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Vol. 16, No. 13 Week of March 27, 2011
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Miners poll hot, cold on Alaska climate

Survey highlights industry’s respect for state’s mineral potential, concerns about its regulatory uncertainty and inconsistencies

Curt Freeman

For Mining News

The Fraser Institute recently released its “Survey of Mining Companies, 2010/2011,” an annual survey of exploration and mining companies that gauges the pros and cons of working in various countries around the world. This year the survey results came from 494 mining companies working in 79 jurisdictions and representing cumulative exploration expenditures of more than US$2.4 billion in 2010.

There was a bit of honey and a bit of vinegar for Alaska in this report. Let’s do honey first: starting with the Policy/Mineral Potential index with no land use policies in place and assuming industry “best practices,” Alaska scored first (that’s right Dorothy, first) with a score of 93 out of a possible 100! To my recollection, that’s the first time Alaska has ever scored at the top spot in any Fraser Institute survey! Nice, but not real, since there are land use policies in place, lots and lots of them. So, with current land use policies in place, Alaska ranked a respectable 9th place for Mineral Potential, behind perennial mining powerhouses like Chile, Quebec and Nevada. Now for the acetic acid: in its Policy Potential Index, a measure of all things related to regulatory policy, Alaska scored a not so respectable 21st behind several Canadian and Australian jurisdictions and three western states. But a close look at the details that went into that score should sound alarm bells in our fair state. For example, in regard to uncertainty in the enforcement of existing regulations, Alaska scored well down the list, behind Colombia in fact! Dismiss that bit of bad news if you like, but perception is reality, and this industry and this state need to address this perennial beef, not hide from it. There is more vinegar: in the category relating to uncertainty about enforcement of environmental regulations, Alaska was even farther down the list, behind such environmentally aware places like the Democratic Republic of the Congo and China. Never mind that environmental regulations are nearly nonexistent in some countries, or are codified but largely ignored. And this one really, hurts: concerning regulatory duplication and inconsistencies, we scored well below Madagascar. For the love of Mike, Madagascar?! And to underscore the famous Will Rogers quote, “There are lies, damn lies and statistics,” under the category entitled “Security (includes physical security due to the threat of attack by terrorists, criminals, guerrilla groups, etc.),” something less than 5 percent of respondents said this category was a mild deterrent to investment in Alaska. Hello? Bears, maybe … snowstorms in July, perhaps … a miner carrying a sidearm … sure, but guerrilla groups? Perhaps these folks need to be informed that guerrillas are big, often hairy folks who carry guns and gorillas are big, often hairy folks who don’t.

Western Alaska

NovaGold Resources Inc. announced that it has entered into an agreement to sell to Nome Gold Alaska Corp. its alluvial gold properties comprising 11,500 acres of fee-simple patented mining claims near Nome. Nome Gold Alaska will pay US$21 million in three installments, and also will provide a letter of credit for US$4 million as an environmental reclamation bond. NovaGold is also soliciting offers for the balance of its land package around Nome, including in-town real estate lots and substantial sand and gravel holdings, as well as its Rock Creek and Big Hurrah gold properties. The company had previously written off US$116.4 million in value from the Rock Creek project and is carrying the project on its books at zero value. For 2011, the company has budgeted US$8.5 million for the Rock Creek project with a focus on continuing to meet permit requirements and environmental responsibilities. The company also will prepare a preliminary closure plan for the project in the event that its board of directors chooses to close and reclaim the property rather than sell it to another operator.

