John Kaiser
Where To Stash Your CashBy:
John Kaiser
miningmarkets.ca
His top six choices:
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International Tower Hill Mines (ITH-V)
Chesapeake Gold (CKG-V)
Although NovaGold Resources' (NG-T)
Greystar Resources (GSL-T)
Andina Minerals (ADM-V)
Gabriel Resources (GBU-T)
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Ounces in the Ground, Part ll; Six rankings on six projects help you decide
How do you value a gold company whose primary project has millions of ounces in the ground, particularly when the project faces a raft of challenges that range from permitting obstacles to marginal economics at the prevailing gold price? The ultimate measure of value is the discounted cash flow method (see accompanying image on page 7) applied on an after-tax basis to the contemplated mining scenario using a 5% discount rate and the current gold price.
That figure, normalized for a company's net interest in the project, would be the price a major gold producer might pay to buy a multimillion- ounce gold project that has undergone a feasibility study but is still without construction funding.
That number, however, might be quite low if the project is marginal at the prevailing gold price, perhaps even negative. Such projects are generally sensitive to a higher gold price, especially if gold undergoes a real price increase that does not involve a corresponding cost increase due to inflation or a U. S. dollar currency devaluation.
The stock price of a company with a major gold deposit will reflect the market's understanding of the challenges peculiar to that gold deposit, as well as the gold price expectations of the audience that the company has attracted.
This assessment is best presented by dividing the company's fully diluted market capitalization by the number of net recoverable ounces in the ground.
The chart below shows that the value assigned per ounce in the ground ranges from US$12 for the Metates project to US$57 for Donlin Creek.
The following overviews describe the basic characteristics of each deposit and the challenges they face, some of which can be overcome by a higher gold price while others require changes of a more complex nature.
When investing in a pre-production gold project one must determine if one is speculating on a higher gold price alone, a breakthrough in an obstacle blocking the project's development into a mine, or a combination of the two.
In ranking the following projects in order of preference, I have assumed a scenario where gold undergoes a real price increase to US$1,200, which could happen quickly and anytime, and adopted a characteristically pessimistic attitude toward the probability that non-financial obstacles will quickly disappear.
Kaiser's Rankings
International Tower Hill Mines (ITH-V) is my first choice because although the gold grade is low, the metallurgy is not complex and low-cost heap leaching is feasible. Although the current value per ounce is high at US$38, Tower Hill's exploration work at Livengood has identified additional low-grade gold zones not yet incorporated into the gold resource.
Chesapeake Gold (CKG-V) is my second choice because the US$12 per ounce value for Metates is the lowest in the group, deservedly so because of the metallurgical and location challenges this deposit faces. Nonetheless, solutions have been identified for these challenges and they mainly involve cost. Metates is thus very leveraged to a higher real gold price.
Although NovaGold Resources' (NG-T) Donlin Creek project has the highest value per ounce at US$57, it is my third choice because the project is very leveraged to the price of gold and has attracted an audience that is anticipating a gold price much higher than US$1,200. Furthermore, Donlin Creek is the largest gold deposit in the group and has the technical backing of Barrick Gold (ABX-T).
Greystar Resources (GSL-T) is my fourth choice because the low US$20 value per ounce for Angosturas reflects the marginal economics at the current gold price, which is linked to the deposit's metallurgy. In light of growing hostility between Colombia and Venezuela over the latter's support for Colombian rebels, I have some concern about the deposit's proximity to the Venezuelan border becoming an obstacle to development.
Andina Minerals (ADM-V) is my fifth choice because although it has a low US$22 value per ounce and is leveraged to a higher gold price, I am not confident that it has solved its water problem and that its proximity to the flamingo lagoons will not attract permitting opposition from tourism and environmental interests.
Gabriel Resources (GBU-T) is my sixth choice because the value at US$49 is among the highest in the group and I am not willing to bet that the Romanian permitting authorities will tell the army of academic and environmental NGOs opposing the development of Rosia Montana to take a hike.
