A few years ago, big Canadian mining companies decided to spin off various assets — usually gold properties — into satellite companies tethered in some fashion to the corporate mother ship. The strategy offered new avenues for financing or simply a more vital vehicle for finding new mines. To a degree that head office may not have foreseen, the junior offspring have done very well. In the following pages, we examine the current activities of four such spinoffs:
* Falconbridge Gold Corp,
* Cominco Resources International
* Hemlo Gold Mines (a subsidiary of Noranda Inc.)
* and Inco Gold.
Falco’s Golden Egg
Sometimes it might seem that Falconbridge Gold Corporation’s Hoyle Pond mine, near Timmins, Ont., is run by Kidd Creek. For example, the 125 maintenance mechanics and electricians, miners and general workers are employees of Falco Gold’s parent, Falconbridge Ltd., the owner of the nearby Kidd Creek mine and metallurgical site. They work under contract to Falco Gold. In addition, Kidd Creek mills Hoyle Pond’s ore. So occassionally mine manager Peter Blakey reminds his troops — the eight people drawing Falco Gold paycheques — that “we don’t work for Kidd.” The close tie-in with Kidd makes economic sense, however..It saves Falco Gold certain accounting, storage and managerial costs and reduces overhead. In return, for Kidd’s services, Falco Gold pays a service fee.
Last year, the mine produced 78,000 oz. (2,426 kg) of gold at a rate of 450 tonnes of ore per day, averaging 17.9 grams gold per tonne (0.52 oz gold per tonne). Access to the Hoyle Pond property cuts through the Kidd Creek metallurgical site. Ore from the relatively small, ramp-access mine is treated on a custom basis by Falconbridge Ltd. in a gold mill next to the Kidd smelter.
The low-cost, junior gold producer has had to come to grips with some unique challenges for a company whose parent is not used to mining the yellow metal as a primary product. The most important challenge is keeping track (from stopes to refinery) of its only revenue-generator — namely gold. Another challenge is keeping the other side of the ledger (mining costs) down to about $US240 per oz. during these times of relatively low gold prices.
In terms of production costs, Falco Gold has at least three things working in its favor: good grade at about 17.9 grams gold per tonne, good ground conditions and good facilities and installations. Mining costs per ton, at US$90, are not exceptional. However, productivity, at 9.1 tons (8.3 tonnes) of ore per manshift, is good for a labor-intensive mining method such as cut-and-fill. Difficulties arise because of the irregular orientations and thicknesses of the ore, which consists of gold-bearing quartz veins hosted in competent volcanic rocks.
Gold was discovered in narrow quartz veins on the Hoyle Pond property in 1976 by Texasgulf Exploration as a resuilt of drilling a wildcat hole on the eastward strike extension of the nearby Owl Creek deposit. That deposit was being drilled by Inco Exploration at the time. Inco backed out of a joint venture with Texasgulf on the Owl Creek ground in 1982, and two years later, Texasgulf drove a decline on a gold-bearing quartz vein (dubbed the 216 vein) at Hoyle Pond. While in the process of drilling through oveeburden to define a 25-metre crown pillar, a second vein (the 214 vein) was discovered partly on the adjacent ground held by the Schumacher Estate. (Falconbridge Gold now pays that estate a royalty on the gold recovered from this property.) Today, exploration holes are drilled on 10-metre sections to establish diluted geological reserves.
At 15% dilution, these figures are “a tad conservative,” chief geologist Richard Labine said. The mine has one underground diamond drill of its own and contracts deeper drilling to Morissette Canada. The deposit, hosted in grey-green pillowed mafic lava, strikes for 700 metres and remains open at depth and along strike. Several splays off the main gold-bearing veins had been discovered after the ground was opened by stoping underground. This has resulted in a partial replenishment of reserves as mining has progressed.
General mine foreman Gerry Bilodeau, an experienced former Dome and Pamour staffer, took The Northern Miner Magazine on a tour of the operation. Today, thererare four production levels in the mine spaced about 45 metres apart and development work is occurring below the sixth level. Three crews work five days a week to supply sufficient ore to the mill, which operates seven days a week at a rate of 400 tonnes per day.
