Metal prices soften blow to Alaska miners
Rising gold, silver, zinc prices help to offset the negative affects COVID-19 has had on 2020 mine production across the state North of 60 Mining News – August 28, 2020
Last updated 9/26/2020 at 3:21pm
Rising metal prices are helping to soften the blow COVID-19 has landed on Alaska's mining sector in 2020.
While mining has been deemed an essential business in Alaska, which has helped keep the six large mines in the state operating during the pandemic, measures put in place to slow the spread of COVID-19 are weighing on production at some of these operations.
Efforts to flatten the curve on the spread of coronavirus also disrupted several winter drill programs in Alaska, delayed the start of most summer exploration, and even caused some companies to shelve their 2020 programs as a precautionary measure aimed at ensuring their work did not contribute to introducing the COVID-19 virus to rural Alaska residents.
Fortunately, rising gold, silver, copper, and zinc prices is helping to offset some of these production losses and has helped reinvigorate a mineral exploration sector that faltered out of the gate this year.
A record gold boost
Record setting gold prices have been particularly good for Alaska's gold producers and explorers.
Since the beginning of 2020, the price for an ounce of gold has jumped more than 30%, from around $1,520 on Jan. 1 to nearly $2,000/oz today. This includes an all-time record peak of $2,070/oz in early August.
For Alaska's three mines where gold is the primary commodity – Kinross Gold Corp.'s Fort Knox, Northern Star Resources Ltd.'s Pogo, and Coeur Mining Inc.'s Kensington – this significant rise in gold price is helping to offset some of the costs of doing business during COVID-19 restrictions.
Through the first half of 2020, gold production at the road-accessible Fort Knox Mine near Fairbanks, Alaska has not been affected by COVID-19.
Kinross reports that Fort Knox produced 107,697 oz of gold during the first six months of 2020, which is about 16% higher than the 93,053 oz produced during the first half of 2019.
While COVID-19 has contributed to higher production costs at Fort Knox and Kinross' other operations around the globe, much higher gold prices have more than offset these added expenses.
"We have been able to effectively manage COVID-19 impacts on our portfolio of mines during the first half of the year, as our comprehensive pandemic response plan continued to help protect the health of our employees and communities, while supporting the successful continuation of our business," said Kinross Gold President and CEO Paul Rollinson.
As a result, Kinross' net earnings through the first half of 2020 was $319.3 million through the first half of 2020, more than double the $135.7 million during the same period last year.
COVID hits Pogo
Pogo, which is slightly more remote and operated out of a camp, was more directly affected by COVID-19.
Through the first half of this year, Pogo produced 98,693 oz of gold, which is about 25% higher than the first six month of 2019. Northern Star, however, expected this increase to be more substantial but mining and other activities were hampered by COVID-19. This had to do with both travel restrictions that slowed the arrival of key personnel and a coronavirus outbreak at the mine.
"The results at our Pogo mine in Alaska were particularly pleasing given the challenging circumstances emanating from COVID-19, where we effectively managed safe operations with 36 confirmed cases through the quarter," said Northern Star Resources Executive Chairman Bill Beament.
Increased gold production at lower costs demonstrate the outstanding potential of Pogo once the global health challenges have passed.
"We now have a strong insight into the impact of the virus on Pogo and it is clear that this asset will continue to produce at about 75% of its potential while the virus remains in Alaska," Beament said.
While COVID-19 has posed challenges, record quarterly gold production at Pogo and its portfolio of gold mines in Australia, coupled with all-time high gold prices, has resulted in record cashflow for Northern Star during the second quarter of 2020 and bode well for the Aussie miner's future.
"Despite the considerable impacts of COVID-19 at Pogo, the underlying trend of rising production and productivity continued," said Beament. "This further demonstrates the huge potential of this asset in more conventional circumstances."
Outbreak at Kensington
Kensington, a remote underground gold mine in Southeast Alaska, is also generating substantially more cashflow as gold prices rise.
Kensington produced 33,058 ounces of gold during the second quarter, which is slightly higher than the 32,022 oz during the first three months of the year but less than the 34,049 oz during the second quarter of 2019.
The steady gold output and strong gold prices helped Kensington generate $23.9 million of free cashflow, significantly higher than the $7.1 million generated during the first quarter.