The skinny:
International Tower Hill Mines is working on a preliminary economic assessment of its Livengood gold project in Alaska. Livengood's latest resource estimate indicates 7.2 million oz. based on 332 million indicated and inferred tonnes averaging 0.67 gram gold at an average cutoff of 0.23 gram per tonne.
The resource is based on 142 reverse-circulation holes and 29 core holes representing 45,796 metres; the 2009 program will add another 120 holes.
Tower Hill is investigating an open-pit mining scenario that would recover 5.1 million oz. based on a 72% recovery achieved through a dual-processing strategy similar to the one used at Kinross Gold's (K-T) Fort Knox open-pit gold mine near Fairbanks, Alaska.
The higher-grade ore would be milled and put through a carbon-in-pulp circuit while lower grade ore would be heap leached, each at a rate of 25,000 tonnes per day.
This balance would smooth out the disruption the cold months (December through March) would inflict on the heap leaching cycle. The strip ratio is expected to be 1:1 and the local topography is sufficiently subdued to provide ample room for heap leach pads and waste dumps. (None of Tower Hill's technical reports have mentioned the potential for acid rock drainage, so presumably this is not an issue at Livengood.)
The low average recovery reflects different recovery rates under the milling and heap-leaching scenarios for the seven types of oxidized and unoxidized ore. For this reason the most recent resource estimate does not provide a breakdown of oxide and non-oxide resources, which suggests that grade and rock type control during mining would be critical.
Livengood is located 115 km northwest of Fairbanks, not far from a paved highway in the Tintina Gold Belt that stretches from Donlin Creek into the Yukon. The deposit is geologically similar to Donlin Creek, except that at Livengood the gold is not tied up in the pyrite and arsenopyrite lattice, occurring instead as native grains in contact with these sulphides. On the downside, the average gold grade is lower. The geological setting is one of various assemblages of sediments and volcanics that have been stacked and interleaved through thrust faulting. Subsequent folding and faulting has created localized "damage zones," which served as conduits for hydrothermal fluids and felsic dykes/ sills associated with a later wave of intrusions regarded as responsible for the main gold deposits in the Tintina belt.
Gold mineralization occurs in fine quartz veins in all lithologies and usually near dykes and sills, and as disseminated mineralization occurring as an envelope around dykes and sills with higher grades hosted by volcanics, followed by sediments and to a lesser degree ultramafics. The Livengood deposit is upstream from placer workings from which 500,000 oz. have been recovered since 1914.
A local hill known as the "Money Knob" has been the focus of sporadic efforts to discover the lode source of the placer gold, but the low grade discouraged follow-up work until AngloGold Ashanti (AU-N) acquired the property in 2003 and began to explore Livengood as a bulk-tonnage prospect. AngloGold's focus was a gold-in-soil geochemical anomaly on the western flank of the poorly endowed Money Knob, which has since been expanded to 6 by 2 km.
AngloGold decided in 2006 to divest itself of its Alaskan property portfolio by selling it to Tower Hill in exchange for a 19.99% equity stake and the right to maintain that stake by participating in future financings. Livengood earned its status as Tower Hill's flagship project in stages, first through a fall 2006 drilling program, which revealed widespread low-grade mineralization, then through an expanded 2007 program, which identified higher-grade zones that could serve as starter pits. A 2008 drilling program pushed the resource to 7.1 million oz., which is still open at depth and represents but a portion of the soil-geochemical footprint.
Evidence that continued exploration could push the resource beyond 10 million oz. was provided by the discovery of the Sunshine zone in 2009. Tower Hill is a good example of how exploration drilling can stitch together a hodge-podge of low-grade intersections into a major gold system.
The project stands to benefit from a higher real gold price, but could be hurt by a higher nominal gold price related to a decline in the U. S. dollar exchange rate against other currencies. At US$950 gold the rock value is only US$24-US$26 per tonne, dropping to US$17-US$19 per tonne after accounting for the 72% average recovery. A higher gold price related to a decline in the U. S. dollar would likely be accompanied by cost escalation, which would at least partly offset any gains on the revenue side. But the real danger to the economics of the Livengood project is the momentum a higher gold price would give to the American push to establish super-royalties on metals extracted from government lands. The bulk of the Livengood land is leased from the Alaska State Mental Health Land Trust, a state entity that requires a 5% NSR if gold is above US$500 per oz. and a 1 to 3% NSR on any of the private party leases included in the Livengood project. Tower Hill can buy out some of these private party leases, but the ASMHLT leases cover the bulk of the deposit.
