Barrick zeros in on Nevada

Despite the amount of capital that has been pouring into the mining sector since around 2002 there have been very few major discoveries. There has been plenty of hype and tire kicking, but many of the projects being promoted were discovered years ago. They have been dusted off and given a new lease on life, driven by record precious and base metals prices.

At the Mineral Exploration Roundup held recently in Vancouver, Barrick Gold’s (ABX-T, ABX-N) Alex Davidson, executive vice-president of exploration and corporate development, lamented the lack of new large-scale discoveries and the stagnating effect that it is having on gold production. He says world gold production for 2006 is forecast at 2,567 tonnes, which is down by 2.2% compared with 2005.

“2007 is projected to be about the same as 2005 based on advertised numbers. . . but it may actually fall and continue to fall as we go forward, given the age of producing mines and the challenges associated with new discoveries and new developments,” Davidson said.

More than a decade ago, Barrick’s then-president, Bob Smith, said that the easy gold had all been found.

“True then, and now truer than ever,” Davidson reiterated. “If growth is to be found, it will come from increasingly remote and difficult regions of the world.”

Barrick, a company better known for building its reserve base through acquisitions, is responsible for one of the industry’s biggest grassroots finds in recent years. Lagunas Norte was discovered in the second half of 2001 during an initial exploration drilling campaign on the Alto Chicama property in the northern Peruvian Andes. It shot through Barrick’s development pipeline and was put into production as an open-pit, heap-leach mine in June 2005, at an initial capital cost of US$323 million.

At startup, Lagunas Norte held proven and probable ore reserves containing 9.1 million oz. in 208 million tonnes grading 1.37 grams gold per tonne. The operation produced 550,000 oz. gold at total production costs of US$163 per oz. in 2005, and almost 1.1 million oz. gold at US$150 per oz. in 2006 as it mined higher-grade near-surface ore.

Mine production, spread out over 10 years, is expected to average between 535,000 oz. and 560,000 oz. gold annually.

At the end of 2006, Lagunas Norte’s ore reserves totalled 8.8 million oz. in 187 million tonnes grading 1.47 grams, while another 2.4 million oz. grading 0.96 gram are largely indicated. An extra 1.1 million oz. at 1.03 grams are inferred.

Containing a resource of more than 8 million oz. and still open for expansion, Cortez Hills in Nevada is another recent world-class discovery. It was found by Placer Dome (now Barrick Gold) in the latter part of 2002 while conducting exploration drilling on the Cortez joint-venture mine property, 4 km southeast of the original Cortez mine and 15 km southeast of the current Pipeline mining operation.

In September 2005, the Cortez joint venture approved the development of Cortez Hills and the lower-grade Pediment deposit, pending receipt of environmental permitting, which is still ongoing.

“It’s not often you see a discovery like this, which is such a slam dunk in terms of economics,” Placer’s then-president Peter Tomsett told delegates attending the 2004 Denver Gold Show. “It’s an outstanding performance in any language.”

After swallowing Placer in early 2006 and selling off its Canadian operations to Goldcorp (G-T, GG-N) and its half stake in the South African South Deep gold mine to Gold Fields (GFI-N, GOF-L), Barrick today sits with 26 operating mines in eight countries.

Production in 2006 totalled 8.6 million oz. gold at a total cash cost of US$282 per oz., with copper production in the order of 367 million lbs. copper at US79 per lb. Placer accounted for 2.6 million oz. of Barrick’s gold production in 2006.

Barrick earned US$1.5 billion for the year, or US$1.77 per share. Operating cash flow exceeded US$2.1 billion (US$2.48 per share).

Taking into account the sales of assets to Goldcorp for US$1.6 billion and the South Deep sale for US$1.5 billion, it cost Barrick US$6.9 billion to acquire Placer’s portfolio. In return, Barrick got 35 million oz. of proven and probable gold reserves and another 24 million oz. of resources in the measured and indicated category, along with 6.2 billion lbs. copper ore reserves and some silver and platinum resources.

