Providing coverage of Alaska and Northwest Canada's mineral industry
November 2008

Vol. 13, No. 48 Week of November 30, 2008

Mining News: Alaska mining industry faces credit crunch

High-quality exploration, development projects will likely survive despite worldwide shortage of venture capital, financing

Curt Freeman

For Mining News

Let me start this month’s mining update by saying I am not a chartist nor do I believe economic cycles are controlled by cosmic forces known only to the mystics. That said, I do believe in cycles because I have lived and worked through more cycles in the mining industry than I care to remember.

So a couple of observations seem in order as we plummet down the slope off another peak into what looks to be a pretty deep, chilly valley. First off, what goes up, must come down with the ride up always taking longer than the ride down. Simple economic physics. The second thing that is inevitable on the down side of the cycle is the implosion of some leases and joint venture agreements that were cut at the top of the cycle and which did not recognize the near-certain possibility of less favorable economic times down the road. It never fails, in the rush to get good projects moving; terms are agreed to that can’t be supported at the bottom of the next cycle. So deals come apart and properties that were encumbered by unreasonable terms become available again. Sort of a cycle within a cycle.

The third comment that should need no comment but which seems to go unnoticed in the tough times is that, regardless of the economic climate, good projects get funded, period, punto, punkt, periodo, finis.

The last point I’d like to make from my bully pulpit is that there currently are some superb acquisition opportunities out there and more will become available the longer this market low persists. Corporate entities with strong cash or cash-flow positions are looking for those deals. If you are a buyer, your job is to identify, acquire and fund those gems in the rough. If you are a seller, your job is to reset the windage and elevation on your properties and make them irresistible during this current global economic winter of our discontent. But never doubt, there are always buyers and sellers out there! Good luck Mr. Phelps.

Western Alaska

Teck Cominco Ltd.’s announced third-quarter 2008 results from its Red Dog mine, which turned in operating profits of $105 million versus an operating profit of $380 million in the same period in 2007. For the quarter, the mine generated 131,500 metric tons of zinc and 29,200 metric tons of lead in concentrate versus 154.4 and 36,000 metric tons of zinc and lead, respectively, in the third quarter of 2007. The mine sold 184,000 metric tons of zinc and 77,400 metric tons of lead during the third quarter. Average zinc and lead grades mined were 19.9 percent and 5.7 percent versus 20.5 percent and 6.2 percent, respectively, in the third quarter of 2007. Mill throughput of 784,000 metric tons in the third quarter was down from the 884,000 metric tons milled in the third quarter 2007. During the mid-July to late October shipping season the mine shipped a total of 954,000 metric tons of zinc concentrate and 249,000 metric tons of lead concentrate. During the third quarter the mine paid out $54 million in royalties to the State of Alaska and its partner, NANA Regional Corp. Profits were down significantly due to higher goods and services costs and the coincident drop in the lead and zinc prices over the last three months.

Zazu Metals Corp. announced additional drilling results from its Lik zinc-lead-silver deposit in the western Brooks Range. Assay results from 29 of 58 holes completed in 2008. Results include 8.23 meters grading 4.29 percent lead, 18.28 percent zinc and 158.8 grams per metric ton of silver in hole 157; 7.62 meters grading 7.64 percent lead, 22.22 percent zinc and 200.68 g/t silver in hole 159; 14.94 meters grading 8.58 percent lead, 23.46 percent zinc and 149.14 g/t silver in hole 171; and 11.19 meters grading 2.47 percent lead, 10.55 percent zinc and 40.76 g/t silver in hole 189. The company is planning to complete an updated resource estimate following receipt of all 2008 drilling results.