The push for super-royalties in the 8-12% range is unlikely to succeed, largely because such a burden would inhibit any mine development in the United States at a time when security of raw material supply is gaining prominence as a national issue, and partly because politicians understand that behind the rhetoric of securing a fair share for the American people beyond jobs and corporate profit taxes is an anti-mining lobby whose goal is to shunt mining into the backyards of other nations. However, a compromise in the 1-3% NSR range is a distinct possibility, which normally would not be an issue, but would be an issue when stacked upon an existing 5% NSR.
This risk of an adverse amendment to the U. S. General Mining Law of 1872 applies to all American mining projects located on unpatented claims located on federal land.
Livengood does not appear to be located in an area with any special environmental, fisheries or tourist factors and the Alaskan government has expressed its support for a mine in the region, which should allow for pain-free permitting.
Chesapeake Gold owns 100% of the Metates gold deposit, one of the largest undeveloped gold deposits in North America.
The Skinny:
The property is located in a remote, sparsely populated region, 230 km northwest of Durango, Mexico. The drive from Durango takes 8-10 hours, though the company is looking at building a road that connects to Cosala, a town of 10,000 west of the deposit. The 22- km road could also serve as a corridor for a power transmission line.
Chesapeake acquired the deposit in 2007 when it merged with American Gold Capital, which had acquired the deposit in 2004 from Minas Luismin and Glamis Gold as an option on higher gold prices.
Metates consists of disseminated or veinlet-controlled gold, silver and zinc mineralization that bears some similarity to Barrick Gold's (ABX-T) Pueblo Viejo in the Dominican Republic and Goldcorp's (G-T) Penasquito in Mexico.
Chesapeake reported a 43-101-compliant resource estimate in May 2009 totalling 14.7 million oz. gold, almost 400 million oz. silver and 2.6 billion lbs. zinc in the measured and indicated category.
The inferred category adds another 1.9 million oz. gold and 38 million oz. silver. The resource, which relies on 171 drill holes representing 63,127 metres, was based on a pit shell that used a 0.5-gram-gold- per-tonne cutoff (the minimal grade at which the deposit is economic). The deposit consists of two zones of similar size and grade, the intrusive hosted Main Zone and the sediment-hosted North Zone.
The average grade is low at 0.65 gram gold per tonne, 17.5 grams silver and 0.17% zinc. The gold and silver are microscopic grains encapsulated in pyrite, which makes the ore refractory to conventional cyanidation recovery. This partially explains why the Metates deposit had no mining history until the 1960s when a private company attempted a 25-tonne-per-day operation.
More serious work was not conducted until 1993 when Cambior optioned the property and spent $14 million on a feasibility study that in 1997 concluded that the deposit was sub-economic at a gold price below US$556.
In 2008, Chesapeake conducted a twin drilling program and started to look at development options that reached 60,000 tonnes per day or higher, more than double anything Cambior had in mind.
During the twinning process Chesapeake discovered that the gold grade had been over-stated by 10%. This was less than helpful and is one reason Chesapeake's stock price remains largely unchanged since acquiring Metates, despite the gold price more than doubling since.
Cambior's earlier work involved extensive metallurgical studies that led the company to focus on a two-stage process tackling only the intrusive hosted ore because the sediment hosted ore contains considerable carbon (exceeding 1%) that makes it "preg-robbing."
The problem with a "preg-robbing" character is that once gold and silver have been extracted by cyanide leaching they become tied up with carbon and the two cannot be easily separated.
Carbon is also present in the intrusive hosted ore but to a sufficiently lesser degree.
Because the deposit is pyrite rich, containing 5-10% sulphides, Chesapeake has to deal with acid generation by the tailings and waste rock. Fortunately the area is has lots of limestone (useful in treating acid) and Chesapeake owns the rights to a nearby limestone deposit.
