Precious Metals: A review and outlook for gold, silver and (March 01, 1991)

The silver market performed poorly in 1990, as monthly average prices steadily declined because of a combination of soft investment demand and increased by-product output. The London silver price continued to decline to an average of $US4.83 per oz. from $5.50 in 1989 and $6.51 in 1988.

In Canada, silver production rose in 1990 to 1,399 tonnes (t) from 1,312 t the previous year, in spite of a substantial reduction in output at two of Canada’s largest byproduct silver producers. Although output increased, the value of production fell to $C255.6 million from $274.7 million in 1989.

New Brunswick recorded the greatest drop in production, down 40% from 1989 to less than 115 t in 1990. The reduction in output was largely a result of the continuing strike at Brunswick Mining and Smelting Corp.’s Bathurst operations, where 1,100 miners and 470 smelter employees walked out July 1 and July 21, respectively.

Silver production in British Columbia increased by 25% to 622.7 t in 1990. The major contributor to this increase was the Samatosum mine owned by Minnova Inc. and Rea Gold near Kamloops, B.C. The mine completed its first full year of operation and is estimated to have produced more than 133 t of silver. Minnova plans to extend the life of the mine to 1993 by proving up 210,000 t of underground reserves. Definition drilling, from a 200-metre adit, commenced in November and is targeted for completion early in 1991. A development decision is expected by mid-year.

The greatest loss of production in B.C. resulted from the temporary suspension of operations at Cominco Ltd.’s Sullivan mine in Kimberley. The mine closed in January because of rising production costs and did not resume output until November, after completion of an $11-million development program.

Silver output during 1990 at Canada’s largest silver producer, Equity Silver Mines in B.C., is estimated at 211.5 t, essentially unchanged from the 1989 level. Production is expected to decline by 47% over the next two years leading up to the scheduled closure in 1992. Equity Silver and the B.C. government have yet to determine funding requirements to meet post-closure reclamation costs. However, the company has deposited $21 million towards reclamation and will provide an additional $10 million during 1991.

Silver production in the Yukon increased by 19% over l989 to 84.5 t in 1990 due to increased by-product silver. The Yukon’s output is expected to increase again in 1991 when Curragh Resources and its 20% partner, Hillsborough Resources, bring the 90,000 t-per-year Mount Hundere mine on-stream. Reserves are estimated at 5.1 million t grading 65 grams silver per t, 12.6% zinc and 4.7% lead.

In central Canada, overall silver production remained essentially unchanged.

Canadian silver production will decline substantially over the next few years as reserves are exhausted and mines close. However, the level of production is expected to recover slowly over the long run from byproduct output as new mines come on-stream and additional reserves are outlined.

Outlook

Silver, like gold, has the good fortune of being used for both investment and industrial purposes. Unfortunately, supplies of silver have been increasing steadily, but involuntarily, from both base metal and gold mining operations, and this has exerted downward pressure on prices.

The price of silver is expected to remain depressed and fluctuate in the $US3.50-to-$4.50 range during 1991, as supplies continue to rise and demand remains soft.

The production of platinum group metals (pgm) in Canada in 1990 is estimated to have increased to 11,209 kg from 9,870 kg in 1989. While the bulk of Canadian production is derived from the operations of Inco and Falconbridge at Sudbury, Ont., small amounts are also produced from Inco’s operations at Thompson, Man., and the Namew Lake mine of Hudson Bay Mining and Smelting Co. (HBMS) and Outokumpu Mines at Flin Flon, Man.

Madeleine Mines’ Lac-des-Iles palladium-platinum property, in northwestern Ontario, started production in December at a rate of 3,000 tonnes (t) per day. The company expects the operation to have an annual output of 4,665 kg pgm, 625 kg gold, 900 t copper and 900 t nickel. Estimated reserves at the Roby zone are more than 20 million (t) grading 6.4 grams pgm per t, with a platinum-to-palladium ratio varying between 1:4 and 1:8.

