North of 60 Mining News - The mining newspaper for Alaska and Canada's North

Contango ORE Inc. May 13 said the Peak Gold joint venture will carry out a US$6.9 million exploration program at the Peak Gold property near Tok, Alaska. At the same time, the project partners – Contango ORE (60 percent) and Royal Gold Inc. (40 percent) – are continuing negotiations for the sale of Peak to a mining company that will advance development of the high-grade gold deposits found there.

Two adjacent skarn deposits at Peak Gold – Main Peak and North Peak – host 9.2 million metric tons of measured and indicated resources averaging 4.08 grams per metric ton (1.21 million ounces) gold and 14.19 g/t (4.2 million oz) silver.

A preliminary economic assessment completed last year outlines plans for an open-pit mining operation that would provide ore for a 3,500-metric-ton-per-day mill that would produce 1.09 million oz gold and 2 million oz of silver over an initial eight-year mine-life.

The capital costs to develop this mine at the highway accessible Peak Gold project are calculated to be US$340 million, which includes US$294 million for the initial costs to develop the mine and US$46 million in sustaining capital and closing costs.

The low costs and high gold grades add up to extremely good economics according to the PEA completed by JDS Energy and Mining Inc.

The after-tax net present value (at a 5 percent discount) for Peak Gold is calculated to be US$393 million and the after-tax internal rate of return is 29.1 percent.

The cost to produce an ounce of gold, based on the initial capital investment, is estimated to be a remarkably low US$428/oz of gold recovered. With the sustaining capital included, this cost is only US$470/oz gold.

This combination of relatively low development and production costs, coupled with a mine-plan designed to maximize grade in the early years, means it is only expected to take two years to pay back the initial development capital, after taxes.

The proposed Peak Gold mining area, however, is only a small section of the approximately 850,000 acres of prospective ground held by the Peak Gold joint venture.

Results from sampling, mapping and geophysics have identified multiple exploration targets across this larger land package.

"The joint venture's technical team has identified both porphyry and skarn type exploration prospects following a comprehensive review of all data collected over the past 10 years on the project," said Contango ORE President and CEO Brad Juneau.

Last year, Contango ORE and Royal Gold began testing for porphyry targets across the wider property, an investigation they are continuing this year.

While last year's drilling did not tap into an economically viable porphyry deposit, the information gleaned from this drilling has provided additional information on correlations between the gold, silver and copper that was intersected and the geophysics and geochemistry expressed at the surface.

Based on this new information, the Peak Gold partners have begun this year's program with a 3- line-kilometer ground based induced polarization (IP) geophysical survey and the collection of 2,000 soil samples within the greater Chief Danny area, which encompasses the Peak zones and several other skarn and porphyry targets.

Results from this work will be used to target a 5,000-meter drill program slated to begin in August.

In addition to work within the more advanced Chief Danny area, the Peak Gold JV is carrying out reconnaissance mapping and sampling on Hona and Eagle, blocks of state of Alaska claims to the west of Peak Gold deposits.

This exploration will be funded on a pro rata basis – US$4.1 million for Contango ORE and US$2.8 million for Royal Gold.

"We currently have US$9.4 million in cash, no debt, and will continue to work with our advisors as to our strategic alternatives as we near completion of the current marketing process," said Juneau.

–SHANE LASLEY