LATIN AMERICA — Cambior’s Omai mine aims to sustain production levels — Plan hinges on development of soft rock reserves at mine site in northeastern Guyana

With operations now running smoothly at the Omai gold mine in Guyana, owners Cambior (CBJ-T) and Golden Star Resources (GSC-T) are paying extra attention to lowering production costs and searching for new soft-rock reserves.

Omai, one of South America’s largest gold mines, is on the left bank of the Essequibo River, some 160 km southwest of the capital, Georgetown. It is owned by Omai Gold Mines (OGM), which is held 65% by Montreal-based Cambior, 30% by Denver-based Golden Star and 5% by the Guyanese government.

The mine began producing gold in 1993 and, after a US$53-million expansion, completed in July 1996, produced its one-millionth ounce in 1997. So far, a total of US$253 million has been invested at Omai, including US$150 million for initial construction, US$10 million for a second tailings disposal area and US$3.6 million for an effluent treatment plant.

The importance of Omai to the Guyanese economy cannot be understated. In addition to being the largest modern industrial venture in Guyana’s history, the mine accounts for about 20% of Guyana’s gross domestic product.

In 1997, in what may have been its peak year, Omai produced 338,496 oz. gold. This year, the mine is projected to produce 327,500 oz., down from an original 1998 target of 345,000 oz.

For the first six months of this year, Omai produced 163,363 oz. gold from 3.8 million tonnes of milled ore, which included stockpiled material. The grade for the first half of the year was 1.45 grams gold per tonne and the recovery, using conventional gravity and carbon-in-leach methods, stood at 93%. Typically, about 30% is recovered by gravity methods.

Processing roughly 70% hard rock and 30% soft rock (mostly saprolite), the average throughput during the first half of 1998 was 20,864 tonnes per day, though on some days the rate was as high as 26,000 tonnes. The direct mining costs for the first half were US$10.49 per tonne (or US$243 per oz. gold), down significantly from the US$11.77 per tonne (US$243 per oz. gold) seen during the same period last year. Before the mill expansion, costs were above US$13 per tonne.

With 1998 representing the peak year at Omai in terms of tonnage mined, tonnage milled and employment, one of OGM’s key objectives is to push direct-mining costs below US$240 per oz. gold this year and into the US$220-per-oz. range in following years.

With about 25% of the costs at Omai arising from grinding media, tires, parts, chemicals and fuel, OGM has been making an effort to manage its consumables carefully.

Over the past couple of years, major savings have been made in grinding costs (as a result of lower ball consumption and longer liner life), in reagent costs (as a result of reducing by half OGM’s consumption of cyanide and activated carbon) and in effluent-treatment costs (as a result of reductions in the consumption of hydrogen peroxide).

The amount of diesel fuel used daily totals 70,000 gallons, with power costs amounting to US5.4 cents per kWh, or US$1.78 per tonne. OGM has internalized the trucking of fuel, with a resulting drop in costs.

In terms of improvements in the workforce, a dispatch system has increased productivity and moves have been taken to reduce accidents, overtime and thefts.

“The working environment is the best it has been in years,” says Norman McLean, OGM’s manager of human resources, noting that, in arbitration last December, OGM and the union negotiated a pay raise for hourly employees amounting to 12% in 1997 (retroactive to April 1997) and 7% in 1998.

Of Omai’s approximately 1,000 employees, about 80 are expatriates working on a 30-day-on/26-day-off schedule, with locals working on a 14-7 schedule. As part of OGM’s mineral agreement, there is a “Guyanization process” in force whereby expatriates are to be replaced on an escalating basis with Guyanese nationals.

This year at Omai, mining is taking place from two pits, named Wenot and Fennell. Ore feed will come mostly from Wenot, with activity at Fennell focused more on waste stripping.

As of Dec. 31, 1997, proven and probable reserves stood at 54.1 million tonnes grading 1.4 grams gold per tonne, equivalent to 2.5 million contained ounces gold using a gold price of US$350 per oz. The Wenot pit had reserves of 3.8 million tonnes of soft rock grading 1.25 grams gold and 11.9 million tonnes of hard rock at 1.87 grams gold. The Fennell pit had reserves totaling 27.3 million tonnes at 1.54 grams gold, with almost all the reserves in hard rock. As well, 10 million tonnes of soft and hard rock grading 0.82 gram gold were stockpiled beside the mill.

The 1.4-km-long, east-west-oriented Wenot pit exploits gold mineralization contained in a quartz-feldspar porphyry and rhyolitic zones that occur along a contact between andesite to the north and phyllitic tuff to the south. Within the rhyolitic intrusion, grades run about 2.9 grams gold, while, within widely spaced tensional veins in the sedimentary rock, grades are 1.5-1.6 grams gold. The Wenot pit, as it is currently defined, will be mined out in 2000-2001.

The 400-metre-diametre Fennell pit, in contrast, has been excavated into volcanic rock where gold mineralization occurs in a quartz diorite stock that is underlain by a 180-metre-thick diabase dyke, beneath which lies similar gold mineralization not included in the reserves.

With the current reserve base, Omai’s remaining mine life is nine years. A reduction in tonnage mined is scheduled to begin in 2000, and in the following year the tonnage milled is to be reduced. As the gold grades will be about the same (1.4 to 1.5 grams per tonne) in the years to come, production is due to tail off.

“The problem is we’re running out of soft-rock reserves,” says OGM Chief Geologist Yves Michaud. This year, the ratio of saprolite to hard rock being mined is roughly 36-to-64, and next year it will be about the same. However, after the extension of the Wenot pit is mined, OGM will be mining 100% hard rock, unless it develops a new source of saprolite feed.