All of these issues led Chesapeake to develop an alternative mining plan that it is undergoing testing.
Chesapeake is considering a milling- flotation operation that would produce a sulphide concentrate that would be shipped by pipeline to Cosala where it would be oxidized by roasting before recovering 85-90% of the gold and silver through agitated tank carbon-in-leach cyanidation.
A key part of this approach is to deal with the acid problem by producing sulfuric acid that could be sold as a byproduct. On the plus side, this method allows a mining scale of 60,000-75,000 tonnes per day, solves the recovery problem posed by refractory ore, and avoids many of the deposit location's physical constraints. On the down side, this approach is more capital cost intensive -- a problem that only a significantly higher real gold price can mitigate.
It also appears that one of the villages with as many as 150 inhabitants would need to be relocated.
The skinny: NovaGold Resources and Barrick Gold (ABX-T) are equal partners in the development of the Donlin Creek gold deposit in southwestern Alaska where there is a 39 million oz. gold resource.
Donlin Creek is a low sulphidation epithermal system whose mineralization occurs within sheeted veins controlled by north-northeast oriented fracture zones. Mafic intrusive rocks and rhyodacite dykes and sills host 74% of the gold, while greywacke sediments host the rest.
Donlin Creek is a fairly recent discovery. Although placer gold was discovered in 1909, only 30,000 oz. had been recovered by 1956 when the focus shifted to finding the lode source. The gold zones were not discovered until 1988 when Western Gold and Mining Co. conducted a major drill program over a 2-year period.
Placer Dome acquired the project in 1995 from a regional native corporation known as Calista Corp., which retains a 4.5% NSR after payback. Placer discovered the main gold zone and spent US$37 million over the next five years to establish a 13-million-oz. gold resource in 2000. Weak gold prices and metallurgical issues prompted Placer to option Donlin Creek in April 2001 to NovaGold, which could earn 70% by spending US$10 million.
The marketing efforts of Rick Van Nieuwenhuyse and a rising gold price enabled NovaGold to drill 390 holes over the next two years and produce a National Instrument 43-101-compliant resource estimate that doubled the resource to 27 million oz. Placer Dome exercised a back-in right in February 2003 that allowed it to earn back 70% by completing a feasibility study and making a production decision inside five years. Barrick swallowed Placer Dome in January 2006 via a US$10.4-billion takeover bid and continued work on Donlin Creek.
Meanwhile, NovaGold had busied itself with developing the copper-gold Galore Creek project which attracted a hostile takeover bid from Barrick in July 2007 that offered US$14.50 per NovaGold share. NovaGold rebuffed Barrick arguing that Barrick would not be able to make a production decision on Donlin Creek by the deadline and consequently should value NovaGold as though it still owned 70% of the project.
NovaGold and Barrick resolved their dispute in November 2007 by agreeing to split ownership of Donlin Creek in half and requiring NovaGold to reimburse in stages half of the US$127 million that Placer and Barrick had spent on the project since 2003.
A couple weeks later, Teck (TCK. BT) dropped a bombshell on Nova- Gold by suspending further work on Galore Creek due to escalating capital costs. Permitting a 53,500-tonne-per-day mining plan based on a proven and probable reserve of 383.8 million tonnes at 2.37 grams gold per tonne representing 29.27 million oz. gold in anticipation of a higher gold price justifying a production decision has become the primary focus.
A feasibility study published in March 2009 projected a capital cost of US$4.5 billion with a US$35 per tonne operating cost for a plan that will mine two open pits over a 21-year mine life. Another US$803 million in sustaining capital would be needed. The high capital and operating costs are linked to the deposit's remote location and refractory nature.