The Wagner electric truck and trolley system, which was the first such installation in Canada, brings ore to surface up the 17% ramp. Although it is not pushed to the limit under present mining conditions, its limiting capacity likely will be tested as mining reaches the sixth and seventh levels. Currently, the truck makes the round trip from surface to the loading chutes at the bottom of the ore passes on the fourth level and back to surface (a distance of about three kilometres) in 20 minutes, deending on ramp traffic. About 20 to 23 loads (of about 18 tonnes each) are hauled every day. At about US$60 per hour for maintenance, labor and parts and about US$35 per hour for operating labor, haulage costs are about US$2 per ton. The entire hoisting system cost about US$1.8 million to install.
A grader keeps the ramp in smooth operating condition, greatly reducing wear and tear on the machines. “The biggest problem we’ve had with the truck is twisting the trolley cable at the loading chutes on the fourth level,” Bilodeau said. Loading alternately from the chute on the left (ore from the third level) and the two chutes on the right (from the second and fourth levels) on each successive trip eliminates that problem. About four hours are required to take one truck out of service and put the other in service.
Although the mine’s daily ore quota is 450 tonnes, miners actually handle about 900 tonnes of ore and waste every day. “This is where good planning can either make or break the mine,” production superintendent Roy Young said. The company is not limited by milling capacity at Falconbridge’s custom mill, but rather by underground logistics. Falconbridge Ltd. is interested in increasing the custom mill capacity, assistant mill foreman James Francis said. “But we’re not interested in hiring more men to feed a bigger mill,” Blakey added.
Waste rock provides backfill in stopes (often by resueing) and successive lifts are capped with concrete to avoid gold losses in the fill. The concrete has a compressive strength of 1,500 lb. per square inch. Concrete is hauled to the site in ready-mix trucks, loaded on to a large scoop and taken underground for distribution to the stopes via hoppers and pipes. A cement transfer system on surface has eliminated scoop transport and, with it, congestion on the ramp.
The mine’s largest stope (214 No. 1 West) provides about 3,000 tonnes of ore per month to the mill. Most production holes in the mine are drilled with stopers, which take 8-ft (2.4-metre) lifts in the back. “In order to take breasts, miners would have to blast twice per day instead of just once,” chief engineer Michael Walter said.
Because the veins are not straight, slushers can not easily muck ore to the mill holes. A fleet of nine 1.5-cu.-yd. jci diesel scoops and one Teledyne electric-powered scoop (the largest such fleet in North America) does that. In one stope we visited, the opening was just 48 inches (1.2 metres) wide for a good portion of the length of the stope. The dip of the veins varies greatly and can even flatten out in dome-like structures. To reduce wear on scoop buckets, the mine has opted for bucket teeth as opposed to the straight bucket lip. It is hoped that this will serve to reduce maintenance costs.
In 216 No. 4 West, a new stope being prepared for production, miners have installed a timber mat suspended by cable slings from the back. The method, which increases ore extraction, is similar to a method used by LAC Minerals at the Macassa mine in Kirkland Lake. (For a more detailed description, see “Mining the Big Break” in our May, 1990 issue.)
How does a non-union mine workforce maintain a high level of productivity? For the past two years, everyone at the mine has been paid a bonus based on three factors: total number of hours worked, ounces produced and total tonnes produced relative to targeted figures. Even the amount of waste generated by development work is taken into account. Typically, miners receive a bonus that amounts to about 40% of their base rate per year; maintenance and mine support crews get about 20% and office staff 5%.
While mining costs are important to Falco Gold, gold accountablity is equally important. “Just knowing how much of the yellow stuff the company has available for sale is a major challenge,” chief engineer Michael Walter said. “There are so many people handling our product.” Payments from each contractor can take anywhere from 14 weeks to five months to make it into the company’s coffers.