“If you take the copper business and put a Phelps Dodge multiple of about four times cash flow, that means our copper business is worth about US$4 billion and so the net cost to acquire the gold is actually somewhere in the order of US$2.9 billion,” reasoned Gregory Wilkins, president of Barrick.

That means Placer’s gold reserves cost less than US$100 per oz., he said.

“If you contrast that to any of the other transactions in the market place, it is an extremely attractive price. People pay more money than that for ounces sitting in the ground undeveloped with the associated development risk,” Wilkins added.

During a year-end review, Wilkins said the deal was a “very good transaction” for the company as the Placer assets are high-quality producing assets in good jurisdictions that have the potential for growth in reserves.

Davidson rationalized the Placer acquisition by saying: “We acquired Placer Dome because of the significant overlap in presence and potential on key belts and trends in Nevada, Chile, Tanzania and Australia. . . But more than just being a good deal on a per-ounce basis, the Placer transaction deepened Barrick’s project pipeline so that it is unrivaled in the industry.”

Barrick now sits, at the beginning of 2007, with 123 million oz. of gold reserves (using US$475 per oz.), 6 billion lbs. of copper reserves and 964 million oz. of silver reserves, with some nickel and platinum tucked away behind the scenes. In addition there is another 35 million oz. gold defined as measured and indicated, plus an extra 25 million oz. in the inferred category.

“We have significant ounces that we can continue to move forward through the pipeline to continue to replace that production block of eight million oz. and with any luck provide some growth,” said Wilkins. “We’ve combined two great companies with great portfolios of assets that I think gives us a better opportunity to replace reserves than when the companies were operating independently.”

While the Nevada operations of Placer Dome may not have been the main rationale for Barrick’s takeover bid, it clearly was an important element. The amalgamated Nevada operations now represent roughly 40% of Barrick’s business. This year, the company’s North American operations are expected to produce about 3.2 million oz. gold, with 85% of this coming from the cluster of seven mines in Nevada. The company’s newest mine in the area is Ruby Hill, which began production in February 2007.

“We think the exploration potential around the Placer mines is great, especially in Nevada,” said Davidson during a quarterly conference call. “Nevada is our key focus for exploration.”

Barrick spent US$171 million on exploration in 2006, with Nevada accounting for some US$46 million spread over 57 different projects. With some 31 drill rigs turning through the year, the bulk of the budget was focused on reserve replacement on 22 targets, drill testing of 15 targets and advance drilling of four targets, including the South Arturo discovery and Goldstrike’s Deep North Post.

“We’re very pleased with the exploration upside that we see at Bald Mountain and we expect that it will play a more important role in our portfolio in the next three to five years,” said Peter Kinver, Barrick’s executive vice-president.

The exploration budget for 2007 is set at US$170 million and is weighted toward near-term discovery around existing operations. The majority of some US$69 million earmarked for North America will be spent in Nevada.

Cortez

The Cortez mine lies on the Battle Mountain trend of north-central Nevada, 130 km southwest of Elko and
100 km from Goldstrike. Following its takeover of Placer Dome, Barrick is now the operator and owns 60% of the mine. London-based Rio Tinto (RTP-N) owns the remainder.

Since the inception of the original joint venture more than 40 years ago, the Cortez geology team has found more than 38 million contained ounces gold on the mine property. The bulk of that has been identified in the last 15 years, with the discovery of the Pipeline deposits and the more recent Cortez Hills.

“We’re encouraged by what we have seen so far and our geologists think that Cortez appears to be the mineralizing centre of the entire trend, much like Goldstrike is on the Carlin trend,” Davidson said.

The Cortez mine has been a strong, consistent performer over the years. In August 2004, it passed an important milestone, producing its 10-millionth ounce of gold. After seven consecutive years of cranking out more than 1 million oz. from open-pit operations on the Pipeline and South Pipeline deposits, production eased to 904,000 oz. in 2005 before falling off rapidly to 444,000 oz. in 2006, as ore grades were cut in half due to the planned mine sequencing of lower grades in the maturing operation.

