Consolidation down under - Price changes push lower gold grades

Materials World magazine
8 Jan 2013

Price is a driving force in the development of a mine. The price of a commodity changes according to demand, but in the case of gold, a proxy for currency, the price is also determined by the relative value of the US Dollar to the gold-producing country’s currency.

This changing value can take a known metal in the ground from marginal to economic status. This scenario can apply in areas of known mineralisation, where exploration and mining have taken place over a century or more. The western Australian Coolgardie region is one such area, with nickel and gold mining sustaining the interest of many companies past and present. In the past 120 years, some 2.6 million ounces of gold (worth US$4.37bln at today’s prices) have been won from many mines and licence claims. Historically, technology limited the workable deposits to those that were high-grade and near the surface. This meant limited mechanised digging and blasting followed by milling and gravity separation to recover the gold. But as mining and processing technology advanced, lower grade mineralisation was exploited. The reduced costs made formerly ignored or relinquished properties attractive, but consequentially the multiplicity of leases and tenements resulted in the development of large mines becoming difficult, if not impossible. 

A route around the problem 
One method of gaining maximum return over a confined licence area is to extend vertically beyond the usual shallow 60-metre depth of many of the open pits. Underground mining is more expensive than surface drill and blast, and to be economically viable requires a higher grade of gold mineralisation. Fortunately, the style of mineralisation found within the Coolgardie region reflects the greenstone lithologies. Four distinct types have been identified:

  • at contacts between ultramafics and basalts
  • in differentiated gabbro-basalt sequences in fault bounded quartz-vein stockworks
  • in quartz reefs and breccias in shear zones
  • in ductile shear zones in mafic and ultramafic rocks 

These styles of mineralisation all have a vertical component, reflecting the complex folding and thrusting of the part of the Norseman-Wiluna greenstone belt that contains the Coolgardie region. Gold mineralisation varies from 2–3g/t in open pit to up to 70g/t within sections of the shear zones and contacts at depth. 

The poor gold prices from the 1970s to the early 2000s resulted in a good number of the known workings being abandoned or placed on care and maintenance until market conditions improved. This meant that the gold tenements in the area were fragmented and made the recovery of low grade gold uneconomic, even though it might be adjacent to more profitable tenements. An amalgamation of claims to take advantage of bulk mining was required. Focus Minerals NL, an Australian exploration and mining company recognised this potential and set about acquiring properties at the same time as undertaking exploration. Between 2000–2005, the company extended its holdings by more than 450km2, including the Three Mile mill, 5km north of the town of Coolgardie. However, up until 2008 the low gold price precluded mine development and effort was concentrated in expanding gold resources through exploration. 

Campbell Baird, CEO of Focus Minerals, explains ‘That all changed in 2009 when gold began its climb in value from around US$750/oz to the current price of just under US$1,700/oz’. And although the company had established itself as a major resource owner around Coolgardie, it was still short of funds for development. Throughout the consolidation and mine development phase the company had determined to raise as much finance as possible from production at its underground and open pit mines. The refurbishment of the Three Mile mill under the company’s control was completed in 2009, and has been a significant factor in increasing production. Now the plant has a capacity of 165 tonnes per hour and comprises three-stage conventional jaw and cone crushing to feed a single stage ball mill. This in turn discharges into cyclones whose overflow reports to cyanidation tanks with a residence time of 6–8 hours. Cyclone underflow is split, with half returned to the ball mill while the remainder is treated by a gravity separator. About 120 tonnes per hour of tailings from the mill are directed through a thickener to recover process water before placement in the storage facility. Because ore from a number of mines is treated at Three Mile mill, a plan of blending ores has been established so that separate treatment for high sulphide components is not required. 

Going underground 
Focus owns the underground Tindals Mine near Coolgardie and the Mount Mine some 85km to the south. Tindals has a decline from the large open pit, itself a coalition from four smaller pits. Mining was undertaken by a contractor using sublevel long-hole stoping with open stopes. From 2009 to late 2012, the mine produced around 45,000 tonnes per month of 3.5g/t gold ore. In comparison, a series of open pits within 10km of Coolgardie now produces 30,000 tonnes per month of 2.1g/t gold grade. 

The Mount Mine, however, had only inferred resources, indicating a low level of confidence in the contained ore estimates. The normal practice is to drill out these resources and elevate them to the indicated resource category. Cost estimates for this work was almost US$10.5 million and would take more than two years to complete. Focus took a different route and installed a three-man team to drill out a small proportion of the resources into the inferred category of 80,000 tonnes grading 8g/t followed by mining to fund further exploration. By 2012, the mine was producing more than 15,000 tonnes per month grading 4.5g/t gold. This approach, although not without risk, allowed significant cash flow to be developed by the mine, possibly two years earlier than could be expected by conventional methods. 

It is the company’s objective to expand production through consolidation of its tenements. As of June 2012, the company has used production-funded exploration to measure resources in the Coolgardie region of just over half a million tonnes grading 5.4g/t for a contained 95,000 ounces of gold. Total resources including indicated and inferred amount to 29Mt at 2.3g/t for a contained 2.07 million ounces of gold. The company has also through acquisition begun consolidation of properties in the Laverton area of the Yilgarn craton, a location with three major gold mines all discovered in the past 20 years. Development is following the Coolgardie model of tenement consolidation with production tied to an ore purchase agreement with Barrick Gold Corp for processing at its Granny Smith mill. 

Developing these resources takes significant investment. In 2012 Hong Kong-based Shandong Gold Group acquired 51% of the shares of Focus for US$235 million at a premium of nearly 30% of recently traded values. The management sees it as a vote of confidence in their strategy to consolidate tenements in a region that even after a century of mining still have a lot to offer, and will employ this capital in further exploration and development in Western Australia.