Found this in the fax machine.
Article from the National Investor
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Red Lake, Ontario A New North American Gold Rush
Just before Labor Day, my son Dan and son-in-law Trevor Westendorf accompanied me on a
brief excursion to the Red Lake, Ontario area, where I visited with management of Placer Dome
Canada, Ltd., Goldcorp, Inc. and Claude Resources.
Red Lake is a pleasant 5 hour drive due North of International Falls, Minnesota. It and
neighboring Cochenour have served as staging areas for years for sportsmen, mostly from the
U.S. Red Lake itself is a sprawling body of water with numerous inlets, islands and structure; and
each year hosts a couple major regional fishing tournaments, primarily for walleyes (which locals
in Canada usually refer to as pickerel.) As with many such Canadian lakes especially those as far
North as Red Lake a few sections resemble miniature airports as well. Outfifters here offer fly-in
trips to numerous smaller lakes spread out to the north (primarily) of the Red Lake area.
Apart from fishing, hunting and other tourism-related activities, the local economy of the
Red Lake as with so many other similar towns in Canada owes its life to natural resources. For
the most part, this area does not have the kind of agricultural economy one finds further to the
west in Manitoba, Saskatchewan and then Alberta, where grain fields stretch as far as the eye
can see; and with a sprinkling of oil and gas wells mixed in. Here, the resource base is timber
(which has been fairly steady over time) and mining (which has not been.)
Hopes are rising, though, that in the latter area mining the Red Lake camp could be on
the verge of a boom unlike any seen in North America since the heady days of the California and
Alaska gold rushes!
In the summer of 1925, two men one of them a prospector by the name of Lorne Howey
discovered gold near one of the western bays of Red Lake (fittingly, now named Howey Bay.)
Soon, the Howey mine was started, a small-scale operation that lasted for quite a few years.
Over the nearly seven decades since, a number of small companies have come and
gone. For most of the Red lake camps existence, though, the majors were not too involved;
instead, companies like Newmont Mining, Barrick, Placer Dome and others have had plenty of
activity elsewhere, in mining huge properties elsewhere in Canada that had already been
discovered, in the Western U.S. and overseas.
As time has gone on, though, a couple trends have become manifest. First, a
combination of political risk and the fact that larger, lower-grade mines are being tapped out
means that companies are on the lookout more than ever for substantial new deposits. Second
political uncertainties in places ranging from Indonesia, to South Africa to Venezuela have added
additional measures of risk to operating in those lands. Thus, the “hunt” is on to find new gold
deposits in safer and more reliable areas; and squarely in the sights of seemingly innumerable
companies is the Red Lake camp and the surrounding area.
PLACER’S CAMPBELL MINE—”OLD RELIABLE”
The “flagship” mine in the area for years-and for a spell, the only
operating one-has been the Campbell Mine, 100% owned and operated by
Placer Dome Canada, Ltd. This underground mine employs some 350
peopie, some who live in the Red Lake area and others who are
contractors from elsewhere in Canada.
In 2001, Campbell-produced over 178,OQO ounces ofgold.
The proven and probable mineral reserves as of the end of last year
were were 1,043,000 ounces of gold (526,000 ounces proven and 517,000
ounces probable). This was a net decrease of 527,000 ounces from the
mineral reserves as of December 31, 2000; however, by the time all the results
of the company's aggressive 2002 drilling program are in, I expect that the
reserve figure will have jumped significantly.
In fact, when I spoke with one of the company's geologists, Dan Gagnon, while in the
area, it was beginning to sound more and more as if the company might soon
consider adding on to its mill capacity. Up until now, Placer has been mining
decent ore; however, it has not matched the extraordinary grades being mined
by next-door-neighbor Goldcorp (MUCH more on them in a minute.) The
difference seems simply that Placer has been taking shallower resources
which are indeed more than economical, but which do not generally carry the
incredible, multi-ounce per torn grades that Goldcorp has been mining. This
year, though, Placer has been aggressively drilling below its current workings
at Campbell, and has recently hit a Goldcorp-type lens containing high
grades of gold. Further success would no doubt mean more production and,
perhaps, more building (and more jobs) before too much longer.
BURSTING ON THE SCENE AND BURSTING AT THE SEAMS!
GOLDCORP'S RED LAKE MINE
When I first visited the Red Lake area following Claude Resources 1998
purchase of the old Madsen Mine and adjoining land package, things were
testy at Goldcorp. That company's dilapidated mill was producing more
modest tonnages than the newer mill does today. Further, facing a gold price
at the time that had been steadily declining, Goldcorp's management decided
to shut down; especially since it was faced, at the same time, with what it
considered outrageous and unaffordable demands from its few hundred union
workers. While I was there, one could go to the gate in front of Goldcorp's
property most every day and find dozens of union employees protesting the
fact that they were now out of work.