The mine uses integrated milling and heap-leach processing to recover gold from oxidized mineralization. Lower-grade oxide ore is hauled directly to heap-leach pads, whereas higher-grade non-refractory ore is treated in a 10,000-ton-per-day conventional mill using cyanidation and carbon-in-leach (CIL) processing. A minor portion of production comes from the sale of preg-robbing refractory carbonaceous ore to third-party roasters.

In 2006, Cortez produced 444,000 oz. (53% by milling, 45% by heap leaching and 1.5% by carbonaceous ore sale) from the processing of 26.2 million tonnes averaging 0.69 gram gold at a total cash cost of US$405 per oz. and a total production cost of US$521 per oz. This is about half of what was produced in 2005, when the mine cranked out 904,000 oz. (51.7% by milling, 41.9% by heap leaching and 6.5% by carbonaceous ore sale) by treating 26.6 million tonnes of ore grading 1.2 grams gold at total cash costs of US$242 per oz.

Barrick expects production at Cortez will be about 500,000 oz. gold in 2007 at total cash costs of US$440-US$455 per oz.

At the end of 2006, Barrick estimated the mine held 11.1 million oz. in proven and probable reserves totalling 184 million tonnes grading 2.01 grams gold, based on a US$475-per-oz. gold price. Together, the Cortez Hills and nearby Pediment deposit account for 5.5 million of the contained ounces, with the remainder coming from the Pipeline, South Pipeline and Gap complex. Additional measured and indicated resources contain another 1.8 million oz. in 44.5 million tonnes averaging 1.4 grams gold, with a further inferred 860,000 oz. at 4.5 grams gold.

This compares to Placer’s 2005 year-end estimate that showed 10.5 million oz. in proven and probable mine reserves grading 1.4 grams gold, along with 6.5 million oz. at 1.2 grams categorized as measured and indicated, plus an extra 2.5 million inferred oz. grading 1.8 grams gold.

Cortez joint venture

The Cortez area of interest covers 2,587 sq. km along the Battle Mountain-Cortez trend, of which 1,008 sq. km are directly controlled by the joint venture.

The Pipeline operation is on the western side of Crescent Valley, 11 km northwest of the original Cortez milling complex. Crescent Valley is a structural and topographic basin between the Northern Shoshone range on the west and the Cortez range on the east. The inactive Cortez mine and mill No. 1 facilities are positioned along the northern edge of the Cortez range.

The processing facilities at Cortez have gone through several stages of improvement and expansion over the years. The joint venture began mining the Cortez deposits by open-pit methods in 1969. The original mill facilities (mill No. 1) had a nominal capacity of 1,700 tons per day. The mine was temporarily closed in 1976, when the ore was virtually exhausted. With the upturn in the price of gold in 1981, mining resumed and mill No. 1 continued operating until 1999, when it was permanently closed.

A fluid-bed roaster was added to the mill in 1990 to process refractory ore. The roaster operated until March 1996, when it, too, closed. A little more than 1 million oz. were recovered from the Cortez workings. The Cortez NW Deep deposit is a downward extension of the mineralization previously mined in the dormant Cortez pit.

In 1996, concurrent with the development of the Pipeline and South Pipeline deposits, which were discovered in 1991, Cortez purchased new open-pit mining equipment and constructed a new CIL gold recovery plant (mill No. 2) at a cost of US$250 million. The CIL plant was commissioned in March 1997 and is currently running at a nominal rate of 9,100 tonnes per day.

A new leach pad and process plant, designed to handle 164 million tonnes of lower-grade ore over the life of the mine, came on-stream in 2002. The capacity of this facility was expanded in 2004 to 272 million tonnes.

The Pipeline and South Pipeline deposits are the current source of feed at Cortez. They are being mined by conventional open-pit methods in nine stages. The first three stages occurred over a period of 10 years from 1996 to 2005. The mining of stages four through nine are scheduled to continue through 2018 and include the South Gap and Crossroads deposits. All necessary permits for developing Pipeline are in place.