NovaGold Resources Inc. provided a corporate update for its Donlin Creek Project, a 50:50 joint venture with Barrick Gold Corp. The partners expended about US$40.4 million in the fiscal year that ended Nov. 30, 2010. The 2010 work program completed the majority of the environmental and engineering studies required to review the option of using natural gas as the primary power source at the mine site, as opposed to using diesel to generate power as contemplated in the 2009 feasibility study. The partners engaged an energy consultant to lead the gas line studies. An analysis on the impacts to project infrastructure related to transportation and logistics is ongoing. The natural gas option would require building a 12-inch buried pipeline that would run approximately 315 miles from the Cook Inlet to the mine site. With power costs projected to be 25 percent of total operating costs, utilization of lower-cost natural gas could significantly reduce operating costs. The original feasibility study will be updated with the new natural gas line information with the revised feasibility study targeted for completion in the second half of 2011. The partners are then expected to prepare and file construction and operations permit applications for the project.

NovaGold Resources. Inc. also announced that it has budgeted approximately $10 million for additional studies at the Ambler project in the Brooks Range to determine the environmental and engineering aspects of developing the Arctic volcanogenic massive sulfide deposit, as well as to fund exploration and geotechnical drilling at the site. The company continues to work with NANA regional Corp. to establish a memorandum of agreement for collaborative development of the Ambler region, including district consolidation and infrastructure development that would benefit both the project and local communities.

The biggest news in the past month was the announcement by Northern Dynasty Minerals Ltd. of an impressive preliminary assessment technical report for its Pebble copper-gold-molybdenum project near Iliamna. The preliminary assessment considered three mine development cases comprising 25, 45 and 78 years of open-pit mining and a nominal processing rate of 200,000 tons per day.

The 45-year Reference Case processes 3.8 billion tons of material with a strip ratio of 2.1:1 and an average grade of 0.46 percent copper, 0.011 ounces of gold per ton and 214-parts-per-million molybdenum. The 45-year Reference Case yields a 14.2 percent pre-tax internal rate of return, a 6.2-year payback on initial capital investment of US$4.7 billion and a US$6.1 billion pre-tax net present value at a 7 percent discount rate and long-term metal prices.

At current prevailing metal prices, the 45-year Reference Case yields a 23.2 percent pre-tax rate of return, a 3.2-year payback on initial capital investment and a US$15.7 billion pre-tax net present value at a 7 percent discount rate. The 45-year Reference Case produces 31 billion pounds copper, 30 million ounces gold, 1.4 billion pounds molybdenum, 140 million ounces silver, 1.2 million kilograms rhenium and 907,000 ounces palladium while mining only 32 percent of the mineral resource. For the 45-year Reference Case, cash costs after by-product credits comes in at a negative US11 cents per payable pound of copper. Copper-gold concentrate produced at the mine would be transported via a slurry pipeline to a new deep-water port on Cook Inlet. There it is de-watered and bulk shipped to offshore smelters. Other products of the process plant are gold doré, which would be flown to market from an existing aviation facility at Iliamna, and molybdenum concentrate, which would be bagged and trucked to the port for shipment. Ongoing investigations undertaken during the first 25 years of mining, including construction of a shaft to access deeper but higher grade resources, would determine the optimal mining method and plan for subsequent phases of development. The potential exists for underground block cave development at a mining rate of 150,000 tons per day to emerge as the preferred mining method for phases of development beyond 25 years. The process plant employs conventional crush-grind-float technology and equipment with a nominal throughput of 200,000 tpd, as well as secondary gold recovery. Average mill throughput for the first 25 years would be 219,000 tpd, rising to 229,000 tons per day for the 45-year and 78-year cases.

Other required project facilities and infrastructure, included in the project capital cost quoted above, include a 378 megawatt natural gas-fired turbine power plant at the mine site, an 86-mile transportation corridor to Cook Inlet for road and pipeline rights-of-way and a new deep-water port on Cook Inlet. Construction of the Pebble project would take four years, and employ a peak labor force of 2,080 people. The operations workforce averages 1,120 people over the first 25 years of mining.

And there is a lot more info, way more info, but wait, there’s more: the study also noted that significant exploration potential remains at several known targets outside of the resources considered by the assessment. For example, immediately adjacent to the Pebble deposit and east of the resource-bounding ZG1 fault, is the high-grade intersection in drill hole 6348 which returned 949 feet grading 1.92 percent copper equivalent grade. The area to the east of this intersection remains completely open.

