Alaska mines eye higher metals prices
With gold on the rise and zinc set for substantial gains later this year, the state's mineral producers prepare for turnaround
Last updated 4/3/2016 at Noon
Long, grueling, arduous, treacherous and painful are among the many adjectives, and sometimes expletives, used to describe the mining sector's nearly four-year bear market that is showing signs it is ready to hibernate. While Alaska's metal mines have not emerged from this enduring downturn unscathed, the sector remains largely intact and ready to ride metals prices higher.
Together, Alaska's mines produced roughly US$2.76 billion of precious and base metals during 2015, down 12.3 percent from 2014, according to early estimations by Alaska Division of Geological & Geophysical Surveys.
Zinc accounted for about 43 percent of Alaska's mine production value, followed closely by gold at 39 percent; silver and zinc rounded out the list at 9 percent each.
With no significant changes in Alaska's mine output expected this year, any substantial shift to the production value this year will be largely dependent on price, which is a mixed bag.
All of the major metals produced at Alaska mines - zinc, gold, silver and lead - have a lower average selling price during the first quarter of 2016 than the first three months of last year. On the bright side, the prices of all these metals have been trending upwards, providing some hope that they will average higher by the end of 2016.
Gold in particular has been doing well in 2016, surging US$200 from the US$1,077 per ounce low reached early in January to US$1,277/oz. in early March. While the precious metal has settled to around US$1,225/oz., its price remains about US$50/oz. higher than this time last year, putting Alaska's gold mining sector in pretty good shape so far in 2016.
Scotiabank Vice President of Economics Patricia Mohr, who has earned a reputation as one of Canada's most respected commodities experts over her 31-year career, is predicting an upturn in metals prices.
"2016 should be a transition year for commodity prices, with the current slowdown in global capital spending in oil & gas and mining setting the stage for a strong rebound going into the next decade," she penned recently in her final monthly 'Scotiabank Commodity Price Index' report before retirement.
Interior gold mines
Alaska's gold miners produced roughly 958,000 ounces of gold in 2015 and are on pace for similar production in 2016. More than 75 percent of this gold was recovered from the Fort Knox and Pogo mines in Interior Alaska.
While Alaska is sometimes maligned for being an expensive place to mine, the Fort Knox Mine a few miles north of Fairbanks produced 401,553 ounces of gold at US$629/oz. in 2015, making it the lowest cost open-pit mine in Kinross Gold Corp.'s global portfolio.
In its 20th year of operation, Fort Knox is on-pace to pour its seven-millionth ounce of gold sometime in mid-2016.
With 147.32 million metric tons of proven and probable reserves averaging 0.4 g/t (2.02 million oz.) gold, 95.82 million metric tons of measured and indicated resources (not included in the reserves) averaging 0.5 g/t (1.42 million oz.) gold and 14.82 million metric tons of inferred resources averaging 0.5 g/t (221,000 oz.) gold at the end of 2015, the low-cost Interior Alaska mine may have at least a couple more million-ounce milestones left.
Pogo, which is celebrating its 10th year in operation, accounted for roughly 340,000 oz. of the gold produced in Alaska last year.
This high-grade underground operation recovers nearly 1,000 oz. of gold per day from ore that averages roughly 0.5 oz. per ton. Pogo poured its three-millionth oz. of gold last fall.
Sumitomo Metal Mining Pogo LLC - a joint venture between Japanese firms Sumitomo Metal Mining Company (85 percent) and Sumitomo Corp. (15 percent) - invested roughly US$15 million in discovering and delineating gold deposits at Pogo during 2015, making it the largest exploration program in the state during the year.
This spending, along with similar programs in recent years, has been rewarded with the discovery of a number of new zones that will expand the mine well into the future.
SMM Pogo has budgeted another US$10 million for exploration at and around the mine in 2016.
Coeur Mining Inc. has continually improved the production profile at its Kensington gold mine since production began there in 2010. This work resulted in the Southeast Alaska operation churning out record amounts of gold at lowest-ever costs in 2015.
"It delivered consistent operating performance throughout the year, resulting in gold production of 126,000 ounces at cost of US$798/oz.," Coeur President and CEO Mitchell Krebs informed shareholders of the mine's 2015 performance.
The 126,266 ounces of gold produced at Kensington was recovered from 660,464 tons of ore averaging 0.2 oz. /t gold.
Coeur is executing a plan to tap into much higher grade ore in the historic Jualin Mine area, which is situated about 8,250 feet from the current mining at Kensington.
