassroots project, in Ontario’s Timmins camp, has seen 10,000 metres of exploration drilling so far this year.
“We are disappointed by some of the results and also a little puzzled,” says Knoll. “In several of the holes we get visible gold in the core, but when we get the assays back, it’s low grade, maybe one to three grams. We need higher grade.”
As a result, Glencairn has stopped drilling and is stepping back to analyse all the incoming assay data before it comes up with a new plan.
“We may decide to option the property, sell it, or continue to develop it ourselves,” says Knoll.
At year-end, Vogel had a measured and indicated resource of 642,000 tonnes grading 12.7 grams gold, or 261,100 contained ounces.
Corporate strategy
Glencairn has grown rapidly over the past two years, rising from four employees to today’s 600 in three countries.
With production from Bellavista soon joining Limon’s steady output, Glencairn expects to be a 100,000-oz.-per-year gold producer by 2005 and a 125,000-oz. annual producer from 2006 onwards.
The company now has 139 million shares outstanding, or 188 million fully diluted. Knoll and McDonald hold the largest shareholdings among management, with 1.7 million and 1.3 million shares, respectively. Director Gordon Bub comes in third, with 960,000 shares.
Thanks to a recent, $29.3-million equity financing, Glencairn has working capital of US$27 million and no debt. As well, the exercise of existing warrants at C$1.25 (currently well out of the money, with shares trading at 60 at presstime) would bring in another US$36 million.
“We’re fully financed, so there’s no need to go out and get debt to build our mine,” comments Knoll.
In the past month, with gold equities continuing to sag, Knoll says Glencairn has taken a renewed interest in examining potential acquisitions.
He says the company’s strategy is to zero in on companies or assets that are at least at the prefeasibility stage, are capable of producing 50,000-100,000 oz. gold per year, and have a primary focus on the Americas.
He points to a big gap in gold-exploration activity from 1998 to 2003 that will likely lead to a dearth of new mines in the coming years.
“Going forward, there’s going to be a real gold shortage, and the only way companies are going to be able to add reserves is through acquisitions,” says Knoll. “We want to get ounces in our company before that ‘scramble for ounces’ hits our industry in the next few years.”
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