Fire River Gold Corp. announced results obtained from additional underground drilling at the Nixon Fork project. New significant intercepts include 92.2 grams per metric ton gold over 3.6 meters in hole N10U-033, 33.2 g/t gold and 165.2 g/t silver over 1.5 meters in hole N10U-028, 28.8 g/t gold over 13.7 meters in hole N10U-038, 202.7 g/t gold over 1.0 meter in hole N10U-040 and 6.0 g/t gold over 0.8 meters at 3000 Zone. Other activities at the project include diamond drilling with two underground Hagby drills, rehabilitation of the main ventilation raise, and construction of the cyanidation plant with a targeted completion date of July 2011. The company also indicated that test mining and ore stockpiling will begin in March, building a stock pile for the planned re-commissioning of the mill in June.

Interior Alaska

Teryl Resources Corp. announced a new resource estimate for its Gil gold project, which is a 20:80 joint venture with Kinross Gold Corp. For a heap-leach-only scenario (0.015 ounces per ton gold cutoff), the deposit contains measured resources of 2,283,057 tons grading 0.0304 oz/t gold (69,499 ounces), indicated resources of 9,571,130 tons grading 0.0279 oz/t gold (267,408 ounces) and inferred resources of 8,002,591 tons grading 0.0222 oz/t gold (178,009 ounces). The total gold resource in the heap leach scenario is 514,916 ounces. If a mill-only scenario is considered at a 0.0225 oz/t gold cutoff, the deposit contains measured resources of 1,307,343 tons grading 0.0394 oz/t gold (51,483 ounces), indicated resources of 4,652,938 tons grading 0.0382 oz/t gold (177,870 ounces) and inferred resources of 2,544,964 tons grading 0.0314 oz/t gold (79,949 ounces). The total gold resource in the mill scenario is 309,303 ounces. The report recommended additional definition and exploration drilling at North Gil, the Gil Intersection and the Sourdough Ridge zones.

International Tower Hill Mines Ltd. announced the hiring of Tom Irwin as the company’s construction manager at its Livengood gold project. Following a period where he spent six years as the Commissioner of the Alaska Department of Natural Resources, Tom is returning to his mining engineering roots. From 1992 to 1996, he was vice president of Fairbanks Gold Mining, Inc., a subsidiary of Kinross Gold, and responsible for engineering at Fort Knox during mine design. From 1996 to 1999, he was the operations manager responsible for mine start-up and operation at the Fort Knox mine and general manager of the mine from 1999 to 2001. From 2001 to 2003, he became the vice president, business development for Fairbanks Gold Mining, responsible for new project permitting, business development and governmental and public relations. Welcome back to the industry, Tom!

Corvus Gold Inc. provided an update on its LMS gold project in the Goodpaster District. Starting in March, joint venture partner First Star Resources Inc. intends to carry out a winter drilling program consisting of over 1,000 meters of oriented core, which it proposes will be followed up with an aggressive summer core drilling program of 5,000 meters. First Star intends to use the results from these programs for an updated resource estimate on the project by the end of 2011.

Corvus Gold Inc. also provided an update on its West Pogo gold project in the Goodpaster District. Joint venture partner First Star Resources Inc. intends to carry out a 3-D induced polarization geophysical survey in May as well as geological mapping and geochemical surveys in June, with the aim of testing areas presumed to be underlain by favorable geology, and expanding the geochemical expression of mineralized zones. In July, First Star plans to drill over 1,500 meters of oriented core to test an east-northeast striking gold and silver zone.

