Undeterred by historic low gold prices,
The company has completed an in-house re-evaluation that shows a mine can be built for a total capital cost of US$40 million, including working capital and financing fees.
In Bema’s 1998 annual report, President Clive Johnson stated: “We will continue to pursue project financing, based on our belief that Julietta is an excellent asset that can be developed as a low-cost mine and a strong source of cash flow even in today’s poor metals market.” And at the recent annual meeting, he reiterated his position: “This is a mine that should be built at today’s gold price.”
Bema acquired a 79% ownership in the project in June 1998 through a merger with Arian Resources. The other 21% share is owned by private Russian interests.
Julietta is 250 km northeast of the port city of Magadan and 600 km south of
The deposit was discovered in 1989 and has been extensively explored and developed, first by Russian expeditions and later by Arian. The work, which has focused on only a small portion of the 110-sq.-km property, consisted of geological mapping, extensive trenching, 57,000 metres of diamond drilling and 3,000 metres of underground development.
Julietta is a low-sulphidation epithermal vein deposit hosted in Cretaceous volcanics. The steeply dipping veins trend east-west and vary in width from 10 cm to 7 metres, for an average of 1-1.5 metres. The current reserve comprises 14 quartz-sulphide veins in an area measuring 1 by 2 km.
A bankable feasibility study was completed by Davy International Canada in July 1996 and updated the following year by The Industrial Company (TIC) and MinCorp. Proven and probable reserves are estimated at 538,446 tonnes grading 24.65 grams gold and 407.5 grams silver per tonne, equivalent to 426,700 contained ounces gold and 7.1 million contained ounces silver. A possible component stands at 600,854 tonnes grading 15.93 grams gold and 277.9 grams silver, equal to 307,700 contained ounces gold and 5.4 million contained ounces silver.
The feasibility study indicated that a small-scale, 350-tonne-per-day underground operation could produce, from proven and probable reserves, an average of 110,000 oz. gold-equivalent annually over a 5-year mine life. With the inclusion of possible reserves, the mine life extends over nine years with an annual average production of 97,000 oz. gold-equivalent. Operating costs are estimated at US$119 per oz. gold-equivalent; capital costs, at US$70 million.
Bema had arranged commitments for US$60 million of debt financing from two senior lenders, Barclays Bank and Standard Bank of London, only to see the former walk away last year after being spooked by Russia’s financial instability.
Bema re-evaluated the project after losing its financing. “We went back to ground zero and said ‘let’s re-engineer it,'” explains Ken Booth, vice-president of corporate development and communications. Bema hired Vancouver-based consultant Orocon, which specializes in building small 350-to-500-tonne-per-day milling operations. Orocon is credited with building 11 such projects over the past 10 years.
Booth says one of the problems with the final feasibility study was that everything was sourced from the U.S., which added substantially to the costs. Bema intends to take advantage of the Russian market for low-tech items, such as cement and steel.
While lowering capital cost projections to US$40 million, the new development plan also lowers total cash operating costs to US$93 per oz. gold-equivalent, including taxes and royalties, for the first five years, or US$105 per oz. over a 9-year life. Unlike the Kubaka gold mine and
Production forecasts remain essentially unchanged at an annual average of 113,000 oz. gold-equivalent over the initial five years of mine life, or 95,000 oz. gold-equivalent per year over a projected nine years.
Bema’s development plan incorporates changes to the underground mining method by utilizing fully mechanized cut-and-fill mining instead of the more labour-intensive method proposed. Changes were also made to the mill flow sheet. While Davy’s feasibility proposed a whole-ore leach, Bema has opted to use conventional flotation concentration, with cyanide leach and standard Merrill Crowe recovery methods to produce dore bars. The metallurgy of the Julietta deposit is said to be straightforward, with projected recoveries of 93% for gold and 85% for silver.
Bema’s study projects an after-tax internal rate of return of 43%, using a gold price of US$280 per oz. and a silver price of US$5.50 per oz. At US$300 per oz. gold, the project will pay for itself in about two years, Booth says.
He adds that Bema has invested about US$10 million to date in Julietta. Last year, the company upgraded a significant portion of the access road and purchased a fleet of used heavy-duty construction equipment. The company is currently preparing the mill site so that foundations and footings can be poured, and is continuing with the road upgrade.
Bema is working within a time frame. One of the stipulations of the Julietta licence is that the project has to be in production by 2001. “It’s a very simple project,” says Booth. “The metallurgy is simple, the mining is simple. We’re confident we’re going to get bank financing; it’s just a matter of how much.” The company’s goal is to arrange project financing by year-end so that construction can begin in 2000.
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