The Cortez joint venture filed an amended plan of operation in January 2001 to deepen stages eight and nine in the Pipeline/South Pipeline pit and extend the pit into the 3-million-oz. Crossroads deposit to the south. Stages eight and nine of the Pipeline pit development are focused mostly on unoxidized, refractory carbonaceous mineralization. The amended plan of operation also entails mining the Gap deposit, between Pipeline and the historical Gold Acres pit.

The metallurgical characteristics of the Pipeline and South Pipeline ore have been developed through extensive mill and heap-leach experience and ongoing test work on-site. Gold recovery is a function of the processing method (milling, heap leaching and roasting) and of ore type. Mill recoveries range from 84% for South Pipeline O zone material to 94% for Pipeline oxide ore. Heap-leach recoveries approach 68% for lower-grade oxide material. Metallurgical recoveries for refractory, carbonaceous ore depend on the process used. Roasting followed by milling typically recovers 85% of the gold.

Regional exploration work in the Cortez district has identified three distinct primary styles of gold mineralization, including Carlin-style, sediment-hosted disseminated gold deposits, Tertiary porphyry-style deposits and basalt-hosted epithermal deposits.

The Cortez joint venture has concentrated its exploration efforts on the exposed Cortez and Gold Acres windows of lower-plate carbonate formations. This part of Nevada was once an old continental margin. In Proterozoic times, there was rifting at the margin, which generated major north-northwest- and northeast-striking fault structures that propagate up through the carbonate sequence. These fundamental fabrics were reactivated during the multitude of compressional and extensional activities that influenced the basin’s geometry and development. It is these basement fabrics that guide the joint venture’s exploration activities.

But at Cortez, much of the prospective rocks and the main mineralizing faults are concealed by the later cover rocks, and there has been a limited amount of exploration drilling along the length and extensions of these structural zones.

To add to its understanding of the structural framework and stratigraphy in the area, the Cortez geology team has relied on regional mapping and geochemical sampling. The data compiled, together with results from regional geophysics, are used in two- and three-dimensional modelling to identify important basement structures under the pediment cover. Gravity and seismic have proven to be v
ery effective tools in guiding exploration.

There are inherent zones of weakness between the main formations of the stratigraphic column, which accommodate the structural development in the area. The Cortez geology team continues to refine the area’s stratigraphy by dating available fossils, as well as trying to establish different geophysical signatures.

All of the historic and current deposits at Cortez fall within one major contrast or contact. Most of the deposits are found at the transition between the base of the Devonian Wenban Limestone and the top of the Silurian Roberts Mountains Formation; that is the primary host for Pipeline-South Pipeline, Gold Acres, and the old Cortez deposits on the Range front. Prior to the Cortez Hills discovery, this sequence accounted for almost 90% of the mine’s reserve base.

Pipeline

The Pipeline deposit was discovered by the Cortez joint venture in March 1991 while drilling deep condemnation holes on the pediment east of Gold Acres. Early signs of the South Pipeline deposit were discovered by Royal Gold (RGL-T, RGLD-Q) during drilling campaigns in 1990 and 1991. Shortly afterward, the Cortez joint venture assumed the role of operator and discovered the South Pipeline deposit.

Continued drilling along the northwest structural trends at Pipeline resulted in the 1998 discovery of the Crossroads deposit under 170 metres of deep alluvium cover southeast of South Pipeline.

Royal Gold holds a sliding-scale gross smelter return royalty over both the Pipeline and South Pipeline deposits, ranging from 0.4% to 5%, based on the price of gold.

The Pipeline, South Pipeline and Crossroads deposits are separate zones of the same mineralized system hosted by altered, sheared dolomitic siltstones of the Roberts Mountain Formation. The deposits occur in sequence from northwest to southeast along a high-angle fault and are entirely concealed beneath Quaternary pediment gravels that are up to 100 metres thick. The extensively altered and mineralized system is more than 3 km long and 1.5 km wide.

