Peak Gold JV slows plans at Manh Choh
Lowers 2022 budget due to inflation, contractor constraints North of 60 Mining News - February 21, 2022
Last updated 3/4/2022 at 3:35am
With inflation pushing costs higher and billions of dollars of COVID relief and infrastructure spending flowing into Alaska from Washington D.C., creating a competitive market for construction contractors, the Peak Gold Joint Venture has decided to cut back on the preliminary development that was originally planned for its Manh Choh gold mine project near the communities of Tetlin and Tok in eastern Alaska.
Peak Gold JV – a partnership between Kinross Gold Corp. (70%) and Contango ORE Inc. (30%) – is working toward the development of a mine at Manh Choh that would deliver high-grade gold ore to the Kinross Alaska mill at the Fort Knox Mine.
With 9.2 million metric tons of measured and indicated resources averaging 4.1 g/t (1.2 million oz) gold and 14.2 g/t (4.2 million oz) silver, the mineralization in the Peak Gold deposits at Manh Choh is roughly seven times higher grade than the ore currently being fed into the Kinross Alaska mill.
This potentially higher-grade ore and Manh Choh's ready access to the Alaska highway system makes the economics of trucking ore roughly 240 miles to the Fort Knox mine for processing a more economical and environmentally sound option than recovering the gold and storing the tailings on the property.
The Peak Gold JV had originally budgeted US$47.9 million for the 2022 work program to advance this project that is more akin to a rock quarry than a full-scale gold mining operation.
Much of this original 2022 budget was to be invested into the construction of a camp that would provide housing for crews working on the roads and other construction activities on the property, as well as for workers when mining operations get underway at Manh Choh.
Kinross, which is managing the activities under the Peak Gold JV, however, has since opted to forego some of the onsite construction and dirt work at Manh Choh.
During a Peak Gold JV meeting held last week, Kinross announced plans to reduce the 2022 spending at Manh Choh to US$26 million due to a revised work plan resulting from recent impacts of inflation, as well as contractor and labor market constraints in Alaska.
"The reduced spend in 2022 reflects the reality that inflation is hitting all sectors of the economy – especially construction. With the recent CPI (consumer price index) for January hitting 7.5%, this shouldn't come as a surprise to anyone," said Contango ORE President and CEO Rick Van Nieuwenhuyse. "In Alaska, the State has received several billion dollars in COVID relief money and another $5.6 Billion from the recently passed Infrastructure bill so again, it should not be a surprise that competition for construction contractors is on the rise."
Neither Kinross nor CORE currently expects the reduced budget and onsite activities to change the overall schedule of completing the feasibility study and achieving first gold production from Manh Choh in 2024.
Still a robust spending package, the revised 2022 budget will continue to fund a feasibility study that provides the economic and engineering details of the proposed mine, permitting activities, ongoing environmental monitoring, community engagement around Manh Choh and along the route to Fort Knox, engineering, and continued mineral exploration.
Kinross Gold President and CEO Paul Rollinson told investors during a Feb. 17 conference call that some preliminary onsite activities at Manh Choh remain in the 2022 budget, and the global gold mining company expects to publish the feasibility study results before the end of the year.
The rising competition and costs for construction, however, are expected to impact the economics of Manh Choh mine development. As such, Kinross has determined that it is in the best interest of the Peak Gold JV that certain activities that were initially planned for 2022 be delayed pending further analysis of options, including a re-bidding process.
The same inflationary pressures that are pushing construction costs higher, however, are putting upward pressure on gold.
"It should also be no surprise to gold investors to see the price of gold rise as well – yesterday piercing above the $1,900 level," Van Nieuwenhuyse said on Feb. 18. "Gold is doing what it has done for eons and remains a store of value."
The feasibility study will provide a clearer picture of the economics of a mine at Manh Choh in an inflationary environment that is expected to put upward pressure on mining and production of this 1.2-million-oz gold project in eastern Alaska.