Author: WillP -- Date:2002-12-18 17:37:30
Subject: Street Wire
Twin hopes to re-buff Atlanta's lustre
2002-12-18 09:08 PT - Street Wire
by Will Purcell
Hermann Derbuch's Twin Mining Corporation has been better known for its diamond plays in Canada's North of late, but the rising price of gold has prompted the company to dust off its original promotion, a gold project in the United States, about 100 kilometres east-northeast of Boise. Twin Mining has been trying to develop the Atlanta gold property since the mid-1980s, but progress, interrupted by diamond stories, has been slow. The company, known as Atlanta Gold Corporation until 1997, is now working on a feasibility study. There have been a string of studies completed on the project in earlier years that produced a series of different results. Most promising projects are assessed with a scoping study, followed by prefeasibility and feasibility reports, but Twin reversed that normal order. In the late 1980s, a feasibility study was completed, and that was followed by what was termed a prefeasibility study about eight years later. Not long after that, Twin completed what it called a scoping study on the Atlanta project. Names aside, those three earlier reports present a number of different twists on the project, and they provide clues about what it will take for Twin to make a mine.
Although Mr. Derbuch has been mainly talking up his diamond plays of late, it was the Atlanta project that originally was the focus when the former head of Eden Roc Mineral Corp. and Minorca Resources Inc. moved on to Atlanta Gold late in 1996. The company and its Idaho project had been big news with investors as the company drilled away on the property during the late 1980s. The developing promotion and a price of gold climbing above the $450 (U.S.) mark carried the company's stock to a peak of $6.63 per share in the summer of 1987, giving Atlanta a market capitalization of about $60-million. That proved to be the high-water mark for the promotion, as well as gold itself, and interest slowly slipped away in the years that followed. Atlanta pressed on nevertheless, and in 1989, the company had its first feasibility study on the project in hand.
That report, prepared by Behre Dolbear & Company Inc., had identified a proven and probable reserve of about 7.5 million tonnes of ore, grading 3.0 grams of gold and 8.1 grams of silver per tonne in the Monarch deposit, and another 5.6 million tonnes of ore in the Idaho deposit, grading 1.7 grams of gold and 3.0 grams of silver per tonne. In all, that worked out to about 1.02 million ounces of gold and 2.5 million ounces of silver. By then, gold had sagged from its 1987 high to about $375 (U.S.) per ounce, but the Atlanta deposit still carried a gross insitu value of about $400-million (U.S.), and a further 240,000 ounces in an underground deposit added a possible new dimension to what Atlanta hoped would be a profitable open pit mine.
Behre Dolbear seemed to think so as well. The company estimated that a mine would cost $41.6-million (U.S.), but it figured that amount could be paid back in about 2.4 years, assuming gold averaged $375 (U.S) per ounce. That value was well in excess of the projected operating costs, which were calculated at about $250 (U.S.) per ounce, including royalties, administrative and general costs. The feasibility study was based on mining the higher-grade Monarch deposit, which would be good enough to produce just over 100,000 ounces of gold annually, along with nearly 250,000 ounces of silver. Atlanta Gold was stingy with particulars, but based on a gold recovery of about 84 per cent, the company apparently planned to mine about 1.25 million tonnes of ore annually, or roughly 3,500 tonnes per day. All that would give the Monarch deposit a projected life-span of something between six and seven years. The plan called for most of the ore to be processed by flotation, bio-oxidation of the flotation concentrate and cyanidation, with the remainder of the ore to be heap leached with cyanide.
The feasibility study did not delve into the Idaho deposit in great detail, although the report did say that there would be no additional capital costs incurred to mine the westernmost of the deposits. That seems fortunate, as with the significantly lower grade, the profits from the Idaho pit would be significantly smaller than those indicated for the eastern, Monarch pit, and there was some question if it would be economical at all. Nevertheless, Atlanta Gold had high hopes that Idaho would add as much as four years to the life of the Atlanta mine. Multimillion-ounce gold deposits were becoming all the rage, but Atlanta's modest numbers were enough to trigger a proxy battle between the company's existing management and US Gold Corporation, which was a major shareholder in Atlanta. That battle spilled over from the annual meeting to the courts, and it took about a year for Atlanta's original board to turn back the challenge by US Gold.
The price of gold did average about $375 (U.S.) per ounce for the next several years, but the Atlanta project seemed headed nowhere. The capital cost of the mine was steep enough that Atlanta went looking for a partner, and first in line was Newmont Explorations Inc. Newmont drilled a few holes, but it was unable to expand the resource in a meaningful way, and it quickly walked away from the project. Next in line was Consolidated Ramrod Gold Mines Ltd., which subsequently became Quest International Resources Inc., as it proceeded down a path of consolidations and amalgamations. Ramrod did manage to throw nearly $4-million (U.S.) at the project over the next several years, until it walked away as well, as its fortunes continued to sag with the price of gold.