The Gap deposit lies west of Pipeline. It is hosted by a weakly altered and oxidized carbonate sequence of the Wenban limestone and by local skarn. Mineralization occurs in the axial zone of an anticline along well-developed north-northwest-striking fault zones. The Gap deposit contains oxide mineralization similar to that of South Pipeline, although the host rocks are somewhat different.

The Hilltop deposit is 26 km northwest of the Pipeline complex. There, structurally controlled gold mineralization is found in brecciated, upper-plate silicified sedimentary rocks of the Ordovician Valmy Formation, as well as Tertiary felsic porphyry. Internal feasibility studies suggest a gold price of at least US$425-US$450 is needed before Hilltop could be economically mined and processed in a combined oxide and bio-oxide heap-leach facility.

In 1996, the Cortez joint venture began to test for hidden mineralization south of the Cortez mine using deep reverse-circulation (RC) holes.

The Pediment deposit was found 4 km south of the Cortez mill in 1998 under 45 to 170 metres of cover. Pediment is a unique in that it is hosted by a conglomerate, probably Tertiary in age. The gold mineralization is associated with Devonian-age clasts. The Pediment mineralization consists of oxide material, with little or no sulphides. Heap-leach tests suggest a metallurgical response is similar to Pipeline ore. Proven and probable reserves for the Pediment deposit are currently estimated at 1.2 million oz.

Cortez Hills

In October 2002, the sixth hole of a 7-hole RC program north of Pediment resulted in the discovery of Cortez Hills, a structurally controlled, high-grade deposit. The geological team at Cortez used the faults exposed in the old Cortez pit and projected those fabrics under cover to the south. The corridor is defined by two sub-parallel, high-angle faults that strike north-northwest. The distance between the bounding faults is about 1.6 km. A gravity survey was done over the area to complement the structural projections.

The initial seven holes tested a 2.6-sq.-km area at quite wide spacing, targeting a steep gravity gradient anomaly. The sixth hole intercepted 36.6 metres of 9.5 grams, beginning 150 metres below surface. Follow-up drilling confirmed continuity and by April 2003, Placer had announced the initial discovery of a 3-million-oz. resource grading 2.98 grams gold, based on the first 40 holes.

Cortez Hills continued to grow and in a June 2004 update, Placer had outlined 7.5 million oz. in proven and probable open-pit reserves at an average grade of 5.4 grams gold, some 18 months after making the initial discovery. An extra 615,000 oz. were held in resources.

Proposed Development

In September 2005, Placer approved the US$480-million development of Cortez Hills and the lower-grade Pediment deposit, based on a revised open-pit plan that is shallower than originally envisioned and contains 5.5 million oz. at a projected recovery rate of 82.5%. The pit model takes in 4.3 million oz. in 30.4 million tonnes of ore grading 4.42 grams for Cortez Hills, plus 1.2 million oz. in 34.3 million tonnes of lower-grade Pediment ore averaging 1.13 grams.

Cortez Hills is a mixture of high-grade oxide, low-grade oxide and refractory ore. Higher-grade oxide ore will be processed at the existing Pipeline mill, while lower-grade ore will be leached at a new facility to be built near the deposits. The refractory ore is primarily in the deeper areas of the mine plan and represents only about 5% of the potential net revenue from the pit.

Production for the first 10 years, including Pipeline, is forecast to be about 710,000-730,000 oz. at cash costs of US$290-US$300 per oz.

A high-grade mineral resource of close to 4 million additional oz. that now sits below the bottom of the Cortez Hills pit model is being investigated as part of an underground mine development project that is already under way. At the time, Placer estimated Cortez Hills held an additional 2.4 million oz. grading 14.4 grams in underground indicated resources plus 1.5 million inferred oz. at 11.1 grams gold.

Twin exploration declines are being driven from existing open-pit workings to access and explore the area underneath the proposed Cortez Hills open pit. The declines will enable more cost-effective exploration of deeper targets, confirm grade and continuity of existing mineral resources through closer-spaced infill drilling, and determine applicable underground mining methods. To date, the declines have been advanced more than 3,000 metres. About 60,000 metres of drilling is planned for 2007.

