CANADIAN MINING PERSPECTIVES: VIEWPOINT – How to mine gold for less than nothing

NORTHGATE MINERALS of Vancouver has had a strong fourth quarter, thanks to the Kemess South copper-gold mine. Best ...
NORTHGATE MINERALS of Vancouver has had a strong fourth quarter, thanks to the Kemess South copper-gold mine. Best of all, the operation had quarterly gold net cash costs of minus US$90/oz, and for the year the figure was minus US$56/oz. That is an enviable state of affairs.

Compared with 2006, the company is forecasting slightly lower production levels this year. In the 2006 calendar year, the Kemess mine produced 310,296 oz of gold and 81.2 million lb of copper. The projected output for 2007 is 285,000 oz of gold and 74.5 million lb of copper. The cash cost of gold production is expected to be minus US$10/oz in 2007, assuming a very conservative copper price of US$2.50/lb.

Northgate is leaving little to chance in next year's business plan. It has hedged half the copper production at US$3.15/lb. That will give the company a guaranteed income and still allow it to profit from higher copper prices. And should the price drop, all is not lost.

Neither is the exploration department going begging. About US$28 million has been set aside to explore for the next producer. Most of the money is earmarked for the Young-Davidson gold property near Matachewan in northeast Ontario. Drilling 50,000 m of holes from surface will cost US$5 million. A further US$22 million will be used to drive a ramp down 450 metres and dewater the existing No.3 shaft in preparation for definition drilling from underground. Measured and indicated resource numbers are 1.1 million oz of gold.

That leaves only US$1 million in the exploration budget, which will be spent diamond drilling the Kemess North offset.

The Kemess North project, adjacent to the Kemess South mine, is also being prepared for production. The public hearings for the development have been completed, and the report of the review panel is due in mid-February. Northgate has proposed development of an open pit mine capable of producing up to 250,000 oz of gold and 115.0 million lb of copper annually. A mill throughput expansion is also in the works. Total cost of the mine development and mill expansion is pegged at US$190 million. The new mine would come onstream to replace the Kemess South ore that will be exhausted in 2009.

With one profitable copper-gold mine to its credit and another in the near future, Northgate is branching out into a pure gold play and another corner of the country. We expect to see management's successful approach to mine-making continue to be reflected in its balance sheet in the future.


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