From the time the ore is blasted in one of 12 active underground stopes to the time bullion is poured in Burlington, Ont., five milling, smelting and refining contractors handle the company’s mineral product — a procedure unlike that of any other junior in the business. But despite the apparent over-handling, Walter calculates Falco Gold recovers 92% of the in situ gold as determined by chip samples taken at regular, 3-metre intervals across each vein exposed in the stopes. In 1989, that amounted to 58,540 oz., or 1,820 kg (an additional 19,866 oz., or 615 kg, were produced from stockpiled Owl Creek ore). Run-of-mine ore, stockpiled on a concrete pad at the collar of the Hoyle Pond portal, is loaded by front-end loader on to trucks by Timmins contractor Commercial Transport and hauled three kilometres to the Kidd Creek custom gold mill. wo concentrates are produced: one from a gravity circuit and another — a sulphide concentrate — from flotation (see illustration above). The gravity product (about 500 kg per month) goes to Johnson Matthey in Burlington, Ont., and the flotation concentrate (about 600 tonnes per month) is hauled by rail to Noranda Inc.’s Horne smelter in Rouyn-Noranda, Que. From there, a smelter product is transported to Noranda’s Canadian Copper Refiners in Montreal. Falco Gold also has a 150,000-tonne stockpile of low-grade ore from the Owl Creek deposit, which goes directly to the Kidd Creek smelter as a siliceous flux. This material is expected to last until next year. (Falconbridge is shopping around for another source of flux.)
Compared with junior gold mines that pour bullion at their mine sites, Falco Gold’s materials-handling process is considerably more complicated. “We don’t have the reserves to justify the capital costs required to construct a mill of our own on site,” manager Blakey said. Reserves stand at just 336,000 tonnes, a level that has been maintained for the past three years. Contracting out the milling and refining work, Blakey said, has enabled Falco Gold to operate in the black essentially from day one, something no other junior gold miner can claim.
But the battle for gold accountablility is relentless. “We found, upon close inspection, that some materials such as sample bags and sample rejects, which were previously treated as waste in the mill, could conceivably be considered concentrate. We sampled these materials and now ship them as concentrate,” Walter said. Gold can also be “lost” in calculations if each contractor uses a different number of significant figures when converting from grams to ounces, Blakey pointed out. Calculations by the five contractors have all been standardized.
Physical gold losses occur in the mill. The magnet suspended over the shaking table has been found to contain considerable quantities of gold, Falconbridge Ltd.’s Francis said. Some gold grains, flattened in the ball mill, apparently become mechanically attached, or “hooked” to the fine particles of steel (a product of wear in the grinding mill) and subsequently are picked up by the magnet. As a result, the magnetic rejects contain quantities of the metal.
“If the toll charges are competitive, it may become economic for us to send our magnetic rejects to Noranda to recover this gold,” Walter said. If this pans out, the only tailings stream (that is, potential gold loss from the mill) would then be the flotation tails.
Currently, Hoyle Pond is the single producing gold asset of Falconbridge Gold, which, in 1988, was transformed into a publicly traded spinoff of parent Falconbridge Ltd. (The parent Falconbridge is now owned by Noranda Inc. and the Swedish company Trelleborg.) Once Falco Gold gains recognition and further independence from its parent, the company should become more aggressive. But for now, the Hoyle Pond deposit is keeping Falco Gold’s few direct employees busy enough.
Cominco’s mixed bag
Of the four juniors created by majors in the span of the past four years, only Cominco Ltd.’s Cominco Resources International was handed a broad mandate. In fact, this junior explorer is all over the map, geographically and otherwise.
Its attention is not exclusively trained on gold, as is the case with Falconbridge Gold, Hemlo Gold and Inco Gold. It hunts for base and precious metals and even industrial minerals in every corner of the globe except Australia, Canada and the state of Alaska. Cominco Resource’s acquisitions are also rather a mixed bag. For example, to add to its holdings of gold, copper and wollastonite prospects, it last year bought a piece of an Oregon nickel smelter. (Company president George Tikkanen told The Northern Miner Magazine the move did not give Cominco Resources the “quick-hit” cash flow he had anticipated from a hot nickel market. The market had cooled by the time Cominco took over. Still, with the long-term outlook for the nickel market quite bullish and prices currently firm, Tikkanen is satisfied with the purchase.) Geographically, Cominco’s interests are heavily weighted to the west, specifically North and South America. However, it does have a polymetallic venture where East meets West, i.e., Turkey, which is high on Tikkanen’s list of hot plays. It also has projects in Ireland, France and Botswana.
