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MINING NEW: Producers score big with Alaska mines Strong prices and production, especially at Red Dog and Greens Creek, give state’s large hardrock mines an edge in 2006 By Rose Ragsdale For Mining News
Strong markets and solid production powered hardrock mining companies with large operations and investments in Alaska to outstanding performances in 2006.
Teck Cominco, operator of the Red Dog zinc-lead mine near Kotzebue and the Pogo gold mine in the eastern Interior near Delta Junction; Kinross Gold Corp., owner of the Fort Knox gold mine near Fairbanks, Hecla Mining Co., part owner of the Greens Creek silver mine in Southeast Alaska; and Coeur D’Alene Corp., developer of the Kensington Gold Project near Juneau, reported substantial earnings growth in 2006 and positive outlooks for 2007 that bode well for their Alaska properties.
Teck Cominco spent 2006 continuing to broaden its assets portfolio to include more commodities and thereby reduce risk. The company invested in an oil sands project in Alberta; the Tahera Diamond Corp., owner of the third diamond mine in the Northwest Territories; Nautilus Minerals Inc., the first undersea minerals exploration company; and ZincOx Resources plc, a concern that is using new technology to recover zinc from electric arc furnace dust created in processing of galvanized steel scrap.
Thanks to high prices, especially for zinc, the Toronto-based major mining company deemed 2006 a truly great year.
“We thought 2004 was a great year when we reported $617 million in earnings,” said Ron Vance, senior vice president of corporate development at Teck Cominco. “But in 2006, we nearly quadrupled that to more than $2.4 billion in income.” The company reported profits of $1.3 billion in 2005.
Red Dog stands out Vance told investors in February that Red Dog was a major contributor to the company’s positive results, especially in the fourth quarter due to higher prices and sales volumes, and has tremendous upside potential.
Red Dog produced 557,500 tonnes of zinc concentrates and 123,500 tonnes of lead concentrates in 2006. While zinc production fell slightly from 2005, lead output climbed about 20 percent.
Higher sales volumes combined with record high zinc and lead prices resulted in an operating profit of $623 million in the fourth quarter, compared with $167 million in the same period of 2005.
Teck Cominco reported significantly higher commodity prices and higher sales volumes of Red Dog concentrates in the fourth quarter as poor weather conditions in the third quarter shifted some sales into the final quarter of the year.
Red Dog’s operating profit for 2006, alone, hit a record $1.1 billion, compared with $325 million a year earlier.
“We expect to be producing zinc there for a long, long time,” Vance added.
Pogo overcomes setback The Pogo gold project reported total production of 45,000 ounces and sales of $39 million in 2006, but Teck Cominco said Pogo is not up to full commercial production and its results weren’t included in operating results. Rather its $5 million share of an operating loss from Pogo in the fourth quarter was capitalized as part of development costs.
Teck Cominco’s capital expenditures in the fourth quarter were $121 million, of which $60 million was on sustaining capital expenditures and $61 million went to development projects. Development spending included $11 million for the Pogo gold project.
“We expect to reach commercial production at the Pogo mine site by April 2007 following completion of the filter plant projects with full production anticipated in May 2007,” Teck Cominco President and CEO Don Lindsay said in the company’s recent 2006 earnings statement. Gold production for 2007 is expected to reach 340,000 ounces at Pogo, and annual gold output of 350,000 to 450,000 ounces is anticipated over the 10-year life of the project.
Fort Knox posts solid results Kinross, one of the world’s large gold producers with 10 operating mines, reported total production of 1.48 million ounces of gold in 2006. Kinross sold 1.51 million ounces of gold equivalent in 2006, down from 1.63 million in 2005. The company said its cost of sales was $319 per ounce, up 7 percent from 2005, largely due to increased fuel, power, labor and other production costs, which impacted mining companies industry-wide.
Tye Burt, president and CEO of Kinross told investors in February that the company had three quarters in 2006 with record earnings, which led to record full-year profits of $165.8 million, or 47 cents per share (diluted). That compared with a loss of $216 million in 2005.
Capital spending at Kinross totaled $202.9 million for 2006, of which about $50 million was spent at Fort Knox. The Alaska mine produced 333,383 ounces of gold in 2006, up from 329,320 ounces a year earlier.
Kinross said the Fort Knox mine increased its gold production slightly in 2006 due to the completion of phases IV and V mining and the shutdown of production from the True North deposit.
“Revenue increased 46 percent due to the increased price of gold and a 7 percent increase in ounces sold compared to 2005,” the company said.
Cost of sales climbed 17 percent at Fort Knox, mainly due to increases in commodity and energy costs. Exploration spending also increased to $1.4 million from $600,000 in 2005 as the company continues to look for opportunities to extend the life of the mine, Kinross said. Drilling at Fort Knox confirmed economic heap leach reserves and additional resources.
Kinross reported proven and probable reserves of 2.7 million ounces of gold and 1.6 million ounces in measured and indicated reserves at Fort Knox as of Dec. 31. That represents nearly 10 percent of total proven and probable gold reserves of 27.9 million ounces and about 20 percent of total measured and indicated gold reserves of 8 million ounces that Kinross posted for the entire company.
Phase VI of the mine’s development plan is expected to come into full production in early 2007, the company added.
Greens Creek boosts Hecla The Greens Creek, fifth largest silver mine in the world, is coming into its own as a major performer, according to 30 percent owner Hecla Mining Co.
In reporting Hecla’s unprecedented 2006 performance in which earnings climbed 20 percent higher than the company’s previous record, President and CEO Phillips S. Baker Jr. said the Greens Creek mine in Southeast Alaska made a substantial contribution to the company’s success though its output decreased slightly.
