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Dec 2010 - Mega Gold Mines

The Mega Gold Mines are Coming

In the SMH of 29 November 2010, it was reported that the Kalgoorlie Super Pit was Australia’s biggest producer in the September Quarter of 2010 with 202,000oz, followed by the new Boddington mine at 180,000ozpa. Both mines producing ~800,000ozpa.

And in the past 2 months to mid-November 2010 we have seen presentations by Exeter on their Caspiche porphyry copper- gold mine in Chile with production of possibly ~500,000ozpa (adjacent to Barrick’s Cerro Casale and planned 500,000ozpa to 700,000ozpa), and by Kinross of their Tasiast mine in Mauritania with expected production of 1.0mozpa to ~ 1.5mozpa or so, within about 3 years.

Although the gold price continues to power ahead and fancy estimates of its ultimate peak have been forecast by many people, little recognition appears to be being observed of potential gold production, that may contain or restrict the achievable peak price.

The stability in the world and reduction in perceived political risk has seen Indonesia become an exploration “hot spot”, with Intrepid rising from an unloved stock to a market cap exceeding A$1bn, to join the other world “hot spots” of West Africa, Argentina and possibly even Turkey.

The exploration flurry that occurred in Burkina Faso (some people still ask “where’s that?”), is expected to spill over into other West African countries, as illustrated by Gryphon Minerals’ (GRY’s) activities in Burkina Faso, followed by the takeover of Shield in Mauritania, and strategic alliance with Tawana in Liberia. Almost all of these areas represent new gold production.

The Tasiast discovery has been the most spectacular, with an intersection by Redback of ~100m at ~2g/t to 3g/t in an unrecognised rock unit in the centre of an anticline. Although the unit is called a “green schist” it actually appears to be an altered grey-coloured amphibolite, bound above and below by a capping meta-rhyolite/felsic unit, according to 3 distinct forms of alteration. (Being a low grade chlorite magnetite through increasing biotite crystallisation to crystalline biotite-schist with coarse plagioclase).

There are also a few thin quartz veins that also appear to impact on the grade as shown inset in Figure 1. Processing appears to be achievable applying simple gravity and cil with an expected ~92% to 97% recovery.

The 1moz to 1.5mozpa production is based on an expected 20moz resource (currently it’s about 14moz), that is expected to be achieved by February 2011, due to the growing forest of drill-rigs (from 14 to 18 to 23 by the end of December 2011) drilling at up to ~900m downhole. Production may be higher than 1.5mozpa, depending on what grades are used as some parts of the orebody appear to contain higher grades.

However, at 1moz to 1.5mozpa the expected operating profit is ~US$1bn per year and the main reason behind Kinross’ takeover of Redback for >$7bn. As shown in Figure 1 the pit focuses on a 3km long by 600m deep pit in which the orebody plunges to the south and rolls over in the northern end and plunges to the north.

Just what the actual strike is, has yet to be defined with the current focus just on this ~7km long length which lies at the southern end, between an ~50km to 70km tram-track length of north-south striking bifs

And then there’s the speculation as to whether GRY’s Tijirit prospect is the faulted offset of Tasiast. Tasiast appears to irregularly truncate into sand dunes as it projects south, whereas Tijirit ~30km east starts from the similar WSW/ENE striking sand dunes.

Tijirit contains a number of intersections similar to what Tasiast initially encountered and mined in similar rock-types before it drilled at depth through the middle of its anticline. Tijirit is centred on an anticline that has not been tested at depth in its centre. GRY intend to undertake some diamond drilling follow-up of some of the higher grade intersections to identify structures as drilling to date has all been by RC, and fly aeromag to identify other targets.

However, as far as gold supply is concerned, the market has been focusing on the gradual demise of production from South Africa.

Whereas with new techniques, many parts of the world are being subject to exploration and new discoveries are being made that could provide material gold production as illustrated by Tasiast in Mauritania, by the number of orebodies in Burkina Faso, and by the discoveries in Argentina such as Cerro Negro and Cerro Moro, with more to come, along with the activity in Indonesia etc.

The higher gold price is also making a number of the marginal projects viable, such that its upside may itself become limited or restricted by the new production coming on-stream over the next 3 years or so.

We have seen the impact on the nickel price of the expected nickel laterite operations, even though none of them appear to have yet worked properly apart from Minara’s Murrin Murrin at about 75% of its original planned capacity. Whether a number of new sizeable gold mines will have an impact on the gold price, remains to be seen.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, may hold interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

Figure 1. The Envisaged Open-cut at Kinross’ Tasiast Mine in MauritaniaGDNdec10

  • Written by: Keith Goode
  • Wednesday, 01 December 2010

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