Northern Dynasty Minerals Ltd. and partner Anglo American plc provided an update on activities at the Pebble copper-molybdenum-gold deposit near Iliamna. To the end of September 2008, crews had completed 141,000 feet of drilling in 215 holes. This includes 109,800 feet of drilling in 24 holes to increase the information base about known mineralization in the Pebble East deposit, continue to delineate the Pebble East deposit and provide detailed geotechnical information for mine planning purposes. Crews also completed 31,160 feet of drilling in 191 environmental, geotechnical and metallurgical holes. Drilling at the project will continue through December 2008 and will restart in February 2009. The company indicated that copper-gold-molybdenum mineralization within the Pebble East zone remains open to expansion; however the addition of the 2008 drill program results will provide sufficient volume and grade information to allow completion of a preliminary feasibility study in 2009. The partners currently employ 20 engineers working on the study who interface with experts from 58 engineering firms across the globe.

Full Metal Minerals and Highbury Projects reported drill results from this year’s work on their Moore Creek project. The 13-hole, 1,878-meter drilling program was completed on the Spring and Troy zones discovered in 2007. Strong alteration was encountered with zones of silicified and tourmaline-altered monzonite with stockwork quartz veins (up to 0.79 meters wide) and disseminated to massive arsenopyrite, chalcopyrite, pyrite, and rare pyrrhotite intersected in the majority of the holes. Significant results include 5.5 meters grading 4.28 grams of gold per metric ton in hole MC08-05, with 2 meters grading 5.77 g/t of gold in hole MC08-06 and 2.0 meters grading 3.37 g/t gold in hole MC08-09. The companies also completed a reconnaissance program in the Willow Mountain and Maybe Mountain areas. Soil samples across the Willow Mountain stock returned analyses of up to 20 g/t gold per metric ton, along with anomalous arsenic and copper over a 300-meter-by-500- meter area. Grab samples of vuggy quartz with massive arsenopyrite from the Maybe Mountain stock assayed up to 6.07 g/t gold per metric ton and soil samples contained anomalous silver, arsenic, copper, lead, and antimony over a 250-meter-by-500-meter area.

Millrock Resources announced results from exploration work on its Estelle gold project in the Rainy Pass district. Two intrusive-hosted occurrences of interest were discovered – Shoeshine and Oxide Ridge. Gold occurs with disseminated arsenopyrite and chalcopyrite within the intrusive rocks, and in quartz stockworks and sheeted quartz veins. At Oxide Ridge sampling of talus fines has outlined an anomalous zone measuring 200 meters by 30 meters. The average of all 24 talus fines samples in the anomalous zone is 2.32 g/t of gold. Several samples of altered porphyritic intrusive rocks with arsenopyrite bearing quartz stockworks returning values in the 1-4 g/t gold range. At Shoeshine, the anomalous zone is over 1 kilometer in length, and 300 meters wide. Of the 49 samples that comprise the anomaly, the average is 0.585 g/t gold. Numerous rock samples exhibiting porphyry-style mineralization commonly contain 1-5 g/t gold. One sample of porphyry rock cut by sheeted quartz veinlets assayed 13.13 g/t gold. Individual high-grade quartz veins within the anomalous zone contain multi-ounce levels of gold.

Geoinformatics announced drilling results from the Raintree West prospect at its Whistler copper-gold project. Initial drilling intersected widespread mineralization at the Raintree West prospect, which is located about 1.5 kilometers east of the previously discovered Whistler Zone. Significant drilling results include 160 meters grading 0.59 g/t gold, 6.02 g/t silver, 0.10 percent copper, 0.20 percent lead and 0.46 percent zinc, including 24 meters grading 1.37 g/t gold, 6.32 g/t silver, 0.13 percent copper, 0.36 percent lead and 0.80 percent zinc. Raintree West exhibits a comparable magnetic signature to that of the Whistler Zone with a coincident induced polarization anomaly that extends over 800 meters in length. Raintree West is a blind target, concealed by a thin veneer (5 meters) of gravels in relatively flat ground. The gold-to-copper ratio at Raintree West is higher than that at the nearby Whistler zone and, in combination with the higher lead and zinc values encountered at Raintree West, suggests that the Raintree prospect may represent the periphery of a gold-copper porphyry system.

