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Placer Dome goes back to work on the Prudhoe Bay of Alaska gold deposits Vancouver company commits to $30 million investment in less than five years for 28 million ounce resource in Kuskokwim mountains Patricia Jones PNA Contributing Writer
Calling it one of the company’s top four development properties worldwide, mining giant Placer Dome is returning to Alaska to work the state’s largest unmined gold deposit, the 28 million ounce Donlin Creek resource located in the Kuskokwim mountains of southwest Alaska.
The Vancouver, B.C.-based company, with mining operations worldwide that are expected to produce 3.5 million ounces this year, looks at Donlin Creek to help fulfill future production needs.
“It has the potential to one day become part of our overall long-term strategy,” said Meghan Brown, senior communications coordinator for Placer Dome. “But it’s not just switching the lights on quickly.”
Under an agreement with joint venture partner NovaGold Resources Inc. announced Feb. 11 and published in the Feb. 16 issue of Petroleum News Alaska, Placer Dome has a little less than five years to bring the property to a mine construction decision. That work includes spending $30 million on Donlin Creek, to include to producing a feasibility plan and acquiring necessary permits to operate a large-scale mine and mill.
Terms of the agreement call for a minimum mine production of at least 600,000 ounces, but according to NovaGold’s news release on the property deal, Placer Dome is currently looking at a high-tonnage operation that would potentially produce more than one million ounces per year.
That’s more than double the size of Alaska’s largest operating gold mine, the Fairbanks-area Fort Knox open pit mine and mill, which produced about 440,000 ounces in 2002.
A Placer Dome representative briefing state legislators during a natural resources committee meeting on Feb. 19 said Donlin Creek is the largest project the company has ever taken on. Size, logistics similar to Prudhoe But Donlin Creek, which is among the 20 largest gold deposits worldwide, faces logistical challenges unlike Fort Knox, which happened to be located less than 25 miles from Alaska’s second largest city, and a long-time mining community.
Donlin Creek is more similar in size and logistics to Prudhoe Bay. It’s remote, located about 175 miles up the Kuskokwim River from Bethel, about12 miles north of river from the village of Crooked Creek, nestled in the rolling hills which face harsh winters in southwest Alaska.
Power, transportation and labor needs will provide significant operating hurdles to overcome, as well as dealing with the technical, environmental and economic questions about the hard-rock gold resource.
“There are a number of complex issues that need to be addressed,” Brown said. “We’re very positive about the opportunities to do business in Alaska.” Resource is open, could grow But quantity of the valuable mineral, combined with steady market prices for gold, should help overcome many economic obstacles. NovaGold executives, who have been on the ground at Donlin Creek for several years, believe the 28 million ounce resource will grow as knowledge about the deposit increases.
“It’s still open at depth and along the strike, both east and west,” said Greg Johnson, vice president of corporate development at NovaGold and a geologist who worked on the property for Placer Dome in the early and mid 1990s. “In the long term, we’re confident it will continue to grow.”
Currently, the deposit is about three kilometers wide and about two kilometers long. Exploration drilling has generally stopped at the 1,000-foot depth, Johnson said, although a few deeper holes have been punched.
“We’re pretty confident with those few deeper holes that the system remains open at depth,” he said. “It depends on gold prices but yes, we will look at the economics of deeper drilling. There’s no question that there’s more gold to be found there.”
How much, and how quickly, remains to be seen. The two companies, which announced a new joint venture agreement for Donlin Creek on February 11, are first working on a new resource number. That number should be released sometime in March, Johnson said, along with a pre-feasibility study sometime later in the year.
The 28 million ounce resource, a number calculated and released by NovaGold last fall, is based on historical drill data from Placer Dome, combined with NovaGold’s $10 million worth of work on the property since mid 2001. It’s based on a grade cutoff of 1.5 grams per ton, considered to be an economic level of production, should gold sell for $350 per ounce.
“As gold prices scale up, you have the economies of scale available to decrease the grade cutoff,” Johnson said.
The average grade of the known Donlin Creek resource is three grams or .09 ounces per ton of rock, according to Johnson, considerably higher than the average grade at Fort Knox, which was .025 ounces per ton at the start of mining in 1996. Placer Dome returns to Alaska Less than two years ago, Placer Dome pulled out of Alaska, turning over operatorship of its largest exploration project in the state, Donlin Creek, to NovaGold, a relatively new junior exploration company based in Vancouver, B.C.
At the time, Placer Dome had spent about five years on the exploration project and more than $30 million to define a 13 million ounce resource. Although that resource was considered large, with record low gold prices at the time, it was considered uneconomic.
“As gold price dropped to $250 an ounce, it became sub-economic,” Johnson said. “(NovaGold) believed it would be something of value when gold prices eventually turned around. We just didn’t know gold prices would bounce right away.”
NovaGold jumped in, spending roughly $3 million during the first half year at Donlin Creek, targeting higher grade zones to see if the overall grade could be improved, Johnson said. Successful drilling results, a gradual increase in gold prices and company revenues from other mining properties in Alaska encouraged NovaGold to aggressively work the property in 2002. Although NovaGold had 10 years to spend $10 million on the property to acquire a 70 percent interest, the company completed that obligation in 16 months, while doubling the resource estimate of the property.
Now, the tables are turned. Placer Dome must step up to the plate to reclaim a controlling 70 percent interest in Donlin Creek. But this time, the ante is considerably higher.
Placer Dome has slightly less than five years to reclaim its controlling 70 percent interest in the gold property, a timeline termed “realistic” by both companies.
“It does mean they have to get going on it,” Johnson added. “Clearly they can’t sit on it.”
Placer Dome could have remained at its current 30 percent share in the property, funding further development at that percentage. Or it could have converted to a non-contributing five percent net profits interest.
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