Donlin Creek gold is tied up in the lattice of arsenopyrite, with grade increasing as the crystals become finer grained. Preg-robbing graphitic carbon is abundant in the sediments and variably disseminated in the intrusive rocks as an alteration byproduct. Metallurgy is additionally affected by the presence of mercury in the finer grained pyrite, which is ubiquitous but not associated with gold, chlorine which assists preg-robbing during pressure oxidation, and fluorine, which is very corrosive in the pressure oxidation process. Eight years of extensive metallurgical studies have yielded a flowsheet of crushing, grinding, flotation, pressure oxidation using two autoclaves operating in parallel, carbon in leach, and electrowinning, which would yield an 89.5% recovery. The operating cost is boosted by a high strip ratio of 5.69:1, which would generate 2 billion tonnes of waste rock, some of which will be acid generating. The life of mine cash cost per ounce is projected at US$440 per ounce, 45% of which represents mining costs. Capital costs and the permitting cycle are impacted by the complete lack of infrastructure at Donlin Creek. In order to get construction materials and mine consumables to Donlin Creek the partners would need to build two cargo terminals on the Kuskokwim River to allow barge transport, and build a 119-km access road and fuel pipeline to the mine site. Electricity will be generated through a combined cycle gas turbine power plant that will be fuelled by diesel. A wind farm is also planned, but it will supply only 7.5% of the required power. The feasibility of Donlin Creek is thus sensitive to the price of oil, which would likely rise in tandem with any gold price increase related to a U. S. dollar currency devaluation. The oil price also has the potential to increase independently through supply-demand imbalances arising from a global economic recovery.
Assuming fuel costs are stable, the feasibility study shows that Donlin Creek is very sensitive to the price of gold. The after-tax net present value of the base case at US$725 gold using a 5% discount rate is negative $733 million. At US$900 gold the net present value jumps to positive US$829 million, and with a mere US$100 increase to US$1,000 gold the net present value doubles to $1.7 billion. At US$900 and US$1,000 gold the internal rate of return is a meagre 7.7% and 10.2 %, respectively, with payback periods of seven and five years.
Assuming there are no delays in the permitting cycle and confidence in a long term real price for gold above US$900 justifies a construction decision, Nova- Gold and Barrick expect production to start in 2014 and produce 1.6 million oz. gold annually for the first five years.
Greystar Resources is working on a feasibility study for its 100% owned Angostura gold-silver project in northeastern Colombia, which it hopes to complete by the end of 2009, along with an environmental and social impact study.
The skinny:
Greystar acquired the property in 1994 at a time when the only activity in the area consisted of a small 30-tonne-per-day underground mining operation on the La Bodega concession. Greystar's work has outlined a northeasterly trending 2 by 1 km system of high sulphidation mineralization controlled by a swarm of steeply north-dipping, east-northeast trending veins and structures that range from 2 to 40 metres thick and strike anywhere from under 100 metres to more than 1,000.
Based on 870 core holes representing 277,000 metres and another 3,140 metres of drifting, Greystar's 2008 resource estimate reported 330 million tonnes of 1.09 grams gold and 6 grams silver in the measured and indicated category for about 11.54 million oz. gold, and 90.8 million tonnes of 1.19 grams gold and 6 grams silver in the inferred category for another 15 million oz. gold.
This estimate is based on two grade populations, 92% of which represents values below 2 grams gold per tonne that exhibit good continuity in veins; while the rest represent higher grades occurring in shoots and vein intersections.
A prefeasibility study completed in 2008 proposed an open-pit operation, which would heap leach the lower-grade oxide, transitional and low-sulphide ore at a rate of 70,000 tonnes per day to produce 4.2 million oz. The higher-grade sulphide ore would go through a 5,200-tonne-per-day flotation plant to produce a concentrate that would be shipped to a smelter.
Greystar hopes to recover 3.5 million oz. from 22.6 million tonnes of high-grade, high-sulphide ore running 5.1 grams gold per tonne.
Angostura faces two key challenges, the most important of which is that the primary sulphides are refractory and contain copper.
Recovery by heap leaching drops to 31% for gold and 34% for silver if the sulphide content exceeds 3%; on the plus side, different crush sizes do not seem to affect recoveries, which is also why a large-scale milling operation for Angostura was rejected. Gold recovery from heap leaching is expected to average 70.6% over the 15-year mine life, while fine grinding and flotation of the high-sulphur ore will produce a concentrate containing 94% of the gold.
