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Oct 2003 - China Part 2

China – Part 2 – The Chinese Gold Industry, some of its mines and exploration concepts.

Last month, we covered the basics on China, and in this section, Part 2, we have covered our impressions of the Chinese Gold Industry from a Michelago trip to its operations in China.

China’s Gold Mines

The following comments are limited to observations that were made on a visit to the Shandong Gold’s Sanshandao mechanised underground mine in the Shandong province, presentations by Shandong Tarzan BioGold (BioGold) of their operations in Shandong, and by some of Guangxi’s senior geologists covering Guangxi (pronounced Gwanshee) and Jinya. Of the 190tpa produced by China, about 65tpa comes from Shandong Province. The largest gold mine in China produces <120,000ozpa and 85% of the mines are underground, with >70% of the gold being produced from refractory ores.

One of the standard methods used to find an orebody is through geochem, delineating a number of anomalies and then drilling the anomalies typically when encouragement has been received, on a 100m line spacing on strike with 200m between the drillholes on the lines on dip. The yellow dots on the plan of Guangxi that was on page 13 of our September 2003 Paydirt article related to estimated resources of delineated anomalies ranging from small dots at about 1t of gold up to large dots at 30t of gold.

Drilling does not initially extend beyond 500m and the mines are only initially designed to a maximum depth of 500m. Shafts are sunk as at Sanshandao at a diameter of 5m up to a depth of 500m (note that in the BioGold corporate video of the Jincheng mining operation, the width appeared to be narrower, possibly only 2m to 3m). The standard stoping methods appear to be shrinkage stoping (SS) and cut-and-fill (C+F). The use of C+F should not be taken to mean that the ground conditions are poor. In fact at Sanshandao they appeared to be near perfect, with only a few rock bolts supporting the ~100m open span of a stope above the cemented fill that we walked on.

The Sanshandao Gold Mine near Laizhou

Sanshandao is named after the town on its leases, and is part of the Shandong Gold Mining Co Ltd which was the second Chinese gold company to list on the Shanghai Stock Exchange (after Zhongjin Gold) in 2003. In our opinion, the Sanshandao mine appeared to be extremely well run, managed and controlled, but it would not have been designed that way in Australia, and therein lies one of the reasons why China is trying to attract foreign expertise to enhance its gold mines and gold industry.

The Sanshandao mine would have to be the first underground mine that we have encountered that does not use compressed air, being completely run on electricity, including the two 35t capacity Kiruna ore trucks (at a cost of A$2m or 10mRmb each) that haul ore from a depth of 400m to 200m below surface where the ore is rehandled into the shaft to be hoisted the remaining 200m to surface. The electric Kiruna ore trucks only operate on the 8hour night shift because the electricity costs are then low at 35cRmb/Kwh, compared to the daily average of about 50cRmb/Kwh. At other times, the 35t diesel trucks are run.

The Sanshandao mine was built in 1988, commenced production in 1990, treats about 1400tpd of 3g/t ore with a 93.5% recovery (free milling), and produces 50,000ozpa which was expected to increase to 60,000ozpa in 2004. It is currently stoping at a depth of 350m to 450m, but has been developed to 510m and drilled to 800m all with a uniformly dipping orebody (40 degrees, towards the NW), that has a variable width (typically 20m to 40m wide). Costs were quoted as being in the vicinity of 220Rmb/t (approx A$44/t (divided by 5 for A$)) of ore, and the mine effectively breaks even. About 25% of the costs were due to pumping about 20,000ltr/day of water as most of the mine workings are under the sea.

The mine was quoted as having 10yrs in the C and D reserves, which are more like a resource since C approximates indicated and D approximates inferred. The main object of the Sanshandao gold mine appeared to be to provide employment, and service its retirees and the town on its leases. The labour force was 1500 (of which 200 are underground), with no open-cut and essentially plant on surface, the remaining 1300 must include some retirees. China has something like the French labour system, in that the mine has to support their workers when they retire up until they die. The mine is also responsible for the town on its leases too. When MIC starts mining, it intends to use contractors.