With milling activity having ceased, the company decided to concentrate its
resources additional drilling, to delineate more gold reserves in the hope that
better reserves and an eventual recovery in the gold price would allow it to one
day soon open the mill again. What the company found in its drilling
astonished not only it, but virtually the entire industry; and it has caused the
gold rush now into the Red Lake camp!
Having uncovered one of the richest ore bodies ever found in an
underground mine on this continent, the company with a nearly new mill it
had brought in from an old Saskatchewan mine opened back up about two
years ago. With milling capacity of a mere 800 tons of ore per day (a small
amount when compared to many larger operations) Goldcorp has nevertheless
produced incredible amounts of gold. In 2001, production at Red Lake soared
to over 500,000 ounces, an increase of 240% over 2000. Production costs
dropped to just $85 per ounce. This year, production is expected to be
approximately the same; costs, on the other hand, are expected to come in
even lower, at around $65 per ounce for the year.
In 2002, the story has only been getting better. Drilling results released publicly just
after our trip were once again incredible, as they suggested that one zone that the
company has targeted is actually ôflaring outö the deeper it goes. Most
companies would have been happy with some of the results that Goldcorp's
drill brought it from some sulfides (more on an explanation of this in a
moment.) Two different intersects, for example, showed 1.84 ounces of gold
per ton over a length of 26 feet; another was 1.98 ounces over 7 feet.
{To put this in some perspective, many larger mines produce fewer ounces of gold
annually than does Goldcorp's Red Lake mine, but do so by mining and milling huge, lower-grade
quantities of ore which can often run just 0.02 ounces per ton and they are still profitable.)
One reading, though, from the High Grade Zone blew everyone away;
this particular assay carried 10.8 ounces of gold per ton, and over an interval
of 70 feet. Here again, in comparison to what is usual, this is truly amazing.
It's typical for economical amounts of gold to be scattered a few feet here, and
a few feet there. This result from Goldcorp confirms what itùas well as Placer
and othersùhave increasingly come to believe; that is, at depths of 5,000-
6,000 feet below surface, this entire area could contain some of the richest
gold ores ever mined in the world.
Just as Placer is contemplating how and when it might soon find a way to increase
production, Goldcorp is likewise having to start thinking about such a nice
problem. According to mine manager Claude Lemasson, the current mill's
capacity could be increased at least modestly. However, especially since the
company is now finding gold in areas of its property nearly a mile away (to the
Southeast) of its present workings, the possibility also exists that an additional
mill could be constructed.
THE GEOLOGY OF THE AREA
One of the perks Yours Truly enjoys in my calling is the opportunity to
see some exciting and new places first-hand. Over the years, I have been at
mine sites from California, Nevada and Arizona to the South, to Northern parts
of Canada. During this time, IÆve learned a lot; and, though I would never
profess to know nearly as much as a trained geologist, I have nevertheless
picked up at least general knowledge. ItÆs especially been a treat to be able to
share these experiences with my own children; after all, maybe one day one or
more of them would choose this interesting and challenging profession I
In its history, gold mining in the Red Lake camp has not been unlike that in many other
parts of the world. With improvements in equipment, technology and exploration skills, gold
which in years past was impossible (or unprofitable) to mine has been.
It used to be that the old timers found gold literally because it was laying on top
of the ground. If rich enough, they would mine it and mill it, sometimes by
hand. In cases of large and rich ore bodies, holes would be dug into the
ground, and the gold followed until it ran out. As time went on, equipment got
at least somewhat more sophisticated, even for the old guys. Still, though,
nothing on the scale of today's mining and recovery processes was possible.
When Mr. Howey and others started mining in and around
Red Lake, technology and recovery processes had not come far enough for
any of the small operators (by today's standards) to mine anything but the
easiest and most-accessible ores. In some casesùsuch as the Madsen mine,
one of the places where I have been about as far underground as most have
gone in that area until recentlyùminers did dig deep into the earth. For the
most part, though, they were content to work what they could get at; and
grades were generally high enough that nothing more was desired.
In the case of Goldcorp's Red Lake mine, much of the earliest production came from
depths of around 3,000 feet or less. Gold in this area, by and large, was contained within and
among other compounds known as sulphides. These chemical compositions
usually ômatedö with gold existing in the same type of material; and with the
development of various kinds of chemical recovery and leaching processes,
became accessible to miners. Gold grades in these sulphides were often quite
high, making them economical to mine. As Goldcorp
mining and exploration activities took them deeper into the earth, though, an
interesting phenomenon was discovered. It has become increasingly apparent
thatùwithin and below the broad areas of sulphide mineralization that have
been previously mined successfully, there exist ôtrapsö where extraordinary
amounts of largely ôfreeö gold settled. By ôfree gold,ö I refer to gold that is NOT
chemically or otherwise combined with other elements. It is these kinds of
areas that are being mined more now; and with others being discovered. In
the grand scheme of things, such incredibly rich areas are quite small;
however, the gold content in them can ômakeö a mine all by themselves.