While a higher gold price would help overcome the metallurgical challenges, it would not simplify the "recovery control" problem -- the irregular oxidation profile of the deposit.
Surface oxidation has reached depths of 170 metres over structures, and ranges to depths of 40-100 metres in the centre of the deposit to 10-30 metres near the edges. As a result, completely oxidized ore yielding 96% recovery can abruptly shift to fresh sulphides that yield less than 31%. In addition, because the mining plan now proposes to treat low-grade sulphide ore as waste rock, the company would need to deal with its acid-generating character. The heap-leach plan includes transitional and intermediate sulphides that represent nearly 3 million of the 4.2 million oz.
Ideally, the initial years of mining would process only oxides in order to speed payback of the projected $638 million capital cost, but the irregular oxidation profile may force Greystar to stack low recovery ore onto the leach pads earlier than the junior would prefer.
The metallurgy at Angostura may explain why Greystar's stock price has lagged while that of its upstart neighbour, Ventana Gold (VEN-T), has soared during the past year to such an extent that its market capitalization nearly doubles that of Greystar, even though its property hosts the southwest extension of the Angostura system that would need an underground mining plan to exploit and would likely face similar metallurgical hurdles. The difference is that the gold grade is substantially higher over much longer widths on Ventana's side of the border, which opens the possibility for a high-value underground gold mine whether or not gold ever breaches US$1,000.
The skinny: Andina Minerals is conducting a preliminary economic assessment on its 100%-owned Volcan gold deposit in northern Chile's Maricunga belt. Located in the high Andes, 23 km northeast of Kinross Gold's (K-T) Refugio mine, the Volcan property wraps around the Copiapo Volcano (6,025 metres elevation, last active around 4-5 million years ago) whose native sulphur deposits have attracted attention since the 17th century.
The gold potential, however, was not investigated until 1990, first by Homestake Mining from 1990 until 1993 and then by Cameco (CCO-T) between 1994 and1997. Andina acquired title through a series of cash payments totalling US$11.64 million between 2004 and 2008.
The vendors kept a 1% NSR on production beyond 4 million oz. Since then, Andina has spent more than US$20 million to outline a low-grade, open-pit mineable high sulphidation epithermal gold system, which it hopes to develop as a heap-leach mine.
Andina reported a measured and indicated resource of 241.7 million tonnes at 0.85 gram gold per tonne representing 6.6 million oz. gold, plus another 114 million inferred tonnes inferred at 0.9 gram gold representing 3.3 million oz. using a 0.5 gram cutoff. By dropping the cutoff grade to 0.3 gram, the total gold resource blossoms to 15 million oz. in 753 million tonnes at 0.62 gram gold. The most obvious challenge is the low grade ore that would clearly benefit from a higher real gold price. But Volcan faces other significant challenges.
The gold system is related to the Miocene-aged Copiapo stratovolcano and occurs as disseminated sulphides in dacite domes, flows and tuffs typically at grades less than 0.5 gram gold per tonne. The higher resource grade is achieved through the presence of sheeted quartz veinlets. The gold is very fine grained and associated mainly with pyrite but is not refractory. Column leach tests in 2006 indicate recoveries ranging from 57% at a grade of 0.45 gram gold to 77% at 1.17 grams gold. The test showed that sodium cyanide and agglomeration cement consumption spiked at a 0.65 gram grade where a 64% recovery was achieved before dropping again at higher grades. Copper is present in the form of chalcocite at a grade of about 0.1%, which may be a factor.
Andina is conducting metallurgical studies on a 1,000-kg sample to determine if a high-pressure grinding roll system can improve recovery and reduce the use of reagents. The low indicated recovery for an already low-grade deposit is further complicated by the property's high elevation and extremely arid climate. There is no vegetation or wildlife present on the property, which receives only 100 precipitation annually, mainly in the form of snow.
