Bendigo, Australia —
Making a bit of history itself, the Australian-listed junior recently tabled the first-ever reserve estimate for at least a tiny chunk of the notoriously nuggety goldfield. Probable reserves in the Upper S3, D3 and Christine No. 2 reefs (or anticlines) on the Sheepshead and Deborah lines are pegged at 438,500 tonnes grading 7.5-9.5 grams gold per tonne (with a best estimate of 8.5 grams), equivalent to about 120,400 contained ounces. The estimate is based on a total of 1,063 metres of drilling in 219 holes, 443 metres of reef development, 25 bulk samples, and 300 samples weighing 50 kg each.
Bendigo Mining CEO Douglas Buerger says any reserve estimate from the New Bendigo project will have grades reported within a range, owing to the nuggety nature of the ore.
“We don’t get drill-indicated reserves,” he says. “What we do is drill on fairly tight-spaced patterns, about 40 metres apart, and tight fans. Tonnages will be accurate because the structures are well-defined, but the grades are all over the place.”
Initially, long-range holes up to 400 metres long are sunk from higher up in the production-sized (5.5-by-5-metre) Swan decline. As the decline gets closer to the orebody, fan holes are sunk; then a drive is cut along the ore. Drilling from within the orebody defines the geometry.
Grade determination
In addition to drilling, Bendigo is collecting 80-to-100-tonne bulk samples, and each round of development is accompanied by the collection of two 50-kg samples. Chip samples are taken from the working faces continually; these are run through a roll crusher, and the gold is manually collected and the grade assessed.
Additionally, the entire ore stream (in 1,000-to-1,200-tonne batches) generated during development is put through the trial processing plant. In assigning the grade, Bendigo also considers the amount of quartzite and the presence of arsenopyrite in the face.
Mine Manager Ian Crowe says drilling alone provides only so much. “You can drill a diamond drill hole and get bonanza grades, and drill two feet away and get absolutely nothing,” he says. “It’s a difficult project from the point of exploration.”
For the balance of the year, Bendigo plans to carry out fan drilling on the reefs at the bottom of the S3 ribbon. The company will also perform reef development, bulk sampling, and trail processing of development ore.
Bendigo intends to outline 200,000 oz. of reserves (enough for two years of production) by the end of 2003. The mining plan also calls for the delineation of five years’ worth of reserves and resource at any given time.
“We’ll probably never have more than two years of reserves ahead of us, because of the geographic distribution of what we’re looking at,” says Crowe. “The whole gold field is seventeen kilometres long, and we’re working on about five per cent of that. We’ll only define reserves that we need for production. As we move farther north, we’ll keep defining reserves. We know the gold is down there, but essentially the only way we can prove it is to mine it.”
Resource potential
In all, the company says the Bendigo goldfield is home to an independently confirmed “resource potential” (not covered by Australian codes) of more than 12 million oz. The resource is below historic workings on the five most productive of 15 productive lines of reef. These are New Chum, Sheepshead, Deborah, Garden Gully and Hustlers.
Says Buerger: “I reckon there’s probably close to twenty to twenty-five million ounces of gold in the current resource area. What it does laterally and deeper down, heaven alone knows.”
However, he says it would be impractical, if not impossible, to convert the entire possible resource into reserves, owing to its extent and erratic nature.
So far, the deepest gold-bearing drill intersections below the old workings have been 1,600 metres below surface on the New Chum line and 1,200 metres below surface on the Garden Gully line. There is no systematic variation in gold grade with depth. Significantly, those intersections are 6 km north of the current development campaign on Sheepshead and Deborah.
History
Gold was first discovered at Bendigo in 1851. The Geological Survey of Australia estimates that by the time mining ceased in 1954, some 22 million oz. gold (including 18 million oz. of hard-rock production and 4 million oz. of alluvial production) had been produced by the hundreds of producers that dotted the field. The bulk of the historic production was derived from quartz reef mining carried out from surface to an average depth of 500 metres.
Bendigo ranks behind Kalgoorlie’s Golden Mile as the second-largest gold production field in Australia. It is by far the largest goldfield in the state of Victoria.