Laizhou Jincheng’s mines in the Shandong Province

MIC signed a Letter of Intent (LOI) in Sept 03 with Laizhou Jincheng Gold Mining Company Ltd (the parent company of BioGold) for an exploration JV in which MIC may earn a 51% interest by spending up to A$90,000 (Rmb510,000) in any gold resources below 500m from surface in an area of 10 sq km in the Jiaodong Peninsula of Shandong, which includes the 3 small Jincheng mines over a length of 4km.

A corporate video was shown at BioGold that included one of Laizhou Jincheng’s mines, using 1t scotch cars (that we last saw being used in Cornwall in the late 1960’s), and them being hoisted up the shaft and trundling along on rails under gravity. Jincheng has 3 underground mines producing a total of 25,000ozpa from a depth of about 400m that are spread out along strike with other companies mines between them. As shown in Figure 1, one of the Jincheng mines is immediately east of the Bacox plant (from which the photograph was taken), with Shandong Gold’s best gold mine (Xincheng) adjacent, North along strike.

A plan of the lodes in the Laizhou region of Shandong with the Jincheng mines showed the main NE/SW striking lode through the centre of it. The lodes are contained within Mesozoic granitoid rocks along the SW side of the Pre-Cambrian North China Craton.

A section through the lode, showed the mineralisation as being discontinuous, but is a result of the 200m apart drillhole spacing. The lode at Jincheng in fact consists of 21 lodes, not all of which are mineable and which dip at 37 to 47 degrees to the NW (average 42 degrees). So far the lodes have continued down dip, over a variable width. Grade reconciliations to date have apparently been close to that estimated from drilling, due to the dilution factors of about 10% when using C+F and 15 to 20% using SS.

That should imply that grades are increasing because the initial intersection in near surface was 3.8m at 3.0g/t, compared to the current stoping area intersection between 300m and 400m below surface of 9.65m at 8.5g/t, with some significantly higher values such as 34.8g/t and 19.9g/t. However, the average width and grade of the 3 Jincheng mines is currently about 4.25m at 4.95g/t.

Although the small gold mines can and do break even, the accounting allocation can apparently change when they become publicly listed such that they are able to become more profitable. The issue is that not all of the mines have their own treatment plants, or if the ore is refractory then the attached smelter is often inefficient, and in most cases regarded as generally incapable of meeting the new WTO requirements that are to be enforced in 2005 as China continues to improve its environmental standards.

Mines typically only receive ~50% to 75% of the gold contained in the concentrate that they deliver to a plant, and hence the main profit lies in the treatment plant, especially if like BioGold it has its own refinery.

Jinya

Jinya was originally found using geochem in 1985 following the boundaries between Permian basins in Triassic aged rocks in Guangxi as shown on page 13 of our September 2003 Paydirt article, with the mineralisation associated with fractures in the (light purple coloured) Triassic. A feasibility study was undertaken at Jinya and adits driven to test the sulphide ore which was found to be refractory.

The recoveries were apparently not thought to be too poor, however, the surface rock rapidly becomes fresh at Jinya, with oxidation only 10m to 20m thick and consequently the mine soon reached uneconomic ore after barely scratching the surface. The Jinya region has in fact being described by the USGS in their August 2002 open file report (OF02 -131 Chapter 3 p.138) as Carlin-type mineralisation.

The USGS gave a description of the Jinya gold deposit as hosted in sedimentary Triassic rocks that are controlled by bedding-plane faults. The Jinya deposit consists of 20 orebodies (the translated feasibility study quotes 57 orebodies of which 25 were regarded as “large”) present as either east dipping, west dipping, conformable or semi-conformable layers and lenses. The main Jinya gold zone is about 3.5km long, by 300m to 700m wide and strikes north. The zone is composed of 3 blocks that lie along a main shear zone. A single lens or orebody being typically 1 to 5m thick, by 100 to 350m long, by 50 to 400m deep, grading ~5.2g/t.

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, holds interests in Michelago Limited (MIC). 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.

  • Written by: Keith Goode
  • Wednesday, 01 October 2003

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