Hecla reported 2006 income applicable to common shareholders of $68.6 million, or 57 cents per share, compared to a loss of $25.9 million, or 22 cents per share, during 2005. “These results weren’t just a little better; they were better by double-digit margins than our next best year ever,” Baker said. “Cash costs for silver were extremely low, and it is important to note that the ($61.5 million in) cash provided by operations is after spending $28 million on exploration and pre-development projects as part of the most aggressive exploration program Hecla has ever conducted.”
He said Hecla’s cash cost per ounce of silver in 2006 was the lowest since that statistic has been reported, at just 24 cents per ounce. The average price for silver in 2006 was $11.57 per ounce, up 58 percent from 2005.
Mine pays with byproducts Hecla holds a 29.73 percent interest in the Greens Creek mine in partnership with Kennecott Greens Creek Mining Co., a subsidiary of Rio Tinto. The Greens Creek silver-gold-zinc-lead mine is located on Admiralty Island, near Juneau.
For Hecla’s account in 2006, Greens Creek produced 2.6 million ounces of silver (down from 2.8 million ounces in 2005) at an average total cash cost of negative $3.47 per ounce. Because of high prices for its rich by-product metals — gold, lead and zinc — Greens Creek was one of the lowest cash cost silver producers in the world in 2006.
Greens Creek also produced 18,713 ounces of gold (down from 21,631 ounces in 2005) for Hecla’s account during 2006. The average price of gold during 2006 was $604 per ounce, the highest yearly average in recorded history and 36 percent higher than 2005. Hecla also greatly benefited at Greens Creek from sales of zinc and lead, as those prices jumped 137 percent and 32 percent, respectively, compared with 2005, the company said. Greens Creek produced 6,242 tons of lead (down from 6,515 tons in 2005) and 17,670 tons of zinc (down from 19,209 tons in 2005) for Hecla’s account in 2006.
During 2006, Hecla’s share of capital expenditures at Greens Creek was $7.8 million. This outlay included installing infrastructure to augment the mine’s use of diesel-generated power with less expensive hydroelectric power in the future, additional underground development and an ongoing project to expand the tailings facility, which should be completed in about two years.
Exciting potential at Greens Creek The bulk of the exploration effort during 2006 at Greens Creek focused on the 5250 and West Gallagher zones. Mineralization intercepted across the Gallagher Fault added more than 2 million ounces of silver from the West Gallagher zone to Hecla’s share of the silver resource. In addition, excellent results in the northern extension of the high-grade silver 5250 zone have resulted in a continued focus on exploration along that structure. Mining is currently occurring in the 5250 zone, so any additional mineralization discovered in this area will be easily accessible and minable.
Baker said majority owner Rio Tinto is excited about the potential of surface exploration at Greens Creek and Hecla has committed to a five-year drilling program. In 2006, surface exploration was somewhat hampered by the lack of availability of drillers, which is an industry-wide issue at this time, Baker said. Complete results from 2006 surface drilling are pending.
Meanwhile, an aggressive program is being proposed for both underground exploration across the Gallagher Fault and surface exploration where Greens Creek-like targets have been identified elsewhere on the property. The mine is located on a 12-square-mile land package, and good potential for discoveries outside the Greens Creek mine area exists, Baker said.
“At Greens Creek … we see much more opportunity for the future,” Baker said. “At current metals prices, Hecla generates a huge amount of cash flow. Now is the time to make the investments for future discovery and growth, and toward that end we are budgeting approximately $22 million, $2 million more than last year, to continue our aggressive exploration program.”
For 2007, Hecla is estimating its share of production from Greens Creek to be about 2.5 million ounces of silver, again at average total cash cost of less than negative $3 per ounce.
Outlook positive at Kensington Coeur d’Alene Mines, considered one of the world’s leading primary silver producers with a strong presence in gold, posted income for 2006 of $88.5 million, or 30 cents per diluted share, compared with income of $10.6 million, or 4 cents per diluted share, for 2005. The company said cash provided by its operating activities increased more than 13-fold during the year to $91.2 million, up dramatically from $6.7 million in 2005.
Dennis E. Wheeler, chairman, president and CEO of Coeur d’Alene, said the company reported record-setting performance in revenues, income and cash flow, and gold reserves in 2006. Silver production from continuing operations also rose 10 percent, while the company’s silver cash production cost per ounce declined by nearly 6 percent. Coeur d’Alene also reported a 16 percent increase in gold reserves.
“We expect silver and gold markets to remain robust during 2007,” Wheeler said.
Idaho-based Coeur is developing the Kensington Gold Mine near Juneau. The company said in February that it believes commercial production at Kensington could begin in late 2007, subject to successful resolution of litigation concerning an existing permit.
Coeur d’Alene currently estimates the total cost of building the mine will be about $238 million, up about 25 percent from its previous cost estimate of $190 million. The increase is due to overall inflation, which has impacted capital costs, and higher expenses associated with a legal challenge to one of the mine’s existing permits.
The company estimates cash production costs will be $310 per ounce in the initial years of operation. A recent improvement in grade at Kensington is expected to enable the mine to produce as much as 150,000 ounces of gold annually in its early years of operation.
In 2006, capital expenditures at Kensington totaled $121.5 million. Recent activity has focused on completion of the mill and crusher buildings, the company said.
As a result of exploration efforts in 2006, Kensington posted a 29 percent increase in gold mineral reserves, to 1.35 million ounces. The company also achieved a 24 percent increase in gold grade, to 0.31 ounces per ton. Core drilling exceeded 32,000 feet at Kensington and 13,500 feet on the adjacent Jualin property. In addition, Kensington had 866,000 ounces of gold mineral resources (623,000 ounces of indicated resources and 243,000 ounces of inferred resources) at the end of 2006.
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