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By Curt Freeman
For Mining News 

Gold bucks trend by holding its own

Global financial turmoil fails to tank production, investment in precious metal around the world even as costs continue to rise

 

Last updated 1/25/2009 at Noon



Despite the strong price and increasing investment surge for gold, Gold Fields Mineral Services reported in it's Gold Survey 2008 summary that global gold mine production dropped 4 percent in 2008 to reach its lowest level since 1995.

Australia, Indonesia and South Africa experienced the most significant declines in production with Mexico and Russia seeing increases in production.

South African production plummeted by an estimated 14 percent, the sharpest percentage fall since 1901.

The country's output, pushed down by energy and labor issues, relegated it to third place in world production behind second place United States and first place China.

China extended its lead as the largest gold producer, with an estimated 3 percent increase in production.

For the first half of 2009, Gold Fields predicted that production from new projects is likely to provide a temporary increase in supply. Another dismal but historic event occurred in 2008: During the third quarter of 2008 the global average gold production cost surpassed $500 per ounce for the first time ever. Much of this rise in world average costs can be attributed to Australia's astonishing 50 percent year-on-year increase in costs.

Global total cash costs rose by 22 percent year-on-year in the first nine months of 2008, a rate of increase which was fractionally lower than the same period the previous year. Of the major producing countries, Canada was the only player to record a decrease in average costs in the first nine months of 2008.

On the bright side, if the global catastrophic financial meltdown can be considered as a generator of anything good, net investment in gold has skyrocketed and the gold price has bucked the steep price declines experienced by virtually all of the other resource commodities.

Gold Fields pointed out that selling of hard gold assets to cover financial shortfalls in other paper investments around the globe kept a lid on gold prices which otherwise would likely have climbed above the $1,000-per-ounce mark.

Gold Fields suggested that this gold disinvesting will inevitably slow down and when it does, gold prices are likely to climb significantly.

As expected, gold's price resilience is attributed to its historic attribute as the best hedge against inflation, particularly in the U.S. dollar.

Western Alaska

In late November Novagold Resources Inc. announced that it had arranged financing of $75 million with Electrum Strategic Resources LLC, giving the latter company a 30 percent share of NovaGold.

A second financing of $15 million was announced a few days later bringing the total cash infusion into NovaGold to $75 million.

The funds will be used to repay outstanding principal and interest owing under the US$20 million bridge loan from Auramet Trading LLC, to finance continuing exploration and development activities at the company's Donlin Creek gold project in Alaska, and its Galore Creek copper-gold projects in British Columbia, to re-evaluate and, if warranted, re-activate the Rock Creek gold mine near Nome and for general corporate purposes.

Mantra Mining Inc. announced that it has finalized its acquisition agreement with Novagold Resources to acquire 100 percent interest in five exploration projects in Alaska, including the Colorado Creek, Kugruk, Baird, Omalik and Tintina projects. Mantra also announced that it had terminated its right to acquire its previously announced interest in NovaGold's Ambler base metal deposit in the Brooks Range but has indicated it is continuing to discuss acquisition options with NovaGold and affiliates of Rio Tinto Plc, the underlying property owner.

Eastern Interior

Freegold Ventures Limited announced that it has received terms from a private European lender for a secured line of credit of up to US $10 million for a maximum maturity of 3 years.

Upon the company receiving advances totaling a minimum of $7.5 million, the lender will receive 750,000 warrants to purchase Freegold common shares for a period of two years from the date of grant at a price of 30 cents per share.

Funds drawn under this facility will be used to repay in full the company's previously arranged $4 million in bridge loan.

The company indicated that following completion of the financing, work over the coming months would involve analysis and modeling of 2008 exploration programs undertaken on its Almaden, Idaho gold project as well as its Golden Summit, Rob and Vinasale gold projects in Alaska.

International Tower Hill Mines Ltd. announced drilling results from the final 18 holes drilled in 2008 at its Livengood gold project. Significant results from the southwest side of the deposit include hole MK-RC-0075 with 13.7 meters at 5.99 grams of gold per metric ton and 36.6 meters at 1.1 g/t gold and hole MK-RC-0089 with 4.6 meters of 19.89 g/t gold and 100.6 meters of 1.16 g/t gold. To the northeast, hole MK-RC-0085 returned 50.3 meters at 1.11 g/t gold and 10.7 meters at 1.4 g/t gold.