For this company, success came at creation. The parent Cominco set it up in 1987 when the elder was beset with financial worries. Selling Cominco Resources shares reaped a financial windfall for the parent from assets that the stock market had ignored up until then. In reality, the “junior” didn’t at all resemble the usual ragtag junior: It had about $50 million in assets, an exploration staff of about 30 or 40 and an annual $10-million exploration budget. It also acquired an operating gold mine known as the Buckhorn open pit in Nevada.
Today, Buckhorn and the Glenbrook nickel smelter generate cash flow. The company has added the Marte gold mine to its list of operating entities. Marte, a heap leach mine 4,200 metres above sea level in the interior of northern Chile, has a 9,000-ton-per-day (8,182-tonne) throughput. Mechanical and recovery problems slowed commissioning, but nearly all wrinkles have been ironed out, said Tikkanen. Another Chilean gold bet, called Lobo, is in pre-production now with a feasibility study soon to come. A preliminary reserve (not in the proven and probable category) is given as 80 million tons grading 0.045 oz. gold per ton (72.7 million tonnes at 1.5 grams). Cominco says this property could pour out up to 200,000 oz. (6,220 kg) a year.
Nearer to production is the Quebrada Blanca copper deposit, again a Chilean asset. A small-scale copper leaching and recovery plant will soon be testing metallurgical characteristics. Feasibility studies will examine 10,000-ton and 12,000-ton-per-day (9,000-tonne and 10,900-tonne) open-pit mines. High-grade copper cathode would be produced from acid-leaching and the solvent extraction/electrowinning process. This property could be adding up to 100 million lb. (45 million kg) of cathodes per year to the world copper market by 1993. “We should have a decision on this one by next year,” Tikkanen said. It will be a low-cost producer at roughly 40 cents to 45 cents per lb.
In Mexico, Cominco Resources is preparing the Maria copper deposit for production. This deposit, consisting of 850,000 tons (or 772,727 tonnes) and grading 10.6% copper, should be advanced to commercial production before the year is out.
Last but not least is the Turkish gold and base metal prospect in the Black Sea volcanic belt of northeastern Turkey. “The company’s holdings have excellent potential for the discovery of important mineral deposits, as confirmed by the widespread presence of high-grade gold-copper-zinc mineralization,” states Cominco Resources’ annual report.
That’s a bullish statement for an annual report and reveals the level of confidence Cominco has in its Turkish properties. Call it Turkish delight.
Hemlo Gold Mines
Hemlo Gold Mines’ titanic Golden Giant mine is now established as one of the largest (and lowest-cost) gold producers in North America. In 1989, 378,400 oz. (11,770 kg) of gold and 17,800 oz. (554 kg) of silver were produced from 1.02 million tonnes of ore grading 11.9 grams per tonne. The mine’s long life and guaranteed future earnings are essential to the company’s overall goal of generating progressively more revenue through investment in mineral exploration. “and other gold mining opportunities.”
“Hemlo is in its second 5-year program with the objective of increasing gold production in North America through exploration and investments,” says President John Harvey. “This will enhance the profit levels achieved in the first 5-year program when production from the Golden Giant was initiated. While no new profitable production outside the mine property has yet been announced, Hemlo is currently an active participant in several promising properties.”
Hemlo funded 75 recious metal exploration projects throughout North America in 1990 — including 65 in Canada and 10 in the United States. Expenditures totalled C$9 million, which includes $3 million from joint-venture parties. The most advanced is the Eagle River joint venture, near Wawa, Ont., where Hemlo and Central Crude completed an underground examination and test milling at the processing facilities of the Golden Giant mine (see below).
In addition to the Eagle River project, seven other gold properties were diamond drill tested in 1990 with several joint-venture parties. Work is continuing on the most important of these: the Soledad property in California, optioned from Golden Queen Mining Co.; the Monument Bay prospect with Noranda in northern Manitoba, and the porphyry copper-gold system at Moss Lake, near Shebandowan, Ont. All of the latter properties are being tested for their near-surface, open-pitable, large tonnage, gold potential. Hemlo’s interest at Moss Lake is through its equity interest in Central Crude, which is being funded by Hemlo Gold.
