Pacific North West buys past-producing Nixon Fork gold mine

While many resource companies are experiencing considerable pain in a bear market precipitated by worldwide recession, their well-funded brethren are using these conditions as an opportunity to acquire sound assets for pennies on the dollar.

And according to Pacific North West Capital (PFN-T, PAWEF-O), this is the case for an option it bought in December to acquire the Nixon Fork gold mine from St. Andrew Goldfields (SAS-T). Nixon Fork, a past-producer which closed in 1999, is located 56 km northeast of McGrath, Alaska, and about 350 km northwest of Anchorage.

Pacific North West bought the option for US$100,000. It has been conducting a due diligence inspection, and must decide by Feb. 15 whether it wants to go ahead with the purchase of the mine for another US$400,000. Spiros Cacos, manager of investor relations and corporate finance, says that it looks like the deal will go ahead.

The transaction has a special significance for Greg Myers, vice-president of business development, because it closes a circle for him. While working for Battle Mountain Gold, Myers, an expert in skarn deposits, was a member of a team which discovered the skarn deposit at Nixon Fork in 1984-5.

Nevada Goldfields operated the underground mine between 1995-1999, but closed it because of a low gold price. The mine produced 138,000 oz. gold, 2.1 million lbs. copper, and some silver. Average head-grade was 42 grams gold per tonne, and production costs averaged US$266 per oz.

St. Andrew bought the mine in 2003, spent US$15 million on upgrades, and completed about 9,500 metres of drilling. In 2007 the mine produced about 6,800 oz. gold and 79,000 lbs. copper.

A National Instrument 43-101 resource estimate dating back to 2006, which was prepared for St. Andrew, puts proven and probable reserves at 184,000 tonnes grading 18.6-34 grams gold per tonne, for 134,000 oz. gold. At a cutoff grade of 21 grams gold per tonne, measured, indicated and inferred resources are estimated at 126,000 tonnes grading 27.7-36.8 grams gold, for 132,000 oz. gold. Tailings are estimated to have indicated and inferred resources of 116,000 tonnes of 8.1 grams gold, for 30,000 oz. (Because the estimate was prepared before mining occurred in 2007, the gold that was mined that year should be subtracted from the estimate.)

The 2006 technical report also calculates project economics, but many of the cost parameters and commodity prices have changed since. However it is worth noting that the report projects a 45,000 tonnes throughput per year, for annual gold production of 40,000 oz.

Based on reserves, mine life was estimated at four years. At 2006 prices, operating costs were estimated at US$359 per tonne milled, or US$368 per oz. gold. Copper grades were estimated at 1.2%, and silver grades at 27 grams per tonne. The technical report puts third party royalties at 7%.

The mill, with an estimated capacity in the 140-200 tonne per day range, includes a flotation plant, a gravity gold separation circuit and a new CIL (carbon in leach) circuit. The site has mining vehicles, a power plant with four diesel generators, maintenance facilities, living quarters, offices and an airstrip.

While in operation, the mine produced dore bars from gravity circuit concentrate, while concentrate from the flotation circuit was shipped for further processing. Once the CIL circuit is operational, it would process tailings from the flotation circuit.

The mine and mill are permitted and bonded. A 115,000-tonne stockpile of mill tailings grading about 8 grams gold per tonne is ready to be fed to the CIL plant. The mine is accessed via a 250 metre deep ramp, but the company hopes that in future it will be possible to mine it as an open pit.

Pacific North West’s objective is to bring Nixon Fork back to production, and it plans a technical and financial evaluation of the project. It believes that the property has the potential for discovery of more resources with further exploration.

The company figures that it may be able to re-start production with a capital expenditure of US$1 million, with a view to producing 40,000 oz. gold per year. With the new CIL circuit, Pacific North West hopes to achieve gold recoveries as high as 98%.

The Nixon Fork deal represents a diversification strategy for Pacific North West, which, until now, has focused on platinum exploration. It is interested in diversifying because, in the current economic crisis, the gold market seems more resilient.

Gold produced at Nixon Fork is subject to a 7% net smelter return (NSR) royalty, while copper and silver are subject to a 4% royalty. The property is subject to a monthly lease payment of US$3,000, which is credited as a royalty prepayment.

Nixon Fork can be reached by a charter aircraft operating from McGrath, Anchorage or Fairbanks. The airstrip can handle a Hercules C-130 aircraft. Winter road access is available from McGrath, and river access is available via Kuskokwim River from Bethal on Bristol Bay to Medfra, 13 km south of the mine on a winter trail. When the mine was in operation, diesel was flown to site, but it might be possible to ship it on barge.

The Nixon Fork deal does not mean that Pacific North West has lost interest in platinum. In December the company entered into an option agreement with Kinbauri Gold (KNB-V) for the Fiedmont platinum project in Quebec’s Val d’Or region.

On October 31, Pacific North West had working capital of $7.7 million, 61.7 million shares outstanding, and 76.8 million shares fully diluted. At presstime, the company’s shares were trading at 13¢. The shares have traded in a 5-61¢ range over the last 12 months.