High winds during the summer create hazardous "whiteouts," known as a "Bolivian winter." Water is thus a critical challenge for Volcan, which explains why in early 2008 Andina purchased water rights for stock worth $26.6 million at the time of the transaction. These water rights are located 20 km northeast of Volcan and have a permitted maximum pumping rate of 170 litres per second. A hydrological study suggests that the wells could supply water for 30 years at a rate of 124 litres per second. Andina management believes this is enough for the mining scale being looked at for Volcan. However, Andina will have to secure environmental permits to extract any water. To be on the safe side, Andina has acquired water exploration rights on potential aquifers, situated 15 km southeast of the property.
The biggest development obstacle for Volcan may be its location between the northern and southern parts of the Nevado Tres Cruces National Park. The northern slope of the Copiapo Volcano drains into the Laguna Santa Rosa, while the southern slope drains into the Laguna del Negro Francisco. Both of these brackish water bodies have been designated as important wetlands to the endangered Andean Flamingo. The Copiapo Volcano and the surrounding Volcan property are visible from this national park, which because of its remote location and high altitude has experienced only limited tourist activity. Because of the arid conditions the risk of contamination from any mining related leakage is low, but the permitting process will have to deal with objections to the potential visual impact of a mining operation at Volcan.
The skinny: Gabriel Resources has been working to develop the Rosia Montana gold project in Romania since acquiring it in 1997. The company owns an 80% interest with a branch of the Romanian government owning the other 20%.
The project is in the Golden Quadrilateral in Transylvania, Europe's prolific 2,000-year-old gold mining district. Rosia Montana is interpreted as a low sulphidation epithermal gold-silver system that was over-printed by a later intermediate epithermal system. It is hosted by a maar-diatreme complex that was emplaced into Cretaceous sediments. Mineralization occurs as disseminated sulphides and stockworks with grades ranging 0.5-2 grams gold per tonne, and as veins and breccia pipe fillings where grades can exceed 30 grams gold.
Gold and silver are associated with pyritic sulphides, which makes for an acid rock drainage problem for waste rock and tailings.
The deposit has had several mining waves involving surface pits and underground development starting with the Roman era, rising again during the medieval period, and peaking during the reign of the Austro- Hungarian Empire from the end of the 17th century until 1918. Mining continued during the 20th century, with the state-owned mining company operating an open-pit mine from 1970 until 2006 when it was closed to allow Romania to comply with the European Union membership entry requirements. Gabriel has invested more than $400 million on an ambitious plan to redevelop Rosia Montana as four sequential open-pit mines with a 16-year operating life expected to produce 7.9 million oz. gold and 29 million oz. silver.
Gabriel published a positive feasibility study in March 2009 that estimates a 20.4% internal rate of return and $997 million net present value using a 5% discount rate and prices of US$750 for gold and US$10.50 for silver. Capital costs, including sustaining capital, are estimated at $1.24 billion, with payback estimated at 3.5 years using the base case metal prices. Operating costs for the 35,000-to 42,000-tonne-per-day mine are estimated at $12.88 per tonne. The tax regime consists of a 16% corporate tax rate and a 4% NSR payable to the state. The mining plan is based on a proven and probable reserve of 215 million tonnes grading 1.46 grams gold and 6.88 grams silver. Expected recoveries are 78.7% for gold and 60.8% for silver using a conventional process consisting of crushing, grinding, gravity concentration, cyanide leaching in a carbon-in-leach circuit, electrowinning and smelting.
The project would require the resettlement of local villages to the new site of Alba Iulia, which has been accomplished 77% at a cost so far of $90 million. Gabriel has also invested $15 million in archaeological studies and cultural preservation measures. Gabriel has complied with all permitting requirements and filed an Environmental Impact Assessment in May 2006. The project, however, is stalled because in September 2007 the Romanian Ministry of Environment and Sustainable Development suspended the review process ostensibly in response to a lawsuit challenging the validity of an "urbanism" certificate Gabriel had previously obtained.
In reality, Rosia Montana has become the poster child for an anti-mining lobby that has secured widespread support from environmental and social NGOs, academic and political circles. Opposition has taken three approaches toward blocking Rosia Montana as a giant open-pit mine, of which the weakest is concern for the inhabitants who need to be resettled, some of whom have resisted resettlement. Although the area around Rosia Montana is picturesque, its surficial beauty masks the legacy of 2,000 years of uncontrolled mining that has resulted in acid rock drainage and heavy-metal contamination.