There was a significant drop in pgm exploration in Canada in 1990. Factors contributing to the decline included the reduced availability of risk capital and lower prices for both platinum and palladium.

The average price (in U.S. dollars) of platinum went from $510 per oz. in 1989 to $471 in 1990. The price of palladium also declined to $114 from $145 in 1990.

Rhodium prices skyrocketed to $7,000 per oz. in July, 1990 in response to production problems in South Africa and reduced supplies from the U.S.S.R. The strong growth of rhodium consumption for 3-way automobile catalysts in recent years is expected to continue in the 1990s as new automobile emission regulations are introduced or existing regulations are strengthened.

Gold prices peaked (in U.S. dollars) at $421 per oz. in the first quarter of 1990, declined to a low of $346 at the end of the second quarter, and increased gradually to $370 before the invasion of Kuwait by Iraq on Aug. 2. Prices increased to a high of $416 on Aug. 23, followed by a decline to $380 in November. Increased uncertainty in the Middle East brought prices to the $400 level by year-end.

Other factors influencing the price of gold in 1990 were heavy sales by Middle East countries, strong production levels by Western World mines, increased exports by socialist countries, and high interest rates in most industrialized nations.

There were 60 primary gold mines in Canada at the end of 1990, which accounted for about 80% of the 165,000 kg of gold produced during the year. Total employment in gold mines declined by 13.5% to 10,937 jobs in 1990 from 12,645 jobs in 1989.

Reported value of Canadian gold mine production, calculated on the basis of average cash gold prices increased by 2.7% to $2.378 billion.

British Columbia

In 1990 British Columbia’s gold production reached 16,100 kg. The Golden Bear gold mine of Golden Bear Operating Co. and Homestake Mining Canada started production in February. Homestake’s U.S. parent company will take a writedown of about $US34 million in its Canadian subsidiary, North American Metal Corp. Design capacity of the operation is 360 tonnes (t) per day, but the company had to cut back production by 50% due to problems in roasting the refractory oxide ore.

Westmin Resources reactivated the former Silbak and Big Missouri gold and silver operations. The mill is currently operating at a rate of approximately 2,300 tonnes per day.

Skyline Explorations suspended operations in September at the 270 t-per-day Johnny Mountain gold-copper-silver operation. The closure resulted from the company’s inability to develop new reserves.

MinVen Gold Corp. closed its 180-t-per-day Blackdome mine due to declining ore grades.

More than $C25 million was spent on the Eskay Creek gold-silver property of Prime Resources and Corona Corp. Drilling on the property totalled 200,000 metres and a 500-metre adit was driven. A feasibility study is planned and the property could be in commercial production by 1994. The deposit is estimated to contain 43.97 million t of ore grading 26.4 grams of gold per t and 998.4 grams of silver per t. Prime and Stikine Resources each own 50% of the Eskay Creek property. Both are controlled by Corona.

In early July, Cominco formally announced the decision to proceed with the $65-million Snip gold-copper-silver project, held jointly with Prime. Production started in January, 1991, at a rate of 300 t per day. The Snip project has reserves of 936,000 t with a gold content of 30 grams per t. The mine is expected to employ 150 persons.

Control of the Mount Milligan porphyry gold-copper deposit of Continental Gold was formally taken over by Placer Dome last fall. Exploration work on the property continues at a reduced rate, pending a feasibility study and a production decision. The Mt. Milligan deposit contains 400 million t of reserves grading 0.2% copper and 0.48 grams of gold per t.

A feasibility study on the Mount Polley porphyry copper-gold deposit of Imperial Metals Corp. and Corona concluded that this $131.5-million, open-pit project would have a payback of 3.6 years. The project is undergoing the mine development review process and is awaiting financing. Reserves are estimated at 48 million t grading 0.38% copper and 0.55 grams of gold per t.

In the northwestern part of the province, Geddes Resources continued with a $15.5-million program on the Windy Craggy copper-gold deposit. Current probable and possible reserves are about 210 million t grading 1.59% copper, 0.18 grams of gold per t and 3.62 grams of silver per t.