Permitting of the proposed Cortez Hills-Pediment complex is still in progress. “Permitting is a major challenge,” acknowledged Wilkins during a presentation at the Denver Gold Show. “Placer originally thought they would have those permits, a record of decision, in the first half of 2007.”

Barrick now expects that it won’t be until sometime in 2008 before the environmental impact study record of decision is obtained.

Once the project has been permitted, Barrick anticipates that construction will be completed in about 15 months. There is also 104 million tonnes of pre-stripping to remove. The procurement of equipment, primarily the open-pit mining fleet, is already under way.

Cortez Hills is hosted in the hangingwall of the main Cortez fault system in the upper portion of the Devonian carbonate sequence. The deposit dips sub-parallel to the dip of the Cortez fault, with individual zones of high-grade mineralization dipping between 65 and 75 southwest and striking north-northwest. The top of the deposit starts 105 metres from surface and extends downward at least 600 metres and along strike for 550 metres. The true thickness averages 120 metres. Cortez Hills is still open laterally at depth.

Mineralization plunges steeply through the entire length of the Wenban limestone member of the stratigraphic column. The top of the deposit starts in the Horse Canyon
member of the upper Devonian sequence, cutting through Wenban, a more micritic limestone member that has been altered to marble. Most of the gold is a later overprint on that earlier marble event, with a strong oxide overprint on the marble.

The mineralization at depth continues less steeply into the underlying Roberts Mountains Formation. It is that transition between these two formations that hosts Pipeline-South Pipeline, Gold Acres and Cortez.

Gold mineralization at Cortez Hills follows the structural intersection between a series of north-northwest- and west-northwest-striking faults. The result is a strong fracturing that plunges to the southwest. Higher-grade mineralization appears to be associated with decalcification of marbles, and development of hydrothermal or tectonic breccias along structural corridors.

There is a deeper zone of sub-horizontal, refractory mineralization in the upper portion of the Roberts Mountains Formation that may be related to low-angle thrust faults. This deeper zone lies 600 metres below surface and some 90-120 metres below the Cortez Hills pit model. It’s this zone, as well as high-grade breccia mineralization hosted in the Wenban Formation beneath the pit limits, that’s being assessed for underground mining.

In 2006, the joint venture completed more than 67,000 metres of drilling in more than 200 holes at Cortez, using five core rigs and three RC rigs. Barrick received favourable results from deep drilling on the Cortez Hills Lower zone, with significant intercepts recorded over 900 metres of strike extending west and into the south under the Pediment deposit.

Some of these deeper gold intercepts moving north to south through the heart of the Lower zone, included: 30.5 metres of 16.4 grams; 22.9 metres of 15.7 grams; 14.9 metres of 26.1 grams; 6.5 metres of 33.9 grams; 10.7 metres of 15.1 grams; 9.3 metres of 32.9 grams; 22 metres of 27.3 grams; 16.2 metres of 16.4 grams; 18.3 metres of 8.9 grams; 85.4 metres of 18.2 grams; and 43.6 metres of 18.2 grams.

Rob Krcmarov, vice-president of global exploration for Barrick, said that was about 3,000 ft. of high-grade mineralization with excellent continuity of grade and thickness.

“This is new mineralization that we found during last year and it’s still open. In fact, one of the final holes of last year intersected oxide mineralization at the southern limits of drilling,” Krcmarov said. “With these sorts of grades and thicknesses, the ounces can pile up very quickly. Our strategy is to scope out the mineralized envelope and then eventually return to do the infill drilling and get the reserves and resources on our books.”

This new mineralization is not currently included in resources.

Elsewhere at Cortez, Barrick is targeting the delineation of both oxide and refractory ounces in the old pit areas at Gold Acres and Cortez. The very first hole drilled in the historic Cortez area has returned a significant oxide intercept below the existing pits, reports Barrick.

This year, the company is planning to spend US$14 million in exploration on the Cortez joint venture.