The company is working closely with Windarra and the owners of the remaining 75% interest in the Magnacon mine to determine if operations can be made profitable. If not, Hemlo Gold wants to ensure that recoverable values will be maximized.
Eagle River
With the recent discovery of a new zone, separate from the main deposit, hopes are high for the 4,450-ha Eagle River property in the Mishibishu gold camp, near Wawa, Ont.
Drill results from early August, including a 20.8-ft. (6.2-metre) intersection of (cut) grade 0.32 oz. gold per ton (10.98 grams per tonne), suggest that the tonnage potential of an outlined shear zone half a mile east of the main Eagle River deposit is building toward the half-million-tonne level. If a 7,000-ft. (2,100-metre) program designed to determine the extent of the No. 2 shear zone yields results similar to those released so far, the impact on any future mining operation could be dramatic, says Central Crude President Richard Nemis.
Noranda Exploration was expected to table the results of a full feasibility in late summer. “If the feasibility study is positive, we would hope to make a production decision and get going after that,” said Hemlo Gold Mines President John Harvey. (Hemlo Gold has a 60% interest in the project, while Central Crude holds the remaining 40%. Noranda is project operator.) He added that the project could be up and running within a year after mine construction begins. A production decision could come this year.
Currently, the company is waiting for results from a 60,000-tonne bulk sample, being processed at Hemlo Gold’s Golden Giant mill in Hemlo. And while those results had not been made public by presstime, The Northern Miner Magazine was informed that the bulk sample (consisting of material taken from two selective stopes) has confirmed the cut grade of 0.25 oz. gold per ton (8.6 grams per tonne) in the areas to be stoped.
The No. 8 vein deposit is accessible via a decline and three levels and two test stopes for sampling, mine design and mill testing studies. Results to date confirm the indications of earlier surface diamond drilling. But, because of an excessive nugget effect, the grade of the quartz veins cannot be determined until mill tests are completed. Alternative surface processing facilities (such as Muscocho’s Magnacon mill) are being investigated.
The Eagle River deposit occurs as a quartz-vein shear zone within a granodiorite intrusive. To date, preliminary reserve estimates stand at 1.77 million tons grading 0.25 oz. (1.61 million tonnes grading 8.57 grams). In addition to the current program of 2,100 metres of drilling on the East zone, another C$1.6 million has been scheduled for at least five other targets on the property. Noranda says it has outlined a westerly-plunging gold zone 1.8 to 10.5 metres wide along a 240-metre strike length. Still open in all directions, the zone is estimated to contain 320,000 tonnes of higher-grade material. The 20.8-ft (6.2-metre) intersection was recorded at a depth of 87 to 93 metres in hole 283, one of 10 holes drilled on the No. 2 zone. Of holes completed, two returned no significant assays. The other eight included a 65.6-ft. (19.7-metre) intersection averaging (cut) 0.14 oz. (or 4.8 grams) at a depth of 131 to 150 metres below urface.
Gold values of up to 1.67 oz. over 9.8 ft. (57.28 grams over 2.9 metres) also were reported within two parallel quartz veins on Eagle River’s No. 7 zone, which is 300 metres southwest of the Main zone. As the values were intersected updip from earlier drill results yielding 0.30 oz. over 17.7 ft. (10.29 grams over 5.3 metres), Noranda is conducting more drilling to test the new zone. Further drilling is also to be conducted on the No. 8 and 6 zones below the 300-metre elevation.
Nemis said the new zone is unique because, rather than occurring within a diorite intrusive (as does the main deposit), the quartz-flooded shear is hosted by volcanics. The localized shear is one of several occurring within a larger-scale deformation zone.
Inco Gold: an aggressive player
In sports, the franchise player is that key acquisition around which a great team is assembled. Wayne Gretzky in hockey, Rickey Henderson in baseball, Joe Montana in football, they are all of that stature. Similarly in mining, everyone who dreams the impossible dream would give his or her eye teeth for a Sullivan or a Dome or a Brunswick mine, first to establish a claim to the big leagues and then to fund the quest to assemble a parcel of producers for long-term stability.