The $22-million QR gold project of QPX Minerals received approval in principle by the Mine Development Review Committee and is also awaiting a production decision. This project has estimated reserves of 1.2 million t grading 5.2 grams of gold per t.

Yukon and Northwest Territories

Gold production in Yukon and Northwest Territories increased to 15,100 kg. in 1990.

The opening of the Colomac mine by NorthWest Gold Corp., a subsidiary of Northgate Exploration, in the Indin Lake area, is partly responsible for that increase. This mine is unique in the Northwest Territories in that it is a low-grade, high-volume open pit operation. The first gold bar was poured in May, 1990. Mechanical problems with the grinding circuit, due to the abrasive nature of the ore, has resulted in mill throughput being about 70% of the 9,100 t-per-day target. Gold recovery is also 20% less than predicted.

NorthWest wrote down the project by $151.3 million in November, 1990, and, at time of writing, was negotiating with its bankers to restructure loan payments on a $90-million debt and $20 million on working capital. Should negotiations prove to be unsuccessful, the company indicated its intentions to suspend operations at the mine. The total cost of bringing the Colomac mine into production, including exploration expenditures, was $230 million. The 1988 production decision was based on a feasibility study using $C571 per oz.

Giant Yellowknife Mines closed its tailings reprocessing project in Yellowknife because reserves were exhausted.

Canamax Ltd.’s Ketza River gold mine closed in November after oxide reserves were exhausted. The 290 t-per-day operation employed 100 people.

Yukon placer gold production declined to 3,200 kg compared with 4,300 kg in 1989.

Saskatchewan

The Jasper mine began production April 15, following an agreement between joint-venture partners Cameco Inc., Shore Gold Fund, Golden Rule Resources, Goldsil Resources and International Mahogany Corp., in which ownership was transferred to Cameco (80%) and Shore Gold (20%). Minable reserves are 163,300 t containing 16.1 grams of gold per t. The mine is expected to yield some 2,600 kg gold during its anticipated 2-year life.

The Jolu mine of Corona (30% and the operator) and International Mahogany (70%) is expected to close in the middle of next year. An underground drilling program failed to delineate any new reserves. Current reserves are about 375,000 t grading 13.7 grams of gold per t.

Claude Resources has tentatively announced that it will proceed with a 360 t-per-d mine facility at the Seabee mine site, subject to the approval of its environmental impact statement. Proven and probable reserves are estimated at one million t grading 13.7 grams of gold per t. The mine development costs are projected to be $22 million and annual production is expected to be 1,500 kg of gold.

Manitoba

Following the mine closures in the last few years, including the Tartan Lake mine by Granges Inc., the McLellan mine by LynnGold Resources, and the Puffy Lake operation of Pioneer Metals, the entire gold production of Manitoba is a byproduct of base metal mines.

The Contact Lake property of Cameco, Uranerz Exploration and Mining and Westward Exploration has undergone a feasibility study for a planned 635-t-per-day operation. The project’s estimated capital costs of $38 million are for a mine producing 2,000 kg of gold annually.

Ontario

Ontario’s gold production in 1990 totalled 79,700 kg, an increase of 2.7% over the 1989 total. Three additional mines opened. The 360-t-per-day Kerr mine of GSR Mining Corp. and Deak Resources was brought back on-stream in August. The Hoyle 2,700-t-per-day gold-silver operation of Giant Yellowknife in Timmins, Ont., opened. The Cheminis operation of Northfields Minerals started production at a rate of 350 t per day, and production could eventually increase to as high as 1,800 t per day.

Canamax ceased production at its Kremzar mine because of low gold prices, as was the Magnacon mine of Flanagan McAdam Resources, Muscocho Explorations and Windarra Minerals. High costs and low gold prices were blamed for the latter’s closing.

The Timmins tailings operations of ERG Resources closed down because of lower-than-expected head grades and mill recovery.