International Tower Hill Mines announced exploration results from its BHP project. Surface sampling of massive sulfide mineralization associated with a significant 9-kilometer-long geophysical anomaly returned values up to 25 g/t gold, 673 g/t silver, 13.8 percent copper, 10.1 percent lead and 30 percent zinc. In the south part of this trend, the geophysical anomalies at the 6120 and 6920 prospects reflect mineralization that averages 1.8 percent copper, 3.2 g/t gold, 29 g/t silver and 0.1 percent nickel. At the Dall Slot target, new, high-grade mineralization averaging 1.3 percent copper and 127 g/t silver has been found. At the northern end of the trend, at the Little Bird prospect, a thick mineralized stratigraphic unit has been identified with average mineralized samples returning 1.2 percent copper and 171 g/t silver.

Eastern Interior

Kinross Gold announced third-quarter 2008 production results from its Fort Knox mine near Fairbanks. For the quarter the mine produced 100,969 ounces of gold compared with 85,755 ounces produced in the third quarter of 2007. Cash costs were $443 per ounce versus $338 per ounce in the previous third quarter. The mine processed 3,815,000 metric tons of ore grading 0.96 g/t gold. Recovery for the quarter was 80 percent. Production increased in the third quarter of 2008 compared with the same period in 2007 due to higher mill throughput, softer ore and higher grades offset by recoveries. Revenue increased 38 percent to $88.3 million from $64.1 million year-over-year due to higher realized gold prices and higher mill throughput. Cost of sales increased 44 percent year-on-year mainly due to increases in labor costs and inflationary pressures which increased the price of electricity, fuel and other consumables. The company completed the Phase 7 pit expansion which entailed drilling of 88 holes (29,447 meters). The company also received promising results from third holes on the south wall of the pit and from 5 holes (806 meters) on the Fort Knox trend. Work on the Walter Creek heap leach project halted for the season with 78 percent of the leach pad area completed. Construction of the carbon in column plant will continue through the winter with initial leaching operations scheduled for the third quarter of 2009.

Teck Cominco Ltd. announced third-quarter production results from its Pogo mine. The mine generated a $15 million profit for the quarter versus a $7.5 million net loss in the third quarter of 2007. For the quarter the mine produced 91,000 ounces of gold at a cash cost of $493 per ounce versus production of 57,600 ounces of gold at a cash cost of $554 per ounce in the third quarter of 2007. The operation treated 179,000 metric tons of ore grading 17.9 g/t gold with a mill recovery of 85 percent, all three of which are improvements over the year-previous period. The mine is forecast to produce 340,000 ounces of gold in 2008.

International Tower Hill Mines Ltd. announced that resources have doubled at their Livengood gold project. At a 0.5 g/t cutoff, total indicated resources stand at 69.53 million metric tons grading 0.83 g/t gold containing 1.86 million ounces of gold and 87.88 million metric tons grading 0.77 g/t gold containing 2.17 million ounces of gold. Perhaps most important, gold grade increased 17 percent over previous resource estimate grades. The deposit remains open in all directions and a significant amount of drill results from the 2008 program remain outstanding. Primary ore controls appear to be the intersection of favorable host lithologies with major structural zones which are interpreted to have acted as conduits for intrusion-related gold bearing fluids. The volcanic, sedimentary and mafic rocks are favorable host rocks and are persistently mineralized. Mineralization in the Money Knob deposit occurs at surface and forms stratabound and cross-cutting bodies in a large thrust faulted and recumbently folded sedimentary and volcanic sequence. The main body of mineralization lies within a general 2-kilometer-wide-by-6-kilometer long northeast trending belt, with the current Core Zone focused along a northwest trending surface geochemical anomaly that is at least 1.6 kilometers long and 800 meters wide. This large structural zone has localized a series of 90 million-year-old dikes, sills and plugs that are believed to be related to the gold mineralization. The company also reported that preliminary metallurgical information shows favorable cyanide solubility with increasing recoveries at finer crush sizes. Shortly after this resource estimate was announced, the company released additional drilling details from 2008 holes that are outside of the new resource base. Significant assays included hole MKRC-0062 which returned 19.81 meters grading 1.09 g/t gold; hole MKRC-0064 which returned 161.54 meters grading 1.32 g/t gold including 25.91 meters grading 2.10 g/t gold; hole MKRC-0071 which returned 164.59 meters grading 1.54 g/t gold, including 68.58 meters grading 2.36 g/t gold, and hole MK08-31, which returned 27.29 meters grading 4.83 g/t gold. These holes extend the mineralization by 30 percent over the recent resource update and mineralization remains open to expansion to the northeast and southwest. Following completion of a year-end resource update, the company is planning a two-phase drill program in 2009, including a 7,000-meter winter program and a minimum 10,000-meter summer program.