The 65,080 oz produced through the first six months puts Kensington on pace to produce roughly 130,000 oz of gold this year, which is at the mid-point of Coeur's 2020 gold production guidance of 125,000 to 135,000 oz for the Alaska operation.
The remote operation, however, suffered a coronavirus outbreak that is likely to limit worker availability, which may affect second half performance.
Mid-August testing of the 250 workers at the mine turned up roughly 25 positive cases. The Kensington miners that tested positive for COVID-19, all of which are asymptomatic or are showing mild symptoms, were isolated at a hotel in Juneau until cleared by medical providers.
The outbreak is despite coronavirus related protocols at Kensington that include extending worker's rotations at the mine from 14 to 28 days; and required seven-day quarantine and COVID-19 testing prior to starting their four-week rotation at the Southeast Alaska mine.
Coeur's five operations – Kensington, Silvertip, Palmarejo (Mexico), Rochester (Nevada) and Wharf (South Dakota) – produced 1.6 million oz of silver and 78,229 oz of gold during the second quarter, which is down from the 2.7 million oz of silver and 85,077 oz of gold produced during the first three months of 2020.
"Like most companies, our second quarter results were negatively impacted by COVID-19. Most notably at Palmarejo, our strongest performing asset in the first quarter, operations were temporarily suspended due to a decree from the federal government of Mexico," said Coeur Mining President and CEO Mitchell Krebs. "However, with Palmarejo now back in production, our three U.S. operations hitting their strides and the tailwind of higher gold and silver prices, we are anticipating a strong second half of 2020 and expect to continue this momentum into 2021."
Solid Greens Creek performance
While the price of silver has not even neared historic highs, this precious metal has outpaced the impressive price gains of gold this year.
Since the beginning of 2020, the price for an ounce of silver has rocketed nearly 50%, from around $18 on Jan. 1 to its current price of around $27/oz.
This is good news for Hecla Mining Company, thanks to its Greens Creek Mine in Southeast Alaska.
"Hecla produces one third of all the silver in the U.S., giving investors unique exposure to what we believe will be higher silver prices in the future," Hecla Mining President and CEO Phillips Baker Jr. said in July.
Roughly 90% of the 6.13 million oz of silver from Hecla's U.S. mines during the first half of 2020 was produced at Greens Creek.
As of mid-year, Greens Creek had produced 5.53 million oz of silver, 25,377 oz of gold, 28,671 pounds of zinc, and 11,087 lb of lead.
This strong production is a testament to a quick response that helped protect the workforce from the potential spread of the coronavirus.
Early on during the COVID-19 outbreak, a 14‑day quarantine was mandated for all visitors to Admiralty Island, where Greens Creek is located. With the addition of strict testing protocols, the Southeast Alaska operation has reduced this quarantine period to seven days. This is expected to reduce the cost associated with protecting the workforce as well as reducing workforce stress.
Thanks to the solid performance at Greens Creek, Hecla reported increases in all the metals it produces, except for gold, from its five North American mines – Greens Creek, Lucky Friday (Idaho), San Sebastian (Mexico), Casa Berardi (Quebec), and Nevada Operations.
These increases are despite temporary COVID-19-related shutdowns at Casa Berardi and San Sebastian.
"I am extremely proud of our workforce's adaptability and commitment in this challenging time which positions Hecla well to improve our cash flow generation in this higher silver and gold price environment," Baker said.
Challenges at Red Dog
While precious metals prices have soared so far this year, zinc prices tumbled from $1.05/lb going into 2020 to a low of 80 cents in late March.
"The refined zinc market remained under pressure from the slowdown in the automotive sector, due to COVID-19. Most global automotive plants restarted by early May, but at reduced operating rates," said Teck Resources Ltd., which operates the Red Dog zinc mine in Northwest Alaska.
Lower zinc prices, however, was not the only COVID-related challenge for Red Dog.
The lack of available personnel resulting from COVID-19 safety protocols and travel mandates contributed to some maintenance challenges that impacted mill throughput during the second quarter.
"At our Red Dog Operations, travel restrictions and modified schedules remain in place due to the fly-in, fly-out nature of the operation. Maintenance schedules and our ability to respond to maintenance challenges were impacted in the second quarter," Teck wrote in its second quarter 2020 report.