Although Behre Dolbear had completed a feasibility study in 1989, that report was updated in 1997 by a prefeasibility study. The gold resource remained stagnant, at just over 1.08 million ounces, although the silver content had grown somewhat, to 3.2 million ounces. As well, the study continued to carry 240,000 ounces of gold in an underground deposit. By then, gold was starting to slip badly, but the prefeasibility study kept the faith, banking on an average price of $375 (U.S.) per ounce. Curiously, although eight years had passed since the feasibility study had been prepared, Behre Dolbear and Atlanta had found a way to reduce the cash operating costs to about $230 (U.S.) per ounce. By then, the Oakville-based Mr. Derbuch, a mining engineer by trade and a former director of mining at Noranda, was running the company. He arrived a few years before he brought in his old boss, Noranda's former president, Alfred Powis, to lend a hand.
Gold dipped below $300 (U.S.) an ounce late in 1997, after Atlanta had merged with Voisey Bay Resources, to form Twin Gold. Mr. Derbuch was still in control, and he continued to tout the Atlanta gold project despite its deteriorating economics. Although the 1989 study had indicated a manageable payback period, a gold price of about $300 (U.S.) per ounce would have increased that stretch to something in excess of four years, which would have been a major chunk of the Monarch pit's proposed seven-year life. As well, it would be difficult to imagine a scenario that would make the Idaho pit worthwhile at such a low price.
Nevertheless, the ever-optimistic Mr. Derbuch did find a way to come up with a more positive spin on the matter. In the summer of 1998, the company trotted out its scoping study, based on a mineable reserve of about 11.2 million tonnes of ore at both Monarch and Idaho that could be recovered despite the sorry state of the gold sector. The average grade of the reserve was a bit lower than the earlier calculations, at about 2.1 grams of gold per tonne, with a total gold content of about 750,000 ounces. The recovery rate was lower still, estimated at about 57 per cent, based on the planned cyanide heap leach mine. With a life estimated to be about six years, the mine would run at about 5,000 tonnes per day, producing roughly 70,000 ounces of gold and 175,000 ounces of silver annually. That was significantly less than the earlier plan, but the good news was that the operating costs had dropped to about $180 (U.S.) per ounce.
Twin had also conducted a considerable amount of metallurgical work, hoping to increase the gold recovery rate, and that allowed Mr. Derbuch to propose a slightly higher production, based on a recovery as high as 65 per cent. Such a rate would boost annual production to just over 80,000 ounces of gold and drop the operating costs to about $157 (U.S.) per ounce, and with a gold price of about $290 (U.S.) per ounce, the Atlanta project was deemed to provide an internal rate of return of about 20 per cent. Mr. Derbuch and Twin plodded ahead with the project, despite the fact that gold rarely managed to spike as high as $290 (U.S.) over the next few years. Twin did manage to demonstrate that it could deliver on its goal of boosting its gold recovery rate, but few were listening by then, and Atlanta quickly slipped in the company's plans, as diamonds proved far more promotable for Mr. Derbuch.
Diamonds seemed to be the only side to Twin's story over most of the past three years, but the company had been slowly working away on the project, and when gold poked its nose above the $300 (U.S.) mark this spring, Mr. Derbuch revived his Atlanta promotion. By this year, the Atlanta resource had grown to 18.0 million tonnes, although the grade seemed to drop commensurately, so that the Monarch and Idaho deposits still held about 1.08 million ounces of gold and 3.2 million ounces of silver. As well, an additional 2.3 million tonnes in two satellite surface deposits contained about 200,000 ounces of gold, and the 250,000 ounces in the underground deposit are apparently present as well.
With the price of gold now hovering above the $325 (U.S.) level, it seems certain that Twin Mining and its perennial favourite engineering firm, Behre Dolbear, will find a way to make the Idaho mine look attractive. Just what the new bankable feasibility study will propose is unknown at this stage, although Twin seems to be hinting at an expansion of the scoping study plan. The likely scenario is a 7,500-tonne-per-day mine that would process something close to three million tonnes of rock annually, recovering about 100,000 ounces of gold per year. That increase, and the improved gold recovery might allow for some improvement in the operating costs, although something close to $160 (U.S.) remains a reasonable guess at this stage.
One of the key unknowns is the capital cost of the proposed mine. Presumably, there would be a significant increase in the costs projected in the late 1980s, but the plan also calls for a significantly different operation, and that would be much cheaper to build. A rough guess in the late 1990s was that the mine could be built for something close to $30-million (U.S.), but that figure is likely on the low side, especially with a larger operation seemingly in the cards.
If the new study suggests favourable economics for the Atlanta project, as seems likely at this stage, the real question will be if Mr. Derbuch can find the money required for Twin to build a mine. The company has proved successful at coming up with cash in recent years. In 2000, Twin found over $9-million from a number of sources, and it had come up with nearly $3-million the year before. As well, Twin has been able to find another $2.5-million for its exploration programs so far this year. Based on that, Mr. Derbuch might have a shot at coming up with enough cash to get his Atlanta gold mine off the ground, but that could cause Twin's shares outstanding to balloon far past the current level of about 80 million. Still, a shot at an actual mine would be good news for the company's shareholders. Twin Mining closed up one cent on Tuesday, at 36 cents.
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