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Vol. 15, No. 35 Week of August 29, 2010
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Tower Hill unlikely to clone Fort Knox

Junior aims to investigate larger operation, heap leach-only scenario as it advances multimillion-ounce Livengood gold deposit

By Shane Lasley

Mining News

Having completed a preliminary economic assessment for the Livengood project in early August, International Tower Hill Mines Ltd. has shifted its focus toward bringing the multimillion-ounce gold property into production.

“Our operational team is making excellent progress in advancing the project down the development and permitting path, a process which we will continue to accelerate,” Tower Hill President and CEO Jeff Pontius told Mining News Aug. 17.

The PEA envisions a heap leach pad and mill similar in scale to those at Kinross Gold Corp.’s Fort Knox Mine about 60 miles, or 100 kilometers, southeast. Processing 81,000 metric tons of ore per day Livengood would produce an average of 504,000 ounces of gold annually over a 21-year mine life.

Though the PEA demonstrates that a clone of the Fort Knox mill and heap leach operation at Livengood would be economic, Tower Hill is unlikely to pursue that development scenario. A final report on the PEA, due to be released by mid-September, will outline two alternatives more apt to resemble the project’s final design.

“In the final report, there will be a couple of alternatives that will be looked at in some detail – one of going initially with a heap leach for six or seven years so we can pay our way to build the mill, (and) the other of doubling the capacity of the mill so we can mine it out in a more reasonable time-period,” Pontius said.

Fort Knox clone

According to the PEA, building a Fort Knox-sized mine at Livengood would cost around US$1.385 billion, with an additional US$450 million in life-of-mine sustaining capital costs. The figures used in the assessment include a 25 percent contingency on capital costs, a number that should decrease as the mine plan becomes more certain.

“The base-case we put in there was basically cloning the current Fort Knox operation and sticking it at Livengood. One of the drawbacks that we saw is that Livengood is considerably bigger than Fort Knox, and it had such a long mine-life, it didn’t produce as good financial results as it could have if (we) increased mill production to compress that 21-year life,” Pontius explained.

Though much can be done to improve the profitability of the project, the PEA did demonstrate positive economics. At US$950 per ounce gold, the conceptual project has a pre-tax net present value (at a 5 percent discount) of US$813 million and an internal rate of return of 15.4 percent. The study also shows the deposit has a considerable leverage to gold prices, with a pre-tax NPV (5 percent) of US$2.3 billion and an IRR of 32.5 percent at US$1,200 per ounce gold.

“The positive results from this economic assessment will form the conceptual foundation of the Livengood project design, which is projected to consist of a large open-pit mine supplying ore to both a large mill using gravity and flotation concentration and a heap leach pad with associated gold recovery circuit,” said Tower Hill Chief Operating Officer Carl Brechtel. “The authors of this most recent PEA will continue on as key external members of the company’s owner team, providing continuity in the transition to the prefeasibility study. The prefeasibility study will address a number of optimization and enhancement opportunities to continue to improve and grow the project.”

Two alternatives

The two optimization and enhancement options under consideration are increasing the mine rate and beginning with a heap leach-only operation for the first few years.

With capital costs at about half that of constructing a combined mill-heap leach operation, an initial heap leach-only option is an attractive alternative if Tower Hill puts Livengood into operation on its own.

“That is a real option for us because bringing the heap on would lower the initial (capital expenditure), and it allows ITH to look at a way financially it can take the project forward,” Pontius told Mining News.

“If ITH is building this project, we are going to want to run the heap gangbusters for a while to actually get some good cash,” he added.

The Money Knob deposit at Livengood contains some 300 million metric tons of heap-leachable oxidized mineralization, a number the company expects to increase as drilling results increase the deposit size to the west.

“We have expanded the two best heap leach units, which are the Cambrian and Upper Sedimentary, to the point where they could support a very large mine for about seven years at a throughput of 100,000 tons a day,” Pontius explained.

With cash coming in the company could later opt to build a mill to mine the deeper unoxidized ore.

The other option under consideration is ratcheting up the size of the operation.

“It’s a very large deposit with over 10 million recoverable ounces – half a million ounces a year of production, which has an opportunity to increase as we enlarge the operation to take advantage of economies of scale,” Pontius said.

