A strong third-quarter performance by the Ovacik gold mine in Turkey augurs well for
Ovacik, which is wholly owned by
Gold and silver recoveries were above design and continue to improve; gold recovery was predicted to exceed 91%.
Startup was stalled for more than three years by permitting problems that arose as a result of fears in the local community over the health effects of cyanide use. Normandy and then-partner Inmet Mining finished construction of a 300,000-tonne-per-year processing plant and associated mine infrastructure in December 1997 at a cost of US$49 million. Normandy later bought out Inmet’s 33.3% stake in Ovacik in 1999.
Ovacik is a combined open-pit/underground operation utilizing a rod and ball mill and a hybrid leach, carbon-in-pulp processing circuit to recover gold dor. The operation is slated to produce 100,000 oz. gold per year, with an equal amount of silver, over a minimum life of eight years.
The mine is near the country’s west coast in the Aegean region, 120 km north of the city of Izmir, and is immediately adjacent to the Ovacik village, with a population of 350. The surrounding villages are dependent on small-scale agriculture, particularly tobacco, cotton and olives.
The project endured a long and arduous permitting process, only to have approval withdrawn in November 1998 because of the perceived risks identified in a Turkish court ruling.
Ovacik is the first recorded gold mine in Turkey since Roman times. “This is not something that the bureaucrats, politicians or the local population is terribly conversant with,” says Normandy spokesman David Constable. “It’s not as if they have five other operations they can compare it with. You have to understand that they’re coming from a position where if someone mentions cyanide, they think of gas and poisonings. We’ve had to overcome that, and obviously we have to run the cleanest operation we possibly can.”
Eldorado, which holds several advanced-stage gold projects in Turkey, has been forced to wait on the sidelines while Normandy gets Ovacik permitted, up and running, and establishes a track record that gives the government and bureaucrats some level of comfort.
“Our strategy is to continue to monitor that situation,” says Dale Churcher, Eldorado’s manager of project development, “and the longer they operate, the better it is for us and the better it is for the marketplace to establish that, yes, you can operate gold mines in Turkey.”
In 1999, the Turkish government commissioned a study of the Ovacik project to assess the risks to human and environmental health. The report, completed in October 1999, stated that the risks cited in the court ruling had either been reduced far below the acceptable maximum limits or eliminated.
Commissioning tests performed by Normandy verified the performance of the cyanide destruction process and heavy metals precipitation circuit for tailings treatment.
The chemical destruction and metal stabilization units are complemented by a fully lined impervious tailings dam constructed to withstand a major seismic event, with zero waste discharge to the environment and underground water monitoring boreholes.
“The tests clearly indicated that the Ovacik mine met all rules and regulations of the Turkish government and has high standards of safety, reliability and environmental and ecological protection,” according to a company report.
The report adds that Ovacik conforms with, and in many cases exceeds, recommendations made by the United Nations-led task force following an assessment of a major cyanide spill in Romania in 2000. The task force was established to identify and recommend improvements to legislation covering European mining waste.
Ovacik began processing old stockpiled material in April after finally being granted a one-year trial health permit. Constable says the interim permit is not that unusual in cases where there may be questions about the operation or the associated risks.
Normandy reports that the cyanide destruction plant performed “impressively” in the third quarter and that the mine site met all environmental obligations.
Four veins
Ore will be mined from both open pit and underground in the first three years and thereafter solely from underground. The Ovacik deposit consists of four mineralized, steeply dipping, epithermal quartz veins hosted in silicified andesite volcanic rock. Two of the veins, known as M and S, contain ore-grade mineralization over an average width of 8 metres and strike lengths of 400 and 280 metres, respectively. The veins extend for at least 250 metres downdip. Gold is fine-grained with an average size of 0.005 mm. Associated sulphide minerals are almost absent, at less than 0.15%.
Ovacik was discovered by the Normandy-Inmet joint venture during reconnaissance fieldwork in 1989. A regional program of stream-sediment sampling was conducted in specific areas of Turkey, resulting in the delineation of gold anomalies near Ovacik. Follow- up exploration revealed an outcropping quartz vein, with high-grade chip values, in an area containing ancient mine workings, including shallow pits, shafts and stopes. These workings are thought to date back to Roman times. A diamond drilling program at the end of 1989 confirmed the potential of the discovery.
A single pit is being developed on both veins; it will extend to a depth of 85 metres on 2-metre-high benches. The underground portion of the orebody is accessible by a series of crosscuts in the hangingwall via a 4-by-4.5-metre decline. The proposed mining method is overhand cut-and-fill stoping using mobile mining equipment. According to Constable, the underground is still ramping up to some extent. The decline is being extended and additional development levels are being added.
Reserves at June 30, 2001, stood at 1.3 million tonnes grading 13 grams gold, equivalent to 530,000 contained ounces. The total resource is estimated at 4.2 million tonnes grading 7.6 grams gold, or 1 million oz. Ovacik will provide direct employment for roughly 250 people.
Gencor deal
In 1996, in a share-for-asset swap, Vancouver-based Eldorado acquired the overseas gold assets of South Africa’s Gencor, including the 100,000-oz.-per-year Sao Bento underground mine in Brazil. The portfolio of properties included 21 exploration and development projects in Turkey. Gencor later merged with Gold Fields of South Africa to form
At the time of the Gencor deal, Eldorado was producing about 50,000 oz. gold per year from its La Colorada open-pit, heap-leach mine in Mexico and getting ready to start production at the smaller, joint-ventured Trinidad mine in the same country.
