ELKO, NEVADA — The only thing that McEwen Mining’s (TSX: MUX; NYSE: MUX) Simon Quick, vice-president of projects, thinks could delay construction at the company’s Gold Bar project, 53 km from Elko, Nev., is whether a Trump-led U.S. administration would lift the Obama moratorium on federal coal leases early next year.
“The war on coal is effectively going to end, and there are mountains of projects that will look for approvals from the Bureau of Land Management (BLM), so a potential concern is simply a backlog of coal projects taking precedence over other mining projects,” Quick tells The Northern Miner during a presentation at the company’s office branch in Elko.
McEwen aims to restart operations at the former open-pit gold mine by 2018.
Based on an updated feasibility study published in 2015, the 7,300-tonne-per-day, heap-leach operation could produce 65,000 oz. gold per year, at cash costs of US$728 per oz. gold over a five-year mine life.
Quick says if it all goes according to plan, the US$60.5-million project would deliver a 20% after-tax internal rate of return (IRR) and a net present value (NPV) — at 5% discount rate — of US$30 million, assuming US$1,150 per oz. gold.
“The sensitivity to the gold price is pretty good. For every US$100 move either way, the IRR would move 10%,” he says. “The break-even point, without having to do a full redesign, is US$975, so it holds up well to any gold price fluctuations.”
To keep the project on schedule, McEwen must publish a draft environmental impact study (EIS) in the Federal Register and gain BLM approval by the second half of 2017, which Quick explains as being no easy task in Nevada.
“The issue with the BLM is getting it through the Notice of Availability (NOA) and published in the Federal Register. By comparison, a full EIS is 2,000 pages, whereas an NOA, which can delay a project, is five pages and lacks an incredible amount of meat of what the project is about. It sits on 27 desks as it goes through Washington for sign off, and then it’s put in the Register,” Quick says.
He adds that the company is engaging local, state and federal officials to “humanize the project as much as possible,” in an effort to speed up approval.
“The major competitive advantage this project, from a permitting perspective, is that it’s unencumbered by local issues. We don’t have water rights — there are no water issues or enormous autoclaves. So we’re asking the government to get behind a project that will add jobs, increase the tax base, and is a net benefit from a reclamation perspective.”
Sitting at the boardroom table is the rest of the Gold Bar team, including Bruce Burke, director of operations and logistics, and Jeff Snyder, director of U.S. technical services.
How McEwen plans to recover the gold is a big point of discussion among the team. Snyder is leading the conversation, given he has a 33-year background in oxide and refractory gold-ore processing.
He says that one of the biggest challenges gold miners in Nevada face with Carlin-style deposits is the amount of clay associated with the ore.
Carlin-style deposits form when mineralizing fluids, moving through fractures and faults, intercept a highly permeable, clay- and silt-rich carbonate rock. The fluids dissolve the carbonate, leaving the clay, silt and gold behind.
This mineralization becomes obvious while picking through the reverse-circulation chip samples that are sitting on the boardroom table. The ore zones are completely cryptic, appearing more like dull road gravel with intervals of red-brown clay, while boasting intercepts of 5 metres at 8.9 grams gold per tonne.
Snyder says that column tests on bulk samples from Gold Bar suggest gold recoveries of between 88% and 92%, which he calls “remarkable” for a deposit of this style. For the project’s feasibility study, the company took a conservative approach, and went with 78% recovery.
“The unique thing about the project is its leach kinetics. Gold Bar is a high-recovery asset. There’s 50% gold recovery in the first 45 days, so it leaches really quick. In the report we added some conservatism, so if we increase that recovery it will really add to the bottom line,” he says.
The other concern with Carlin-style deposits, he says, is whether the gold is trapped in carbonaceous, refractory material, which often forces miners to use complex and expensive milling techniques, such as roasters or autoclaves.
For Gold Bar, Snyder says that carbonaceous ore is found in the un-oxidized part of the deposit. Since mining would focus on the oxidized zones, any carbonaceous material found will be treated as waste.