In 1993, Bendigo Mining completed its consolidation of the goldfield by acquiring the leases of
Bendigo Mining’s plan to revive the goldfield hinges on its belief that the deposit has not been depleted and that past production ceased because of technological limitations, and also because of the increased cost at depth of the small workings and the low price of historically fixed gold.
“We have a mining licence in place, and one of our major advantages is that the licence extends over the entire gold field,” says Buerger. “We’ve got the whole lot plus another three-hundred square kilometres of exploration rights and ground.”
Geology
Coarse gold at Bendigo is found in structurally controlled mesothermal quartz veins hosted by Lower Ordovician turbiditic sediments. Compressional tectonism has pushed the sediments into a regular pattern of chevron folds to produce a series of anticlines and synclines trending north-northwest.
Known hard-rock gold mineralization at Bendigo, which is dated to the Upper Ordovician, is exclusively associated with quartz veins and faults, mostly in or near the anticlinal fold hinges. Gold in the quartz veins is typically coarse-grained (0.1-10 mm) and erratically distributed in association with albite, ankerite, sericite, pyrite, arsenopyrite, sphalerite, galena and chalcopyrite.
In general, the target reefs have a small cross-sectional area but strike for up to 5 km. The long axis of the reef runs parallel to the hinge of its host anticline. The reefs commonly occur in clusters to form distinct linear bands, or ribbons, which repeat at depth along subsequent anticlinal hinges.
The most productive part of the field is an area measuring 17 by 4 km and which contains 15 anticlines.
Aside from the difficulty in estimating reserves, the project presents another unique challenge in that essentially the entire potential resource lies directly beneath the town of Bendigo (pop: 85,000), about 150 km northwest of Melbourne.
However, Buerger believes the pros outweigh the cons. “One big advantage of operating here is that we don’t have the cost of flying a workforce in and out,” he says, adding that there’s a large pool of skilled workers present, and the problem of housing costs does not arise.
“When we started the project about five years ago, we set an internal goal of having half our employees come from Bendigo,” Buerger points out. “We’ve already achieved sixty-five per cent, which shows that there’s a pool of talent that was initially unrecognized.”
Currently, the project employs about a hundred people, and at full steam that number is expected to grow to about 350.
Ventilation
Among the problems facing Bendigo as it works underneath the town is ventilation. However, the company is working with the city council to zone bits of land where ventilation holes will be drilled.
Despite the promise of jobs, the project has faced some local resistance, particularly as pertains to waste (or mullock). More mullock than originally anticipated will be generated as crews mine extra gold identified in the southern portion of the goldfield. The company is considering three sites for disposal, one of which is the Mandurang Valley, to the south.
But residents in the valley are worried that arsenic or cyanide in the mullock will find its way to a local creek and contaminate the water table. But Buerger stresses that cyanide will not be present in the waste rock as it will be used only in an enclosed intensive leach reactor with a built-in cyanide destruction circuit. Moreover, company studies show that naturally occurring arsenic in the waste rock will not leach out and cause acid runoff.
The company’s preferred option is to store and re-use the mullock on site. Another option is to sell the waste for use in the proposed twinning of a highway between Melbourne and Bendigo. A decision will be made before October. Meanwhile, the ongoing government-administered planning process is expected to take about a year.
Aside from reserve estimation and environmental challenges, a bigger challenge at Bendigo is how to get the project to produce 500,000 oz. gold per year, given the configuration of the orebodies. But Buerger believes that once the company can prove it can produce at that rate for less than A$200 per oz., exploration will increase, and with it, reserves.
“There’s no reason why we shouldn’t find [more reserves],” he says. “It’s a very rich goldfield, one of the richest in the world.”
The geologic model at Bendigo is based on a hundred years of mining and has so far proved robust. “When we drill to find gold-bearing reefs in untested areas on the basis of our geologic model, we find them every time,” Buerger insists.
Mine plan
Initially, Bendigo will be mined at the annual rate of 300,000 tonnes to produce 90,000-100,000 oz. gold in each of the first two years. First-phase mining will target reefs near the Swan decline on the Deborah and Sheepshead lines. During the second stage, annual output will increase to 750,000 tonnes, or 250,000 oz. Two years later, the mining rate would double to 1.5 million tonnes, or 500,000 oz. gold annually. In all, the operation is expected to run for a quarter of a century.