Alaska Range

On March 1, 2011, Terra Mining Corp., whose wholly-owned Alaska subsidiary, Terra Gold Corp., is Corvus subsidiary Raven Gold’s joint venture partner on the Terra gold project in the western Alaska Range, was acquired by Alaska newcomer WestMountain Index Advisor Inc. With the acquisition, WestMountain has acquired the right to earn a 51 percent interest in the Terra gold project from Raven Gold by spending a total of US$6.0 million. WestMountain can further increase its ownership to 80 percent with a US$9.5 million capital investment over a four-year period. WestMountain is currently developing its 2011 drilling program to further define the gold vein along strike and at depth. Welcome to Alaska, WestMountain Index Advisor Inc.!

Kiska Metals Corp. announced that the first phase of a 31,000-meter drill program will commence in early March on its Whistler copper-gold project in the Kahiltna District. The objective of the 2011 program is to delineate the four previously identified early-stage gold-copper porphyry discoveries (Island Mountain, Raintree West, Raintree East and Rainmaker) and explore for new gold-copper porphyry deposits in the Whistler Orbit (an approximate 5-kilometer radius centered on the Whistler deposit). This effort will include grid-based drill testing of high priority areas as outlined by geophysics, geology and reconnaissance drill holes. Drilling will commence at the Raintree West target and will consist of systematic step out drill holes north of the discovery section, where evidence suggests a strengthening porphyry system.

Concurrent with the Raintree West drilling, a grid-based drill program will test prospective areas of the Whistler Orbit with shallow holes to obtain geological information and locate areas of strong alteration and/or mineralization beneath the thin layer of overburden. Up to 50 holes will test geophysical targets derived from magnetics and induced polarization data generated from a 3-D survey conducted in 2009. Results of this shallow drilling will guide further drilling with the larger drill capable of testing targets to greater depths. A second rig will be mobilized in May to follow up on targets generated from the shallow drilling campaign and to expand on known mineralization.

A total of 20,000 meters of drilling will be completed in the Whistler Orbit in 2011. The exploration program at the Island Mountain will start with a detailed airborne magnetic geophysical survey in April to help refine drill targets and highlight new target areas in preparation for drilling slated to start in June. Two drill rigs will be mobilized to complete 11,000 meters of drilling at Island Mountain. One drill will be dedicated to expanding on a section-by-section basis mineralized zones identified in 2010. The second drill will focus on step out drilling to expand Island Mountain mineralization, to conduct reconnaissance drill testing of early stage surface and geochemical targets defined in 2010 as well as additional targets elsewhere on the property such as Muddy Creek, a gold target where 150 rock samples averaged 4.72 g/t gold over an irregular 3.2 kilometer-by-3.3 kilometer, or about 2-mile-by-2-mile, area.

Southeast Alaska

Hecla Mining plc announced year-end 2010 production results from the Greens Creek mine on Admiralty Island. The total cash cost per ounce of silver produced at Greens Creek for the year was negative US$3.90 per ounce versus negativeUS$1.93 per ounce in 2009. Total production costs for the year were US$3.36 versus US$7.65 for 2009. The average grade of ore mined during the year was 13.30 oz/t silver, down from the average grade of 13.01 oz/t in the year previous. For the year, the mine produced 7,206,973 ounces of silver, 68,838 ounces of gold, 25,336 tons of lead and 74,496 tons of zinc.

The decrease in silver production year-over-year is due to lower silver ore grade. The lower silver grade along with the higher zinc and lead ore grades were expected and are due to differences in the sequencing of production according to the mine plan. Silver production was up in the fourth quarter over the same period in 2009 due to higher silver, gold, lead and zinc grades and recoveries, and increased mill throughput.

The mine is working to optimize mill capacity and has successfully increased throughput by about 10 percent since 2008 to 2,200 tpd, and will work towards increasing throughput to 2,250 tpd in 2011. The total decrease in cash cost per ounce of silver produced year-over-year was primarily due to increased by-product production credits, partially offset by higher treatment and freight costs, production costs, and production taxes. The higher treatment and freight costs in 2010 are due to increased price participation charges by smelters. Greens Creek mined 800,000 tons containing 9.8 million ounces of silver in 2010 and added 728,800 tons containing 8.6 million ounces of silver to reserves. On the exploration front, underground drilling continues to define high-grade reserves and resources with good widths in the NWW zone along two newly-defined limbs below the current workings and along strike for at least 500 feet.