Snyder estimates that 8% of the resource contains carbon-bearing ore.
“We’ll have a two-step ore-control process — ore-control the face and visually inspect the stockpile — because you can clearly see it and prevent it from getting onto the leach pad,” he says.
McEwen is also looking to add a crushing and agglomeration circuit to the processing flow sheet, which mixes the gold-bearing clays with cement and is crushed and sprinkled onto the heap-leach pad to enhance the leach pad’s permeability.
Snyder says the method is more expensive, but adds “a lot more security to the project,” because “at the end of the day, recovery will make this project successful.”
He says that a crusher and agglomerator would increase the capital cost of the project to US$80 million, but increase recovery to 82%, lengthen the mine life to seven years and bump up the NPV to US$48 million, while keeping a 20% IRR.
Quick uses Midway Gold’s Pan gold project, 35 km west of Eureka, as an example of how high clay or carbonaceous content can impact recoveries. The beleaguered miner saw its first gold pour at Pan in March 2015, and expected the operation would produce 81,000 oz. gold annually over its nine-year mine life. Faced with falling recoveries, the company filed for bankruptcy three months later.
“Recovery was a hot topic for them, but the two things they didn’t do was incorporate a crusher and agglomerator into their processing. They also never had their plant ready when the mining fleet were active, so they pushed stacking to 50-foot lifts, which made the clay situation even worse. But now, after coming out of bankruptcy, they’re installing a crusher and an agglomerator to get the operation up and running again. We’ve made the right choice,” Quick says.
The sagebrush and pinyon-juniper forest on the gravel road to Gold Bar is dusted with fresh-fallen snow, and the former open-pit mining operation looms on the horizon.
Two of the three main deposits at Gold Bar — Gold Pick and Gold Ridge — were mined between 1986 and 1994 by Atlas Precious Metals, resulting in 206,187 oz. gold production from 2.1 million tonnes averaging 2.5 grams gold per tonne at an 88.4% recovery.
Mineralization at Gold Pick has a strike length of over 1.2 km, a width of 500 metres and thickness between 30 and 15 metres, whereas Gold Ridge and Cabin Creek are satellite deposits that make up 22% of the resource.
Combined, the deposits have open-pittable measured and indicated resources of 20 million tonnes of 0.96 gram per tonne for 611,000 oz. gold, and 4.2 million tonnes of 0.82 gram per tonne for 111,000 oz. gold, assuming US$1,350 per oz. gold, 78% recovery and 0.3 gram gold cut-off.
The deposits occur within 150 metres of surface in oxidized and orange-coloured carbonate rocks, which appear along the pit walls. Dark black spots signalling carbonaceous rocks occur in rare patches across the benches.
“Cabin Creek will be mined in the first couple of years. It’s the smallest resource we have, but it’s easily accessible,” Quick says as we stand around the back of a pick-up truck near the Gold Pick pit.
McEwen plans to spend US$1.6 million next year at Gold Bar as mine permitting and engineering continue, but Quick mentions that near-mine exploration will be placed on the back burner. The company spent US$1.5 million for almost 5,000 metres of drilling this year.
“We’re fairly capital constrained as we get into the build scenario, so we’re going to focus on finishing the engineering and ensure long-lead items are complete before we get into more exploration,” he says. “It’s better bang for our buck to wait for the mining permit and explore things that are immediately accretive, rather than spending money on deposits that would only come in much later in the mine life.”
As of Nov. 4, the company had US$68 million in its treasury and made US$24.4 million in free cash flow up to September 2016.
McEwen’s revenue comes from its two operating mines: the San Jose gold-silver mine in Argentina, where it owns 49%, and its wholly owned El Gallo gold-silver mine in Mexico.
McEwen has traded in a 52-week range of $1.30 to $6.40 per share, and closed at $3.70 at press time. The company has 299.5 million shares outstanding for a $1.1-billion market capitalization.