“We say we have a mine for twenty-five years, but I think that once mining starts here it won’t stop for a hundred years,” Buerger says. “You can’t be a nancy to get this one going; you’ve got to have the balls to develop it.”
The average historic mining head grade for the five central lines of reef is 16.5 grams gold (recovered grade: 15.2 grams); the conceptual model employs a head grade of 11 grams.
Initial processing plans include primary and secondary crushing to 8 mm, grinding down to about 300-400 microns, and then liberating as much as 80% of the gold by gravity. A float circuit will recover the remainder, with overall gold recovery pegged at 98%. Cyanide will only be used in the final recovery of gold from the concentrates produced in the main plant.
Explains Crowe: “The geology is difficult, but that makes the metallurgy easy. With neighbours relatively close, the most difficult thing we have to deal with metallurgically will be the noise level from the plant. The crushing facilities will have to be enclosed in a building.”
Startup had been envisaged for mid-2004, but that has been pushed ahead to early 2005, owing to delays in fund-raising and development.
Once the mine hits full steam, cash operating costs are expected to be about A$200 per oz. with total cash costs pegged at A$245 per oz. Capital costs in the first stage of production are expected to be A$50-60 million (up from a previously estimate of A$40-50 million), with A$50-60 million projected for ugrades in the second stage and A$140 million for ugrades in the third. At the end of March, Bendigo had A$25 million in cash available, of which A$18 million was budgeted for the current round of exploration. Ultimately, the program will encompass 10 of the 17 reefs identified.
Based on a gold price of A$525 per oz. and a 10% discount rate, the mine, at full production, is expected to generate annual income of A$170 million (before interest, taxes, depreciation and amortization). Net profits after taxes are projected to be A$95 million per year; the net present value, A$400 million; and the internal rate of return, 25%. These estimates assume an exchange rate of US65 per Australian dollar.
Harmony Gold
Financing for the first phase of production has not yet been secured. Also, South African-based
Over the past five years, Harmony paid about A$450 million to amass its Australian portfolio, which includes the New Hampton and Hill 50 gold mines in Western Australia plus a few other assets.
Harmony holds options for 360 million Bendigo shares at a strike price of A30 per share. Fully exercised, the options would see Harmony’s stake climb to 51% and A$108 million flow into Bendigo’s coffers. But considering Harmony’s Aussie writedown, and the fact that Bendigo’s share price has been hovering around A20 apiece for six months, the prospect looks improbable. The options expire at the end of the year.
As a result of a R598-million impairment charge on its Australian mines, Harmony, the world’s fifth-largest gold producer, posted a loss of R478 million for the three months ended June 30, compared with net profits of R235 million in the previous quarter. The company was caught out by a resurgent Australian dollar and stronger rand.
Harmony plans a 12-month review of its Australian assets and is confident some value remains. The company also trimmed its Australian ore reserves by about 800,000 oz., to 1.5 million oz.
Going forward
Bendigo continues to explore a high-grade discovery in the Lower S3 Garrard reef. There, 50-kg samples are consistently returning more than 30 grams gold per tonne over the 80 metres reached so far. Drilling has traced the 4-metre-wide reef over 450 metres.
Where the company goes next depends on what it finds as it tests for depth extensions to the D4 and S4 reefs on the Deborah and Sheepshead lines. “Depending on what we find there, we’ll decide whether to send the decline deeper in the future or head north,” says Crowe. “We plan to stay in the south and extract as much gold by going deeper, and make our way slowly north.”
Meanwhile, Bendigo is inching toward completion of a feasibility study. The work includes mine design, dewatering and ventilation requirements, secondary egress, metallurgical tests, and the treatment and disposal of tailings, water and mullock. The study also envisages an on-site, 300,000-tonne-per-year processing plant.
The company is seeking various permits, including one for expanding the mine site to allow for disposal of mullock and the use of cyanide on-site. Bendigo is also investigating alternative forms of funding for the initial stage of production.
A decision on whether to proceed with construction of a commercial mine is expected in the fourth quarter. Construction would last a year.
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