Many of the final 2008 holes ended in mineralization, indicating additional depth potential in the deposit.

The new results continue to support the exploration model of an overall northeast-southwest trend to the mineralization which extends well beyond the initial 2008 Core Zone target.

The company also announced that gold recovery tests indicate that the gold in both the oxidized and unoxidized parts of the deposit is recoverable with a cyanide solution and that the recovery is significantly enhanced with even minor oxidation of the rock.

The test work returned cyanide extraction results with an average overall gold recovery of 77 percent for the oxidized and/or partially oxidized material and 56 percent for the unoxidized material.

The results also indicate that, in one third of the samples, 80 percent of the gold extraction is achieved in the first 16 hours and at 32 hours, 80 percent of the samples have achieved greater than 80 percent of the contained gold.

Additional studies on the sulfide samples illustrate that somewhere between 40 and 80 percent of the contained gold reports to a heavy mineral concentrate with the balance split almost evenly between the float and slime fractions.

In the heavy fraction, the gold occurs mostly as minute 2-10 micron native gold grains, making it favorable for cyanide extraction.

Alaska Range

Alaska Industrial Development and Export Authority, Golden Valley Electric Association and Homer Electric Association have agreed to sell the long-suffering Healy Clean Coal plant to Golden Valley Electric for $50 million.

AIDEA will finance the sales at 5 percent interest and will provide an additional $45 million at 6.5 percent interest for restart costs on the plant.

Golden Valley has indicated that it intends to restart the 50-megawatt plant with currently installed clean coal equipment.

This equipment was originally thought to be unsafe and unreliable and was the primary cause of the high operating costs that help shut this plant down shortly after start-up in 1999.

The next decade saw interest from the owners and intended owners wax and wane as various plans for restart and/or conversion of the plant were investigated.

Golden Valley indicated that the plant could be up in running within 12-18 months.

Northern Alaska

Silverado Gold Mines Ltd. announced the results of a preliminary feasibility study on its Workman's Bench gold and antimony deposit at its Nolan Creek property in the Brooks Range.

The conceptual work plan would involve the selective underground extraction of high quality vein mineralization, processing of ore with a nearby surface plant using gravity (and possibly flotation) technologies, recovering most of the gold on site and shipping of a metallurgical-grade stibnite concentrate to overseas buyers.

The study assumed an antimony price of $2.25 per pound, a gold price at $700 per ounce and process recovery rates of 85 percent for antimony and 90 percent for gold.

The seasonally operated 125-ton-per-day concentrating plant could ship stibnite concentrates during a five year period and generate operating profits of about $27 million over the life of the operation.

The mine would pay back capital costs in the third or fourth quarter of the third year of development.

Antimony would account for 77 percent of the value of the product while gold would contribute 23 percent of total value.

Maintaining antimony concentrate quality for overseas markets is critical to the success of the proposed development.

Preliminary metallurgical testing of a bulk sample from Workman's Bench shows high recovery rates of gold and antimony.

Other factors affecting production economics include wall rock stability, underground permitting issues and metal price trends of both antimony and gold.

The mine plan contemplates using standard cut-and-fill mining methods that would take place for five months during the winter, followed by a three month period of ore processing during summer months.

When in full production the mill will process up to 12,500 tons of ore per year which will yield up to 4,590 ounces of gold and 5,000 tons of stibnite concentrate.

Southeast Alaska

Coeur d'Alene Mines had its day in front of the U.S. Supreme Court on Jan. 12 when it pleaded its case for permitting its tailings disposal site at its planned Kensington gold mine north of Juneau. The various Supreme Court justices fired tough questions at attorney's from both sides of the issue. If you want to read the transcripts from this hearing go to: http://www.supremecourtus.gov/oral_arguments/argument_transcripts/07-984.pdf. The court will now decide whether it will hear the case or defer it back to the lower courts.

 

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