By February, Coeur had advanced the underground development toward the high-grade Jualin deposit by slightly more than 2,000 feet.
"We expect to encounter the Jualin ore body, once we've advanced about 7,000 feet. So, we're almost 30 percent of the way there," Krebs updated shareholders.
The Coeur president said that about US$8 million has been invested in Jualin development through the end of 2015 and the company anticipates spending another US$20 million to US$25 million between now and the start of mining of the high-grade deposit in 2017.
The No. 4 Vein at Jualin currently hosts an estimated 289,000 tons of inferred resource with an average grade of 0.62 oz. /t. Coeur plans to complete roughly 40,000 feet (12,000 meters) of underground drilling this year aimed at upgrading and expanding the high-grade gold deposit.
Best known for some 200 million oz. of silver that it has produced during the past 26 years, Hecla Mining Company's Greens Creek Mine near Juneau also has recovered roughly 1.5 million oz. of gold during that span, including the 60,566 oz. of gold produced last year.
Dent in placer mining
Traditionally the domain of family-sized operations, placer mines have produced roughly 25 million ounces of gold in Alaska over the past 125 years. Lack of easily accessible and minable ground along with increasingly onerous regulations, however, put a dent in Alaska's placer mining sector in recent years.
In 2015, roughly 150 placer mines scattered across the state accounted for an estimated 30,000 oz., or 3.13 percent of the gold recovered in Alaska.
Goldrich NyacAU Placer LLC - a 50-50 joint venture formed by Goldrich and NyacAU LLC - hopes to singlehandedly boost this amount by about 20,000 oz. per year from the Chandalar property located about 200 miles north of Fairbanks.
Goldrich's contribution to the partnership is nearly 250,000 oz. of placer gold in a 10.5 million-cubic-yard alluvial deposit at its Chandalar property with an average grade of about 0.0243 oz. of gold per yard.
NyacAU - a private mining company owned by Anchorage-based physician and fourth-generation Alaskan Dr. J. Michael James - brings a quarter of a century of placer mining experience to the partnership and the financial wherewithal to establish a world-class placer mine at Chandalar.
Production at this northern mine began last August and over 35 days produced 4,400 oz. of alluvial gold. The nuggets, flakes and dust recovered from Chandalar last year will yield roughly 3,500 oz. of refined gold, or about 103 oz. per day.
At full capacity, the recovery plant at Chandalar is expected to process 600 cubic yards of placer material per hour, which will be realized as gravel screens and gold recovery tables are added in stages through 2016.
The Goldrich NyacAU partners calculate that the plant could recover at least 20,000 oz. of refined gold during a roughly 100-day mining window at Chandalar each year. At current prices, the projected output would total more than US$24 million worth of gold annually.
All of Alaska's zinc, lead and silver, which together account for about 61 percent of the state's 2015 metals value, is currently produced from the Red Dog and Greens Creek mines.
Teck Resources Ltd.'s Red Dog Mine in Northwest Alaska produced 567,000 metric tons of zinc in 2015, roughly five percent less than the 596,000 metric tons produced in 2014.
The zinc sold by Teck in 2015 averaged US87 cents per pound. While zinc prices are still hovering below this average, they have rebounded from a low of US67 cents/lb. reached at the end of 2015 to its current price of roughly US82 cents/lb.
Mohr sees zinc prices rocketing upwards by the end of the year.
"Both zinc 'concentrates' and 'refined' metal are in 'deficit' - that is, world consumption exceeds supply. However, observers believe there is an overhang of metal stocks held off exchanges in finance deals. Once these stocks are worked down (likely by late 2016), zinc prices will soar," she penned in her final report.
Red Dog also produced 117.6 metric tons of lead and an estimated 7 million oz. of silver last year.
While silver is considered a tertiary commodity at Red Dog, it is the primary metal produced at Greens Creek.
The 8.5 million oz. of silver recovered at Greens Creek in 2015 helped propel Hecla's companywide silver production to a record 11.6 million oz. for the year.
After crediting the operation for the gold, zinc and lead produced as by-products, the cost of mining the silver was US$3.91 per oz. last year.
Hecla averaged US$15.57/oz. of silver sold in 2015. Going into 2016, the precious metal was selling for around US$14/oz. but has since rebounded to the US$15.50/oz. range.
This year, Greens Creek is expected to produce roughly 7.5 million oz. of silver at US$6.00 per oz. - assuming an average of US$1,150 per oz. of gold, US75 cents per pound of zinc, and 80 cents per lb. of lead recovered this year. Rising metals prices would help drive down the already low production costs at the Juneau-area mine.