UNDERSTANDING THE CLAUDE/PLACER PROGRAM, AND THEIR INITIAL
RESULTS
This brings us to a discussion of the initial drilling results of the Placer
Dome/Claude Resources joint venture, which were released on September 3.
Those in the investment community who have been following the
exploration program at the Madsen site (about a dozen miles to the Northwest
of the Campbell and Red Lake mines) have eagerly awaited news that the
companies had come across a Goldcorp-like high-grade deposit. When
Claude and Placer made the announcement of their initial drilling results
(though the total 2002 project was less than halfway completed as of then)
Claude's shares in particular took a beating when the results seemingly did
NOT confirm such a find. Or did they...?
The companies announced that eight of an eventual 20 holes had been drilled
about a mile north of the old Madsen mine and mill (which remains
mothballed.) Of these, complete assay results were available for four of them,
and partial assays for three. Though few of the individual assays revealed
economical gold grades in their own right, the important point is that EACH of
the holes contained measurable gold over large amounts of their length. In
fact, as comments accompanying the results said, The encountered
mineralized system is approximately 1,000 feet wide and already more than
3,000 feet long, AND OPEN IN ALL DIRECTIONS. The explored vertical
extent of the system is approximately 1,200 feet (EMPHASIS ADDED.)ö
After the results were released and Claude's shares lost about 20% of their value,I first
spoke with the company's Chairman Bill MacNeill. He confirmed my suspicions as to how
both investors and knowledgeable players in the industry read the news; in
the case of the latter, especially those with some knowledge of geology
generally, and the Red Lake camp specifically. Investors, Bill told me, wanted
instant gratification, as usual; and when the first release did not contain news
of a huge multi-ounce (per ton) deposit, they decided to pick up their marbles
and play elsewhere.
By contrast, though, those Bill spoke with who have some knowledge -
of geology and truly understood the purpose of this drilling program in the first
place had one typical reaction: Holy cow, there is gold EVERYWHERE. No,
none of the readings were remotely like the numbers being experienced at
Campbell and Red Lake. They weren't really expected to be. The whole point
was to confirm that as in the PDG/GG area the Madsen property likewise is
one huge area containing gold mineralization, presumably containing at some
points the kind of high grade pockets characteristic of Red Lake and, more
recently, Campbell. The holes Placer has drilled are on a very wide spacing,
of anywhere from 600 to 900 feet between drill holes. It seemed lost on some
that the high grade areas, for instance, at Red Lake could be filled between
these holes a few times over! It would have been pure luck for Placer to have
hit such a target initially (but keep in mind that full and partial results are still
coming down the road from 16 drill holes.)
I also spoke a couple days later with Dan Gagnon, who is in charge of the
drilling at Madsen. Gagnon was clearly upbeat about the results, and looking
forward to completing the drilling program by the end of this month or some
time in November. My honest belief is that there's an extremely large fault
system out there (at Madsen), he told me. Detailing even more for me what
he thinks could be under the ground where they are drilling, he added, "In this
whole environment, the (important) gold is inside foldings and faults." His
expectations are high that, with later infill drilling (drilling between the existing
holes and elsewhere) and aided by additional magnetic exploration, he may
yet uncover a Goldcorp-like deposit. Gagnon has already recommended to
his bosses at Placer that the project should be continued; and after spending
C$1 .2 million on this summer/fall program, he told me that next years budget
will likely be double that, or more.
THE RUSH IS ON!
The great success of Goldcorp and the solid history of Placer's
Campbell Mine, combined with the increasing profile of the Madsen
exploration project, has resulted in a stampede of all manner of companies to
the area to grab their piece of the Red Lake and surrounding area. The
majority are relatively small companies, some of them with no prior operating
history. In these cases, I suspect that a few will turn out to be little more than
boiler room operations masquerading as gold miners, hoping that the overall
hype that could increase in the area will allow them to run up their share price
and then disappear with fat profits.
But the majors are moving in here, too. Along with the players you
already know, Newmont Mining, Australia's Aurion Gold and South Africa's
Anglo Gold have all moved in, together, as I suggested, with a myriad of
smaller players. In some cases, as with the Claude/Placer arrangement,
juniors and small exploration concerns are allowing one of the big boys to
piggyback claims they already have, in the hopes of furthering work.
One pretty much needs a score card to
keep track of everyone. But one thing seems clear to me; and that is, the Red
Lake camp and the immediate vicinity could well be in its infancy, with many
decades of increased mining activity and greater prosperity ahead of it
prosperity both for the communities, and for the companies and their
shareholders. In the coming months, I will be getting to know this area and its
players (and their respective prospects) better; and I am looking forward to it!
FOR MORE INFORMATION...
information on the Campbell Mine can be found on Placer's site,
www.placerdome.com (though there's not a whole lot there.) High marks for
the snazziest and most investor-friendly site go to Goldcorp
www.goldcorp.com. On their site, you will find a wide variety of information,
including sharp, color charts and illustrations detailing past and present
exploration and production. Last but not least, Claude Resources site
www.clauderesources.com |