Current milling costs are about US$3.24 per tonne, though these could rise into the US$3.80-3.90 range in 2002 when the soft rock is depleted. OGM is responding to the situation by trying to prove up more saprolite reserves in several areas within trucking distance of the Omai mill. This year, roughly US$1 million is being spent exploring the Wenot Pit area, the adjacent Quartz Hill and Omai River concessions, the Hicks property and the Eagle Mountain property.

At Quartz Hill there is a large geochemical soil anomaly for which the source rock has not yet been found. While the anomaly appears to occur along the western continuation of the same contact mined at the Wenot pit, the geology and structure of the Quartz Hill property are more complex. Work at the property is targeting three areas, namely Quartz Hill, Bangalee Creek and Billey Jones.

There is less information available concerning the Omai River concession, north and east of the mine, though some pork-knockers have been active in the area. Drilling is intended to follow up anomalies identified during last year’s field magnetics survey.

Last year, OGM reached an agreement with Cathedral Gold (CAT-T) to explore and develop the 6-sq.-km Hicks property, 35 km northwest of Omai. At Hicks, resources are estimated at 2.4 million tonnes grading 2.5 grams gold per tonne, or 190,000 contained ounces gold. A 1,300-metre drill campaign is designed to confirm the resource and expand it along strike to the northwest and southeast.

This past July, Cambior signed an agreement with Golden Star to explore and develop the latter’s Eagle Mountain property, which lies 50 km southwest of the Omai mine. Under the agreement, OGM can earn a 100% interest in the Eagle Mountain project by: paying Golden Star US$80,000; advancing Golden Star about US$3.7 million as a non-interest-bearing loan, to be repaid through the normal redemption of the Class I preferred shares currently owed to Golden Star; and fully funding the exploration and feasibility costs through to completion of a final feasibility study. If exploration is successful in defining a r
eserve resulting in a positive feasibility study and mine development, OGM will pay Golden Star both a 1.5% net smelter return royalty and US$1 million at the end of each year of commercial production for five years.

Work by Golden Star and others at Eagle Mountain has identified four flat-lying, stacked and collapsed mineralized breccia zones occurring over a 2.1-km strike length. Gold mineralization is associated with the margins of a granodioritic unit intruding mafic volcanic rocks, and mineralization may be related to a polymetallic porphyry system. Upcoming work, to be carried out by Golden Star geologists under OGM’s management, will endeavor to prove up the existing zones and test for extensions.

As well, there will be exploration on the far eastern extension of the Wenot pit, on the other side of a dyke near the mine’s airstrip. While some trenching has been performed, not enough gold has been found to warrant developing a pit.

With respect to Omai’s infamous tailings-dam failure in August 1995 and the resulting release of cyanide into the Omai and Essequibo Rivers, there continue to be aftershocks. The faulty Tailings Pond No. 1, which will not be used again, has been filled with waste rock and, at the time of The Northern Miner’s visit, was being covered with a saprolite layer. Drilling and sampling beneath the pond have shown that no cyanide has seeped through.

As well, a study has shown that the Wenot pit can be used as a tailings impoundment area when depleted, thereby reducing the construction requirements for the much sturdier and better designed Tailings Pond No. 2.

In the courtroom in mid-August, the Superior Court of Quebec dismissed a pesky class-action lawsuit filed against Cambior by the Quebec-based non-governmental agency Recherches Internationales Quebec (RIQ) in connection with the Omai spill. RIQ had been claiming C$69 million in damages on behalf of 23,000 Guyanese residents. Along with the dismissal, Cambior was awarded court costs.

The company says that in Guyana, some 600 claims related to the spill remain outstanding against OGM and that about 250 claimants have started judicial proceedings in Guyana. The aggregate amount of all 600 claims is said not to exceed US$1 million.

Since becoming involved with Golden Star at Omai in 1990, Cambior has secured the bulk of the financing, including the original US$150-million construction cost and the US$53-million mill expansion, and has absorbed the losses arising from the 1995 spill and the subsequent 6-month shutdown.

As of Dec. 31, 1997, OGM owed Cambior US$223 million, including an unpaid cumulative dividend on preferred shares of US$43 million not recorded in Cambior’s books. Cambior estimates it will receive 100% of the mine’s cash flow, except for US$5 million in preferred shares held by Golden Star, as repayment of its loans and preferred shares, until current mining reserves are depleted. Consequently, Cambior accounts for its investment on a fully consolidated basis and reports 100% of production. The Guyanese government also receives a 5% royalty on gold production, payable in kind.

OGM reported net income of US$2 million for the second quarter of 1998 and US$5.9 million for the six months ended June 30, 1998, compared with US$1.3 million and US$5.5 million, respectively, during the corresponding periods last year.

Golden Star recorded Class I preferred-share redemptions from OGM of US$500,000 in the second quarter, compared with US$600,000 for the same period last year. Golden Star says it expects to receive cash flow of about US$2 million from OGM in 1998 (down from US$2.5 million in 1997) through the redemption of Class I preferred shares.

During the current downturn in the gold market, Cambior’s production (derived mostly from Omai and Doyon) has been protected from low prices by one of the best hedge books in the industry. However, the company will become more exposed in 1999 and beyond, and it remains to be seen what impact this will have on the timing of production decisions at the three major gold projects it has waiting in the wings: Cerro San Pedro in Mexico, La Arena in Peru and Gross Rosebel in Suriname.