Employees of the Dome gold mine at Timmins reached an agreement after a 6-month labor dispute with Placer Dome. The company had threatened to close the 80-year-old mine if the employees did not accept the final offer of the company. About half of the labor force was laid off to reduce the mine’s operating costs. On Nov. 1, the company announced that the employees, represented by the United Steel Workers of America, had approved a new, 3-year contract.

Quebec

Quebec’s gold production increased to 39,400 kg in 1990. Five new mines opened in 1990.

The Bousquet No. 2 mine of LAC Minerals entered production in June, 1990. The Bousquet No. 2 mine, which is situated less than 1.6 km from Bousquet No. 1, has reserves of 1.3 million t grading 8.9 grams of gold per t. The annual planned capacity of the No. 2 mine is around 4,300 kg of gold.

In April, Inco Gold and Golden Knight Resources opened a second mine in the Casa Berardi camp. The Golden Pond West mine has reserves of 3.6 million t grading eight grams of gold per t. Both partners are expecting to increase the gold output of the West Zone to 2,200 kg in 1991.

The Silidor mine was officially opened by joint-venture partners Noranda Minerals (55%), Cambior (25%) and Nova-Cogesco Resources (20%) in September, 1990. Noranda will be the operator. The Silidor mine will annually produce about 1,800 kg of gold from ore averaging 5.4 grams of gold per t. The mine will not have a mill. Noranda will transport its share of the ore to the nearby Horne complex, while Cambior and Nova-Cogesco will send their share of the output to Cambior’s Yvan Vezina mill. Estimated life of the mine at the planned rate of 400,000 tonnes per year is 12 years. In December, 1990, Cambior bought Nova-Cogesco’s 20% share in the project for $16.6 million, to raise its share to 45%.

Cambior also announced the proposed, June, 1991, opening of the Mouska mine in Bousquet Township. It will be the company’s third new mine in the past three years.

The Societe Miniere Sphinx announced positive results on its heap leaching test on the Duvay deposit 16 km north of Amos. The company began leaching 40,000 t from the property in May and, by mid-August, had poured its first bars of gold and silver. In 1989, the company began construction of a 100,000-t heap leach pad and a 400,000-tonne-per-year Merrill-Crowe treatment plant.

Muscocho’s 400-t-per-day Montauban mine and Campbell Resource’s 450 t-per-day S-3 mine in Chibougamau were closed because of exhaustion of reserves.

Aurizon Mines ceased mining operations at the Sleeping Giant mine because of low gold prices.

New Brunswick

Following the closure of Gordex Minerals’ mine in 1989, the Murray Brook mine of Nova-Gold Resources is the only gold operating mine in New Brunswick. The Murray Brook mine uses an indoor, vat-leaching process to treat 1,300 t of ore per day grading two grams of gold and 39.5 grams of silver per t.

Nova Scotia

After completing bulk sampling tests at its Forest Hill and Beaver Dam deposits, Westminer Canada concluded that the projects were not economically viable.

The Coxheath Gold Holdings operations at Tangier were placed on hold, while the company attempted to arrange further financing. Reported proven and developed reserves are 45,000 t at an average minable grade of 20.5 grams of gold per t.

Newfoundland

Hope Brook Gold, a subsidiary of BP Canada, has been operating a gold mine near Port aux Basques, Nfld., since 1987. The mine has experienced a number of difficulties in meeting its original plans, and a new system for treatment of effluents was installed in 1990. Metallurgical recovery at 83% is lower than originally anticipated.

Gold Price Outlook

Gold prices (in U.S. dollars) in the next three years are expected to fluctuate between $350 and $400 in constant 1990 dollars, although there will be periodic swings outside this range. This forecast is based on the assumption that inflation in the Western World will remain under tight control and that Western World gold production will continue to grow as in the 1980s.

However, developments in the Middle East conflict between the coalition forces and Iraq could strongly affect the gold markets.