Vista seeks to revive Mount Todd gold mine

Vancouver — Pegasus Gold developed a reputation for building and operating low-grade gold mines during a period of high gold prices in the 1980s. As prices collapsed, so did the company and many of its mines, including Mount Todd in Australia’s Northern Territory. With prices up again, Vista Gold (VGZ-T, VGZ-X) has agreed to buy the dormant mine and determine if it warrants yet another shot at production.

Pegasus developed the mine at a cost of about US$200 million in 1993, and closed it in 1997, because of a series of technical problems compounded by low gold prices. The mine was revived again in 1999 by an Australian joint venture, only to close again in July 2000. The plant and most of the equipment was sold and removed from the site the following summer.

Vista inked a deal with the deed administrator (receiver) of Pegagus Gold Australia to pay A$1 million ($846,300) for the mine property and related assets. The agreement also involves a local Aboriginal association that would receive shares valued at C$1 million for rent of the surface lands, and for various other considerations, if, and when, the project moves forward.

Another party to the agreement is the Northern Territory, which had been bearing the costs of rehabilitating the mine site. Vista will pay the Territory’s cost of managing the site (to a maximum of A$375,000 during the first year) and assume certain costs in following years, but will not assume rehabilitation obligations for pre-existing conditions until a plan is put forward and approved to resume mining operations.

Vista’s agreement with the territory is for an initial term of five years, with options for a further eight years. In the first year, the company will carry out a technical and environmental review of the project resulting in a program to stabilize environmental conditions and minimize offsite contamination, and provide a technical report for the restart of operations.

During the full term of the agreement, the company will explore and evaluate the project and prepare an environmental report and technical feasibility study for the potential development of Mount Todd.

If the project is deemed economically feasible, Vista will offer the aboriginal group the opportunity for a 10% stake in the project and representation on a technical oversight committee.

The main deposit at Mount Todd began production with measured and indicated resources of 190.9 million tonnes grading 0.94 gram gold per tonne. Based on mine data, Vista believes that about 24.6 million tonnes grading 1.05 grams gold, or about 826,000 contained ounces, were extracted during the two operating runs. At last report, remaining resources were 68 million tonnes at 0.99 gram gold, or about 2.17 million oz. The estimates pre-date National Instrument 43-101 reporting standards; Vista intends to prepare a new resource estimate to meet present standards as part of its effort to assess the project’s overall economic potential.

Mount Todd has had a rocky past on both the technical and environmental fronts. When the mine failed to live up to expectations in 1997, Pegasus filed suit against several engineering firms involved in the project. The three engineering firms then filed suit against six other sub-contractors, alleging negligence among other things. The parties settled all actions on confidential terms in late 2001.

The mine post-mortems revealed a number of problems, starting with the mining phase. The ore required 4-stage crushing, and had a high work index, which meant crushing costs were almost twice initial estimates. Power costs and cyanide costs were also higher than expected, while recoveries were only 74%, compared with an estimated 84% because of problems with the flotation circuit. This resulted in lower-than-expected gold production and higher-than-expected cash costs of about US$330 per oz.

On the environmental front, the parties operating the mine for the second production run posted a bond of US$900,000 before ceasing operations, which was insufficient to rehabilitate the project and protect adjacent lands from potential acid-mine drainage. The funds were exhausted once pumping equipment and other infrastructure was established to minimize water discharges from the site.

Government officials have described Mount Todd as a “disaster,” but not a “total disaster,” because there is still an opportunity for some other company to revive the mine and generate enough of a return to allow “sustainable, long-term rehabilitation” of the mine site.

Vista has retained an engineering firm specializing in environmental sciences to assist with the environmental review and water management studies, and to evaluate site conditions and prepare a report for the restart of operations. Other engineering firms will handle the metallurgical and other technical aspects of the project. The results of these studies will incorporated into a feasibility study for the potential development of Mount Todd.