The company raised $91 million at the end of 1996 through the syndicated sale of 10 million special warrants priced at $9.10 each. Eldorado went through an incredible burn rate in 1997, spending more than US$40 million on exploration and development at a time when the mining industry was starting to reel from low gold prices and the Bre-X debacle.
Following a change in management, Eldorado hunkered down to become a leaner, meaner gold producer. The ailing La Colorada mine was sold last year and the cash flow from the Sao Bento mine has been used to pay down bank debt owed to N.M. Rothschild, which, at Sept. 30, stood at US$15.4 million, down from US$24.5 million at the end of 2000 and US$40 million in 1997. Churcher estimates the company will have reduced its long-term debt to around US$14.5 million by year-end. In addition (to c
reate some breathing room), the company is negotiating with holders of a US$9-million convertible debenture.
Eldorado has 102.3 million shares outstanding and is trading at 27 in a 52-week range of 63-22.
Sao Bento
For the nine months ended Sept. 30, the Sao Bento mine produced 79,841 oz. at a cash operating cost of US$222 per oz., including US$37 per oz. of amortization of Brazilian real hedging losses incurred on the closing of its currency hedge position. Total production costs were US$311 per oz.
Although Eldorado has advanced several gold projects in Turkey, the Kisladag project has gained the most attention, owing to the discovery of a major 6.7-million-oz. porphyry gold resource.
Measuring 43 sq. km, Kisladag lies in the west-central part of the country in moderately hilly terrain, 30 km southwest of the provincial capital of Usak.
The property was acquired in February 1997 based on satellite imagery work that identified two large-scale alteration systems. Early stream-sediment and soil sampling, along with an induced-polarization geophysical survey, helped define a gold anomaly measuring 1,200 by 600 metres along the northern slope of the 12-sq.-km Gokgoz Tepe alteration zone. Initial trenching revealed a 0.8-gram gold envelope averag- ing 200-250 metres in width extending along a strike length of 400 metres. Shallow percussion drilling in the fall of 1997 confirmed gold values of 0.7-1.5 grams per tonne beneath the trenches to a depth of 50 metres.
Toward the end of 1998, Eldorado tested the anomaly with six diamond drill holes totalling 1,060 metres. All six intersected zones of gold mineralization within quartz-alunite-tourmaline altered andesite flows and pyroclastics, overprinted by several phases of quartz stockwork and breccias. Three of the holes bottomed in mineralization at a depth of 250 metres. Results ranged from 115.7 metres grading 1.19 grams to 250.4 metres of 1.77 grams.
Based on the results of 6,065 metres of additional core drilling in 22 holes in 1999 and a 29-hole, 7,600-metre reverse-circulation program in 2000, Micon International estimated a 6.7-million-oz. resource. The measured and indicated portion stands at 126 million tonnes grading 1.2 grams, equal to 4.8 million oz. The estimate is based on a cutoff grade of 0.4 gram gold per tonne. A further 1.8 million oz. are contained in an inferred 55.5 million tonnes grading 1.03 grams.
Open at depth
The overall dimensions of the Kisladag deposit are 750 by 500 metres. The deposit remains open at depth. One hole drilled to 420 metres of depth bottomed in mineralization. The eastern part of the deposit contains a crescent-shaped, higher-grade zone in excess of 3 grams, with a strike length exceeding 300 metres and a width varying from 40 to 120 metres.
A coarsely porphyritic latite that has undergone extensive hydrothermal alteration hosts most of the gold mineralization. An early potassic phase of alteration has been overprinted by later quartz-tourmaline and advanced argillic alteration. Gold is associated with multiple phases of tourmaline-pyrite, pyrite and quartz-pyrite veining plus brecciation, and is accompanied by minor amounts of zinc and molybdenum.
Oxidation in the deposit varies from east to west, extending a few metres in the west to 40-50 metres in the east. About 20.6 million tonnes of the measured and indicated resource are oxide, the remainder being sulphide.
Metallurgical tests on the oxide and sulphide material suggest both are amenable to heap leaching. At moderate crush sizes of 7-10 mm, gold recoveries in the range of 80% can be achieved in the oxides, with recoveries in the sulphides estimated at a much lower 57%.
Eldorado has considered various approaches to developing Kisladag. A May 2001 prefeasibility study by Kilborn Engineering Pacific proposed an open-pit, heap-leach operation capable of producing more than 103,600 oz. annually over a mine life of 11.5 years.
“The production scenario gives us reasonable gold production with a minimal amount of capital investment [and] it gives us the option of ramping up the size of the operation,” says Churcher, who adds there is potential for expanding the operation down the road.
The mine design was based on a 10,000-tonne-per-day (3.4-million-tonne-per-year) operation and proven and probable reserves of 39.7 million tonnes grading 1.44 grams, or 1.8 million contained ounces, with a stripping ratio pegged at 0.51-to-1. The key to the pit design, says Churcher, was “to minimize costs by minimizing pushbacks and waste handling.”
Eldorado had Kilborn prepare an addendum to the study to reflect changes in economic conditions in Turkey following devaluation in the lira of more than 55%. The updated study dramatically reduced the project’s capital cost estimate by 37% to US$29.6 million from a previous US$47.4 million. Sustaining capital, however, rises by 30% to US$17.3 million, as compared with US$13.3 million.
Based on a gold price of US$275 per oz., the addendum forecasts an aftertax internal rate of return of 32% and a net present value of US$38.7 million at a discount rate of 8%.
Eldorado is preparing to begin an environmental impact assessment, along with some deeper drilling along the perimeter of the deposit.
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