These challenges resulted in both reduced mill throughput and lower zinc grades during the second quarter due to high water levels restricting access to higher grade ore.
As a result, Red Dog produced 83,900 metric tons (185 million pounds) of zinc during the second quarter, which is a roughly 47% drop from the 158,000 metric tons (348.3 million lb) produced during the same period of 2019 and a 35% drop from the 128,400 metric tons (283.1 million lb) produced during the first three months of this year.
Likewise, Red Dog lead production during the second quarter of 2020 was 21,500 metric tons (47.4 million lb), down about 26% from the same period of 2019 and roughly 8% from the first quarter of this year.
Teck expects that mill production at Red Dog will return to normal in the third quarter but says water levels at the Northwest Alaska mine may continue to restrict access to high-grade ore in the second half of 2020 and personnel availability could impact other aspects of the operation.
"Labor intensive activities such as maintenance, mine operations, and projects continue to be impacted by COVID-19 safety protocols," the company wrote.
Despite these challenges, Teck said it expects Red Dog production to return to full capacity as mill throughput and ore grades improve during the second half of the year.
At the same time, zinc prices are expected to improve as global economies recover from the pandemic.
Since mid-year, the price of this galvanizing metal has risen roughly 33% from around 92 cents to above US$1.10/lb.
Gold explorers attract cash
While COVID-19 has interrupted, delayed, and cancelled 2020 exploration programs across Alaska, the sharp rise in the price of gold has attracted some big money from noted natural resource investors.
One such success story is Freegold Ventures Ltd., which raised C$10.75 million in two tranches that closed in May and June, including C$6 million invested by Eric Sprott.
This robust investment came after Freegold tapped 188 meters averaging 3.69 grams per metric ton gold at its Golden Summit project about 25 miles north of Fairbanks, Alaska, including a two-meter intercept that averaged 169.5 g/t (4.9 oz/t) gold.
This bonanza grade intercept was made during a winter drill program that got cut short do to COVID-19 mandates.
With its treasury full and an exciting high-grade gold target to follow-up on, Freegold resumed drilling at Golden Summit in mid-June. This drilling aims to trace the high-grade gold encountered during the winter program west of the historic Cleary Hill Mine working towards the Dolphin intrusive, which hosts a bulk tonnage resource at Golden Summit.
According to a 2016 calculation, Golden Summit hosts 61.5 million metric tons of indicated resource averaging 0.69 g/t ton (1.36 million ounces) gold; and 71.5 million metric tons of inferred resource averaging 0.69 g/t (1.58 million oz) gold.
The higher-grade gold being tapped in the Cleary Hill vein system has the potential to bolster the overall resource grade at Golden Summit, a highway accessible project adjacent to Kinross Gold Corp.'s Fort Knox Mine property.
HighGold Mining Inc. is another aurum explorer that attracted the attention of prominent resource investors such as Sprott, Franklin Gold Fund, Rob McEwen, and a yet to be named senior gold producer.
This interest was so high that on the day HighGold announced plans to complete an C$8 million private placement, it raised the financing to C$12 million to meet demand.
Commensurate with the increased funds, the company expanded its drill program at the high-grade Johnson Tract gold project in Southcentral Alaska to at least 15,000 meters.
Situated on lands owned by CIRI, the Alaska Native Claims Settlement Act (ANCSA) regional corporation for the Cook Inlet area, Johnson Tract hosts high-grade gold mineralization that is further enriched by silver, copper, zinc, and lead.
According to a calculation earlier this year, the JT deposit at Johnson tract hosts 2.14 million metric tons of indicated resource averaging 6.07 grams per metric ton (417,000 ounces) gold, 5.8 g/t (397,000 oz) silver, 5.85% (275.3 million pounds) zinc, 0.57% (26.8 million lb) copper, and 0.71% (37.6 million lb) lead.
This year's drilling at Johnson Tract is primarily targeting five key resource expansion areas at and around this high-grade deposit – JT Deposit Expansion, Northeast Offset, North Trend, Footwall Discovery, and Southwest Extension.
"The accelerated exploration program, which now includes three drill rigs and 15,000 meters of planned drilling, provides an opportunity to materially advance Johnson Tract this year," said HighGold Mining President and CEO Darwin Green.