However, we (ERA) have seen that such acquired stigmas can be changed as in the case of Independence Group (IGO) at Long-Victor, and more recently by Silver Lake (SLR) at Daisy Milano, and now by Apex (AXM) at Wiluna. There are undoubtedly other examples, but we are very familiar with these 3, especially Wiluna having visited it under a number of different guises. Coincidentally, all 3 of these WA mines historically had and still have relatively very high grade areas.

Long – Victor

Independence Group’s Long-Victor Kambalda nickel mine was famed for its nickel grades and ~500m wide almost vertical lava channel, which has stood it in good stead in the current lower nickel price environment. One of the highest producers for WMC (Western Mining) at 185,000t Ni (to 2004), its issue was that the ground was under stress due to about 7 geological phases of cross-cutting porphyries and hence prone to rock-bursts. It was reputedly one of the reasons why WMC switched to open-cut mining at Mt Keith rather than run underground mines at Kambalda (initially with Silver Lake and then Long-Victor).

Nickel grades are very high at up to 27%Ni (Millerite) sometimes in thick seams or resembles mining in a block of cheese (with the walls, floor and roof all massive bronze-yellow coloured ni sulphide grading ~15%Ni. However, the high production rates closed in about mid-1998, and the ground settled and distressed itself.

So when IGO bought it from WMC and started mining in 2002 using a checkered stope layout for the orebody (due to the expected stress), it was found that the stress issue was no longer significant. Thus enabling IGO to pick up a bargain that most people thought could be too difficult to mine. For IGO’s original 20c IPO, it has paid 52c in dividends (including the recent 2c interim dividend in these troubled times).

Daisy-Milano

Silver Lake (SLR)’s Daisy-Milano is a narrow veined high grade gold mine with grades often in the >1oz/t area at Mount Monger (SE of Kalgoorlie). It has been privately owned for most of its life, treating the ore through it own fully operational stamp battery into the 1990s.

The stigma associated with the mine arose when Perilya (PEM) managed to get the Daisy-Milano package to be added to its other Mt Monger properties (north and separate to Integra), and continued with the decline at depth into Daisy-Milano, and started stoping. Grades were much lower than expected and cash costs were very (unprofitably) high in the 2 years that PEM mined it and later sold it to SLR.

The high cost was partly due to the fact that PEM did not have their own mill, and hence were trucking it to Coolgardie over 100km away where it was toll treated with the usual higher treatment costs and reconciliation differences, whereas SLR bought and refurbished their own 300,000tpa plant about 45km west of Daisy Milano (and about 5km SE of Kalgoorlie).

The lower grades of 6.5g/t to 9.5g/t were mostly due to the fact that PEM were using large 5m x 5m drives and bulk mining the lodes (taking the waste between the narrow lodes). SLR narrowed down the drives and focused on narrow vein mining (SLR’s MD Les Davis used to be a jumbo operator and very familiar with narrow vein mining).

Consequently under SLR, grades have risen to average 9.7g/t in Dec Qtr 2008 (range 7.7g/t to 11.5g/t), of which about 50% was from development, and has been making ~A$1m per month profit, which with the higher gold price of ~A$1500/oz could result in a monthly profit closer to A$2m per month.

Exploration has shown Daisy-Milano extends on strike at depth, inferring a life much greater than 5 years. Apparently one of the gold majors reviewed Daisy-Milano at about the same time that PEM looked at it, and determined a potential resource of ~4moz in the region but could not guarantee the continuity of Daisy-Milano at depth (and hence did not see the greater strike lengths), and so walked away.

SLR has turned Daisy-Milano into a very profitable mine with a long future in which production is expected to increase by June 2009 when open-cut production starts (there was an almost fully permitted open-cut covering 3 lodes of the old Christmas Flat area). SLR’s share price more than halved to about 15c in the December 2008 period, but had since recovered to ~37c at the end of February 2009, as the stigma on Daisy-Milano gradually dissipates.