Livengood is particularly suited for a larger-scale operation. Not only is it an enormous ore-body, it has a low ore-to-strip ratio of 1-to-1.07 and large mineralized units.

“The strip ratio is approximately 1-to-1 in the deposit and affords us a great opportunity to scale this operation up and compress the mine-life, which should improve the overall economics of the project,” Pontius said.

A larger operation comes with a larger price tag. If the scaled-up option is pursued, it is likely that a major company would join Tower Hill to build the mine.

“Of course we will be continuing on (with) putting both scenarios out there; one where we bring a heap leach on early and get it going and start to make cash out of the project so we can finance the mill construction, and the other one is to do it all at once – bring the mill, the heap leach push it forward on a very large-scale basis like a big company would do, that isn’t capital constrained,” the Tower Hill CEO explained.

Prefeasibility under way

Working out the pros and cons of the various scenarios will be part of the prefeasibility study currently underway.

“We have good infrastructure, we are in a very favorable jurisdiction, we have strong local support for this project, and we are moving it forward very quickly into the prefeasibility phase,” Pontius said.

As engineers hammer out the mine plans, scientists are on the ground collecting the hydrological, environmental and other data needed to permit the project.

With the addition of personnel conducting the baseline studies, Pontius said the population of the Livengood camp swelled to more than 80 people this summer.

In addition to the field programs, Tower Hill will soon award a contract for more in-depth phase-2 metallurgical work.

Denser, deeper drilling

The infill portion of this summer’s 45,000-meter drill campaign is a key component of the Livengood prefeasibility study. The primary goals of the two core rigs and one reverse circulation drill engaged in the infill program is to convert the bulk of the resources included in the mine-plan to measured and indicated categories, better define the higher-grade areas of the deposit and extend the mineralization at depth.

Tower Hill believes this summer’s infill drill campaign will provide enough density to upgrade the bulk of the 10.9-million-ounce indicated and 2.4-million-ounce inferred gold resource. The grades are also holding up to the density drilling and may increase slightly when a new resource is calculated.

Many of the holes drilled into Money Knob have bottomed out in mineralization, indicating that the deposit has room to grow at depth. Two holes drilled into the Sunshine zone this summer highlight this potential. At a depth of 353 meters, hole MK- RC-0373 cut 49 meters grading 1.9 of gold per metric ton. From 363 meters hole MK-RC-0376 drilled 15 meters averaging 1.2 g/t gold.

Seeking gold-poor regions of the property suitable for building the heap leach pad, mill and other facilities is another facet of the drill program that will provide information the engineers need as they complete the feasibility study.

“Right now we have half a dozen or so facility alternatives on the property package, and we are going to need to evaluate those, because some of them have some very interesting gold anomalies associated with them,” Pontius explained.

Expansion continues

The junior is also continuing to expand the footprint of Money Knob. Two reverse circulation drills evaluating resource expansion and district-scale targets at Livengood have returned encouraging results on opposite ends of deposit.

“We are stepping out in a couple of new areas; one down the Lillian Gulch area and the other one (Olive Zone)is to the south of the Core Zone as we come off the side of the hill there – we have had luck in both those spots,” Pontius explained.

Hole RC-0355, drilled in Lillian Gulch about 400 meters north and west of known mineralization, cut 7.6 meters grading 3.3 grams per metric ton gold. RC-0362, drilled 150 meters east of hole 355 intersected 6.1 meters grading 2.9 g/t. These results along with anomalous gold in soils have prompted the explorer to continue its investigation of this expansion area. RC-0392, drilled about 600 meters north of hole 355, intersected strongly altered favorable host rocks. Assay results are still pending from this hole drilled in the northern portion of the Lillian zone.

Olive, an expansion area southeast of the Core zone, is also showing promise. Hole MK-RC-0380 cut 21.33 meters averaging 1.73 g/t gold and included 6.09 meters grading 4.46 g/t gold. Assays are pending on several holes drilled in this promising new area.

An aggressive district-wide surface exploration campaign to define new deposits similar to Money Knob along trend has turned up some promising targets for a drill campaign expected to begin this fall.

“We have got a big regional soil program going on within the large land-block we’ve got and we have defined a lot of targets out there. Hopefully in mid-September we’ll have got some helicopter-supported reconnaissance drilling on some of those targets to see if we’ve got other deposits in the trend,” Pontius added.

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