Significant 2010 drilling results from the NNW zone include 8.4 feet grading 0.17 oz/t gold, 43.7 oz/t silver, 16.4 percent zinc and 10.5 percent lead and 21.2 feet grading 0.15 oz/t gold, 28.7 oz/t silver, 15.8 percent zinc and 6.4 percent lead. Drilling in the 200 South zone has defined two separate mineralized zones that are typically barite-rich and contain higher values of precious metals relative to other zones in the mine. Significant 2010 drilling results from the 200 South zone include 15.8 feet grading 0.31 oz/t gold, 12.6 oz/t silver, 17.2 percent zinc and 3.45 percent lead and 30.3 feet grading 0.06 oz/t gold, 37.4 oz/t silver, 7.5 percent zinc and 3.2 percent lead. Surface and underground drilling continues to define the North East contact which represents a continuation of the Greens Creek mine contact. The contact has been folded underneath the existing mine workings; it extends near surface at Cub Creek less than a mile northeast of the mine infrastructure, and dips below and is sub–parallel to the mine infrastructure. Recent wide-spaced drilling has defined discontinuous mineralized intervals along the contact which has a folded strike length of over 5,000 feet and down dip extension of 3,000 feet. Exploration expenditures at Greens Creek in 2011 should exceed $8 million. Two drills are expected to work underground all year and the surface exploration program has three drills and a number of surface mapping and sampling crews in the spring and summer.

The company also announced revised resource estimates for the mine which include probable reserves of 8,243,100 tons grading 12.1 ounces of silver per ton, 0.092 ounces of gold per ton, 3.5% lead and 9.3% zinc, mineralized material of 789,800 tons grading 4.1 ounces of silver per ton, 0.063 ounces of gold per ton, 2.0% lead and 4.6% zinc, and other resources of 2,343,300 tons grading 11.8 ounces of silver per ton, 0.089 ounces of gold per ton, 2.9% lead and 4.4% zinc. Since 1987 Greens Creek has produced a total of about 170 million ounces of silver and approximately 1.17 million ounces of gold and currently has over 154 million ounces of silver reserves and resources.

Ucore Rare Metals Inc. announced its first industry-compliant resource estimate for the Bokan Mountain rare earth elements project. Resources were generated from 8,728.76 meters of core drilling from 143 holes at the Dotson Ridge and I&L zones. At a cutoff grade of 0.5 percent total rare earth oxides, the deposit hosts an inferred mineral resource of 3,669,000 metric tons grading 0.746 percent total rare earth oxides, with 39 percent of TREO being the higher value heavy rare earth oxides. This resource contains 60,325,000 pounds of TREO. Individual light rare earth element grades, in kilograms per metric ton, at this 0.5 percent TREO cutoff were 0.77 kg/t lanthanum oxide, 2.2 kg/t cerium oxide, 0.26 kg/t praseodymium oxide, 1.08 kg/t neodymium oxide and 0.28 kg/t samarium oxide. Individual HREE grades, in kg/t, at this 0.5 percent TREO cutoff were 0.03 kg/t europium oxide, 0.27 kg/t gadolinium oxide, 0.05 kg/t terbium oxide, 0.29 kg/t dysprosium oxide, 0.06 kg/t holmium oxide, 0.15 kg/t erbium oxide, 0.02 kg/t thulium oxide, 0.11 kg/t ytterbium oxide, 0.01 kg/t lutetium oxide and 1.88 kg/t yttrium oxide. The new resource begins at surface and is open both at depth and to the east. The company indicated that it is conducting metallurgical research to create a metallurgical flow sheet that optimizes recovery and operating costs.

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