Wiluna

Apex Minerals’ (AXM) Wiluna is a multiple lode gold orebody in the NE Goldfields of WA, consisting of two major almost N/S trending structures or fractures (denoted East and West), that link together like a tuning fork in the north at the Bulletin orebody. The mine has had a succession of owners over the past 20 years (that we are aware of) from Barrack (BRM) to Asarco (ACO), Wiluna (WNA), Great Central (GCM), Normandy (NDY), Newmont (NEM), Agincourt (AGC), Oxiana (OXR) and now Apex (AXM).

Its issues are the series of owners, an apparent scattered orebody in a number of lodes, mostly refractory (or is it ?), high costs and marginal profits. When AGC had it they struggled with dilution on their newly discovered underground Calais orebody and consequently focused on the Williamson open-cut in the salt lake where realised grades were half the expected 3.3g/t, being only ~1.6g/t (which is in fact very close to what NDY expected them to be).

Originally the near surface mineralisation contained stibnite (antimony) over the initial part of West Lode on the southern part of the West Fracture and Moonlight. East Lode on the southern part of the East Fracture became arsenic refractory after the oxide, as did West Lode after the stibnite zone. The original Wiluna Moonlight company produced by-product antimony, while Wiluna (Main) produced by-product arsenic from its roasters. When Wiluna was reopened in the late 1980s, initially treating the tailings, the biox route was chosen to treat the refractory ore, as with depth most of the near vertical orebodies have the gold latticed into the arsenopyrite.

Wiluna does also have vg (visible gold) in quartz reefs (that often dip shallowly south like Golden Age) which resulted at one stage in a 2-circuit plant, although everything now goes through the biox circuit.

However, it has been noticed that vg is increasingly occurring at depth in the “refractory” lodes, and it has always been assumed that Wiluna’s sulphide is refractory and hence not necessarily thoroughly tested, for example by rock-type or depth. It is possible that Wiluna may be zoned (like the Kalgoorlie Super Pit), from stibnite to arsenopyrite to less (or even non) refractory at depth.

Although many companies have had their “stab” at the East Lode open-cut, it would seem that no one focused on why there was an over-reconciliation, mainly in tonnage. Apex (AXM) found that there is a hangingwall lode immediately adjacent to East Lode (and probably ignored by the old timers because it was of lower grade), that has not been mined, resulting in upgrading the current resource block in the northern base of the open-cut to ~400,000t @ 4.0g/t.

This additional hangingwall lode shown in Figure 1 does not appear to have been mined underground. It has a short strike length in Figure 1 because it is contained within a “hump” in the open-cut that was left behind by an earlier company as it was thought to be too low grade, but does contain mineralisation up to 7g/t or so.

Wiluna’s orebodies also appear to be shadowed from the east structure to the west structure – while this is not a new concept, the observation that the distribution of the mineralisation also appears to be shadowed is. Calais actually consists of 2 lodes (that join like a tuning fork to the north), being the 100 lode in the east, and 50 lode in the west, with the 100 lode mineralisation shadowed onto the 50 lode (and vice versa).

Similarly overlaying the East Lode on the West Lode and allowing for the approximate 400m north fault displacement (on the western side), the mineralisation positions do appear to correlate, although possibly the western side should be higher than the east (by ~ 20m to 40m). This may have occurred as the Western lode initially had stibnite, whereas the Eastern lode did not.

The shadowing of mineralisation in an orebody is possible, as we have seen by the concentration of mineralisation along almost horizontal elliptical “tubes” as at depth in Kingsgate’s Chatree in Thailand, more easily seen using 3d-IP.

Wiluna has already mined and produced 4moz and has about another 1moz or so in resources (so it is already over the 5moz mark), begging the question as to just how big (resource wise) it is capable of becoming. Wiluna appears to remain open on strike and at depth on most of its structures, with the gold mineralisation present in at least 3 generations, across a range of host structures and a number of different orientations – all the requirements of a major goldfield.

Consequently it can be seen that an open mind is often required with some of these old mines as their stigmas can be removed as has already occurred at IGO’s Long-Victor and SLR’s Daisy Milano, with AXM’s Wiluna currently in the process of realising its underlying potential.

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. Wiluna’s East Lode Open-cut showing New Hangingwall Lode (Northern End)