Alaska Range

Pure Nickel Inc. announced that it had entered into joint venture agreement with Alaska newcomer Itochu, a Japan-based conglomerate. Under the terms of the agreement, Itochu can earn a 60 percent interest in the project by incurring an aggregate of $30 million of exploration expenditures over the first six years of the option period. Once Itochu has earned a 60 percent interest, it has the option to earn an additional 15 percent interest by incurring an additional $10 million of exploration expenditures during the seventh year of the agreement. The company indicated that exploration budget have been set at a combined maximum of $6.5 million for 2008 and 2009 and that Pure Nickel will remain the operator of the joint venture. Welcome to Alaska Itochu!

International Tower Hill Mines Ltd. announced additional exploration results from its Chisna copper-gold project. Stream sediment surveys have now defined a 40-square-kilometer area of anomalous copper and gold mineralization in the POW-Ptarmigan area, with values up to 4 percent copper and 13 g/t gold. The work has now fully delineated the extent of the system, which has a strike length of about 10 kilometers and a width of 4 kilometers. A total of 300 rock samples collected from this highly altered and mineralized area average 0.1 percent copper and 0.2 g/t gold. The surveys also have discovered anomalous gold in two drainage basins in the Eagle Ravine area, with values up to 0.8 percent copper and 0.29 g/t gold, prompting the staking of additional ground. Regional exploration also identified a new partially covered occurrence at the Hematite prospect which is a large area of hematite-magnetite alteration with disseminated chalcopyrite, indicative of a possible porphyry system at depth.

Northern Alaska

Silverado Gold Mines Ltd. announced updated resources at the Workman’s Bench prospect at its Nolan Creek property in the Brooks Range. The new resources include indicated mineral resources at Workman’s Bench of 42,212 short tons grading 28.0 percent antimony and 0.408 ounces of gold per ton, which contains 11,880 short tons of antimony metal and 17,300 ounces of gold.

Southeast Alaska

Hecla Mining announced third-quarter production results from its Greens Creek mine on Admiralty Island. The cash cost per ounce of silver for the quarter was $3.79 compared with negative $7.41 in the third quarter of 2007. The average grade of ore mined during the quarter was 13.32 ounces of silver per ton compared with 15.54 ounces of silver per ton in the year-previous period. During the third quarter the mine produced 1,776,914 ounces of silver, 16,396 ounces of gold, 4,781 tons of lead and 16,452 tons of zinc. Total production costs for the quarter were $8.78 per ounce of silver produced, a drastic increase over the negative-$3.96-per-ounce costs in the third quarter of 2007. Higher operating costs are attributable to decreased by-product credits due to lower zinc and lead prices, an increase in freight charges, higher energy and steel costs, and a lower average grade of silver. The company indicated that it saved $500,000 during the quarter when excess hydroelectric power was available due to high water levels in the reservoir feeding the Juneau power grid. The company also indicated that exploration on the Gallagher Zone extended mineralization deeper and opened up potential to the north. This year’s surface drilling exploration activities totaled 20,649 feet in 18 holes. Drilling from the North Big Sore prospect identified mine contact rocks that may have the potential for adding resources in an area that was previously thought to be barren.

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