Twenty years and still going strong
Gold mines come in different shapes and sizes.
The recently commissioned Detour Lake gold mine 185 kilometres northeast of Cochrane produced 456,634 ounces of gold last year and expects to produce an average of 660,000 ounces annually over a 20-year mine life. $1.5 billion was spent to put it into production.
Then there’s Wesdome Gold Mines’ Eagle River operation 50 kilometres west of Wawa, which poured its one millionth ounce of gold December 5, 2014 following 20 years of continuous production. Initially purchased in 1994, Eagle River was put into production for $15.5 million and is targeted to produce 55,000 ounces this year.
Detour Lake has proven and probably reserves of 15.5 million ounces grading just over one gram per tonne. The Eagle River Mine has 281,000 ounces in proven and probable reserves and has averaged 9.2 grams per tonne over the course of its mine life.
George Mannard, Wesdome’s vicepresident of exploration, describes mines like Detour Lake as large- cale dirt farming requiring huge amounts of risk capital. “Interestingly though, they perform very well in financial models because you can project out a long mine life.”
Despite all the capital at risk, “they’re eminently financable, “ said Mannard. Unfortunately, “they don’t all work out. Nothing is certain. You’re assuming the gold price holds up through permitting, preproduction and development and over the life of the mine.”
With vein-type deposits like Eagle River, “you have less capital at risk up front because traditionally, you start very small, build a small mill, deepen the shaft, expand the mill and, over time, it builds up to significant historical production.
“We’re very fortunate because we have a very good resource,” said Mannard “We’ve been there for a long time. We’re well entrenched. We have a very talented workforce and unusually good grades. If the gold price drops, it will just make us look better among our peers and maybe people will realize the strength of our business model.”
A colourful and opinionated character known to heckle politicians from the back of the room at gatherings of the exploration community, Mannard deplores provincial government policies such as the Boreal Forest Initiative which removes large tracts of land in Northern Ontario from staking and mineral development.
Unfortunately, “nine out of 10 voters are in southern Ontario and are generally conservation minded,” notes Mannard. “It was the same with Lands for Life and the province’s Living Legacy (land use strategy) that the Harris government put in. That was purely a political lobby by the American Sierra Club. They went for the urban vote.”
Ironically, said Mannard, nine out of 10 voters in Ontario are also sympathetic to the plight of the First Nations, and economic development on those same large tracts of land is ultimately in their interest “because the development of economic activity is the solution to get them out of their cycle of dependence and gain autonomy and self-determination.”
That makes the First Nations the mining industry’s strongest allies in the pursuit of responsible, pro- development wealth generation, he claims.
“There’s no real wealth generation here in Toronto,” he said, looking out the window of his King St. office. “Toronto is a huge, strategically located service, distribution and financial centre. What you have down here is a bunch of people standing around in a circle.
Someone throws a $20 bill in from the primary wealth that’s been generated in Northern Ontario and it gets passed around faster and faster and faster.”
Mannard also has a beef with the recent tinkering of the Mining Act.
“Politically, you want to keep everybody happy, but can you keep everybody happy and still do the best thing for society?” he asks.
“Communication is a terrific idea. The concept is good that there’s a plan and the locals know what’s happening. I totally agree with that. The problem is how do you pragmatically administer it?”
It’s a bureaucratic process and an extra layer of cost, he complains “I’ve cancelled work at our Moss Lake property in northwestern Ontario because I haven’t had the time to go out and meet with five First Nations and two Métis groups.”
Mannard attributes the depressed state of gold mining stocks to the wild gyrations in the price of gold and the lack of capital investment during periods of low prices.
Capital spending
During the period of low prices following the Bre-X scandal and the Asian financial crisis, gold mining companies survived by deferring capital spending, but the need for capital spending doesn’t go away,” he said. “After five years, the price of gold started going up and companies in the global gold mining industry were behind in their capital investment, so costs increased dramatically. This left a bad taste in people’s mouth because they got into gold believing they’d make a lot of money when the price went up. That’s why the market doesn’t have much faith in gold mining companies.”
That being said, Mannard maintains that gold, unlike money, retains its purchasing power over time. “An ounce of gold in 1849 would buy you a suit, a suite at the best hotel and a meal in San Francisco. We’re at $1,250 today and that will buy you a suit, a fancy meal and a suite at the Royal York.”
Mannard’s biggest concern about the current state of the market is the lack of investor appetite for gold mining plays and the impact that’s having on grass roots exploration.
“When we come back to a favourable cycle, we’ll be starting from scratch again,” he warned. But the future of the Eagle River Mine looks good, according to Mannard.
“We found two new parallel zones to our main producing structure, which opens up a huge amount of potential. With the grades we have, the gold price can go a lot lower and we can still do pretty well.”
Aside from its underground Eagle River operation, Wesdome also began producing incremental feed from the nearby Mishi pit in January 2012 based on a study indicating in excess of 700,000 tonnes of proven and probable reserves at a diluted grade of 2.55 g/t gold.
Wesdome will get approximately 1,000 ounces of gold per month from the Mishi pit, which was put into production for a capex of $1.3 million – “that’s million, not billion,” stressed Mannard.
Together, the Eagle River Mine and the Mishi pit employ a workforce of 250 people, including contractors, on a 10-day on, 10-day off work schedule.
One thing that keeps the workface stable, said Mannard, is the company’s commitment to excellent foodservice.
“Most mines hire a contractor to cater for a fixed price per plate and go as cheap as possible, not realizing how important it is. Food is the key for the whole business. If the food goes bad, the whole business model collapses. It’s that simple.”