Since the Romanian government stopped its environmentally unsound mining activity at Rosia Montana in 2006, local unemployment has soared to 70% from 50%. Gabriel's mine development plan not only promises to boost the local economy, but it also includes provisions to clean up the area's mining legacy. Ironically, it was a plan by an Australian company to clean up contaminated and leaking mine tailings ponds at Baia Mare in northern Romania by reprocessing the tailings to recover gold and silver which has become the basis for environmental opposition to Rosia Montana. Although the project took six years to permit and develop, in January 2000, just six months after startup, storm runoff created by an abnormally fast melt caused the company's new tailings pond to flood and develop a breach that caused 100,000 cubic metres of cyanide and heavy metal contaminated waste water to spill into a tributary of the Danube River. By the time the toxic waste reached the Black Sea it had traveled 2,000 km through Romania, Hungary, Serbia and Bulgaria, disrupting the water supply of 24 municipalities and killing large numbers of fish. This eco-disaster has spawned an almost mindless opposition to any mining operation in Europe that uses cyanide to recover target metals. Gabriel has dealt with these concerns by including a cyanide detoxification circuit for the tailings before they are dumped into a tailings facility whose dam has been engineered to withstand a "maximum credible earthquake" for this part of Romania, which is surrounded by a secondary dam to contain any seepage. That has not prevented a blitzkrieg of 123 legal actions mounted by various NGOs since 2004 whose primary purpose is to exploit the sluggishness of the Romanian legal system to delay and maybe permanently prevent the development of Rosia Montana.
While opposition to Gabriel's development plan on environmental grounds ultimately fails on scientific principles, a much bigger challenge facing Gabriel and Rosia Montana is the push to have the area put off limits to development on archaeological grounds. A bill to have Rosia Montana declared a protected area has been rejected, but one seeking a declaration that certain archaeological sites are "areas of national interest" is still alive.
Gabriel has spent $15 million on archaeological studies that document the old workings, recover artifacts for preservation in a museum, and relocate monuments when possible. And in the spirit of no good deed going unpunished, interest in the archaeological history of Rosia Montana has grown to the point where it is now the rallying cry for opposition to Gabriel's mine proposal.
-- You can find more insight and analysis on other companies by John Kaiser at WWW.KAISERBOTTOMFISH.COM
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International Tower Hill Mines (IHT-V)
Company (Ticker):
Closing price (52-Week Hi/Low) (08/21/09):
$3.50 ($1.07-$4.00)
project: Livengood
Country: U.S. ounces: 7.2 million
Kaiser's rank: 1
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Chesapeake Gold (CKG-V)
Company (Ticker):
Closing price (52-Week Hi/Low) (08/21/09):
$4.25 ($1.89-$6.50)
project: Metates Country: Mexico
ounces: 16.6 million gold
Kaiser's rank: 2
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NovaGold Resources (NG-T)
Company (Ticker):
Closing price & 52-Week Hi/Low (08/24/09):
$1.62 ($0.47-$7.79) project: Donlin Creek Country: U.S. ounCes: 29.2 million
Kaiser's rank: 3
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Greystar Resources (GSL-T)
Company (TiCker):
Closing priCe (52-Week Hi/loW) (08/21/09):
$3.90 ($0.55-$5.00)
projeCT: Angostura CounTry: Colombia
ounCes: 15 million
kaiser's rank: 4
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Andina Minerals (ADM-V)
Company (Ticker):
Closing price & 52-Week Hi/Low (08/24/09):
$1.43 ($0.52-$2.50)
project: Volcan Country: Chile
Ounces: 9.4 million
Kaiser's rank: 5
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Gabriel Resources (GBU-T)
Company (Ticker):
Closing price & 52-Week Hi/Low (08/24/09):
$1.62 ($0.99-$3.10) project: Rosia Montana
Country: Romania
Ounces: 16 million
Kaiser's rank: 6
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