Mines in the making — Homestake building Ruby Hill

A new heap-leach gold mine under construction in central Nevada is expected to become the lowest-cost producer of Homestake Mining (HM-N).

When it is up and running later this year, the Ruby Hill mine will process about 3,500 tons per day from the West Archimedes deposit, with annual gold production pegged at 105,000-110,000 oz.

Cash production costs are projected at US$140 per oz.; total costs, at US$258 per oz.

Homestake President Jack Thompson says Ruby Hill is the first major discovery resulting from the company’s renewed exploration efforts. “We expect the mine to be one of a new generation of Homestake mines that will lead to higher annual production and substantially lower costs over the next few years,” he states.

Homestake is one of the oldest mining companies in the U.S. A production cornerstone for decades has been its prolific, namesake gold mine near Lead, South Dakota. The aging mine is still operating, though production costs are high (US$306 per oz. in 1996).

Homestake spokesman Michael Steeves says the company recognized, several years ago, that it had to place a more consistent emphasis on exploration in order to increase reserves. “We had been number one for so long that it went to our heads,” he says. “But we soon realized that we had to spend more on exploration if we wanted to play with the big boys. Ruby Hill is the first discovery to result from that revamped program.”

Homestake geologists discovered Ruby Hill while exploring a historic mining camp near Eureka, where past mining had focused on base metal deposits that were also rich in precious metals.

The project now has proven and probable reserves totalling 7.6 million tons grading 0.099 oz. gold per ton. In addition to these reserves in the West Archimedes deposit, the oxide portion of the adjacent East Archimedes zone is being evaluated and may be added to reserves.

Steeves says the property still has plenty of potential for new discoveries through ongoing exploration. “We are getting some interesting results from deep drilling,” he points out.

This drilling is reported to have intersected “several hundred feet of gold mineralization,” about 1,500 ft. below the West Archimedes deposit, grading between 0.05 and 0.1 oz. gold. Higher grade zones of 0.25 oz. gold and better occur over widths of 20-80 ft. in the mineralized area. Drilling continues to determine the extent and continuity of these zones.

Elsewhere in the world, Homestake has other exploration projects under way that have potential to become low-cost mines in the years ahead. One is the Jeronimo gold project in Chile, adjacent to the company’s El Hueso mine property; another is the Pinson mine project in Nevada, a joint-venture with Barrick Gold (ABX-T). The company also has high hopes for a gold project in French Guiana, a joint-venture with Franc-Or Resources (FOR-T).

Homestake produced almost 2 million oz. gold from its existing operations this year — a 3% increase over 1995 production. During this period, cash production costs were reduced to US$248 from US$257 per oz.

The company expects to produce 1.9 million oz. gold from its worldwide operations this year. This may be increased significantly if the company is able to execute a proposed merger (valued at US$2.1 billion) with Santa Fe Pacific Gold (GLD-N) by beating out a takeover bid from rival Newmont Gold (NGC-N).

“It’s a horse race right now,” Steeves says. “We are still confident, but we won’t know until late March.”