In 1979, Inco Ltd. unknowingly traded away such a property for $3.8 million. The deposit became the Lupin mine in the Northwest Territories and vaulted its owner, Echo Bay Mines, near the top rung of gold producers. Fortunately for Inco, whose expertise at the time lay in base metals not gold, the experience did not sour its taste for the precious metal. In fact, it might have done just the opposite. Its aggressive gold mine finder, Inco Gold, now has a franchise mine, the Casa Berardi property, which, while not Lupin-class, is definitely major.
Stand-alone Explorer
Citing Inco’s financial difficulties and base metal focus at the time of Lupin’s late exploration phase, Inco Gold President Martin Robinson said: “If circumstances had been different, I don’t think we would have parted with that property.” Said Walter Curlook, executive vice-president of metal products, exploration, mineral resource development and technology: “We wish we had it today.” Rather than shedding tears over spilt milk, Inco’s thinkers did some soul-searching, decided a stand-alone gold explorer was needed, and came up with Inco Gold.
The junior gold company latched on to a property that was born as a base-metal play ii Casa Berardi Township in northwestern Quebec. It became the twin Casa Berardi mines, currently a 90,000-oz.-per-year (2,800-kg-per-year) operation with rather good possibilities of soon growing bigger. (For details on the mines and mill, see our July issue.) Late last year, Inco Gold opened a second mine — the Mineral Hill gold mine in Montana. This one will produce about 42,000 oz. (1,300 kg) of gold per year, half of which will be tallied on Inco’s books.
Its third producer, the Crixas in Brazil, was declared a commercial producer in January of this year. When it reaches full stride, it should be producing 120,000 oz. (3,730 kg) of gold every year.
From this trio, the company expects 115,000 oz. (3,575 kg) will be poured on its behalf before the year is out. However, Inco Jr. has an ambitious parent that wants more than merely moderate success. The target is 400,000 oz. (12,440 kg) per annum by mid-decade. Growth will come from Inco-generated exploration properties and acquisitions. “Primarily, the thrust has been to develop our own reserves,” Robinson told The Northern Miner Magazine.”We like to operate.”
Among the more senior exploration plays is the Cochenour-Willans property, near Red Lake, Ont. As operator and 50% owner, Inco Gold has committed $4.6 million to test-mining this former producer. It will extract 7,500 tons (6,818 tonnes) to determine actual mine grade. The threshold tonnage for development is 1.25 million tons grading 0.25 oz. gold per ton (1.1 million tonnes at 8.6 grams per tonne).
Robinson, a former Inco Ltd. assistant corporate controller who was handed the Inco Gold presidency in August, 1989, identified Cochenour as Inco Gold’s most senior project. Another property with potential is the Nor-Acme gold play, an ex-producer near Snow LLke, Man. Inco conducted a technical study for project owner High River Gold Mines and found that a 450,000-ton-per-year (409,000-tonne-per-year) mine could produce 68,000 oz. (2,370 kg) of gold at a cash operating cost of US$250 per oz. Development would carry with it a $50-million price tag, which, at current gold prices, is simply too rich. “With a little better gold price, that would be a very promising property,” said Robinson.
Three New Zones
The former producer yielded 5.4 million tons (4.9 million tonnes) of ore between 1949 and 1958. The shaft bottoms at 1,780 ft. (542 metres). Recent drilling has located three zones below the 1,530-ft (466-metre) level. Two of the zones reach to at least 3,000 ft. (914 metres) below surface. Total proven and probable reserves are 3.9 million tons grading 0.19 oz. gold per ton (3.5 million tonnes at 6.5 grams). The mine closed when production costs exceeded US$35 per oz., the unprincely sum at which gold changed hands in those days.
Today, Inco Gold sets for its mine managers a production cost target of US$200 per oz. Clearly, the gold miner is still turning a profit at current gold prices of about US$360. So the concern is not so much with producing properties, said Robinson, but with new properties. “We have had to hold back on development of new properties.”
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