By William (Bill) Howald, CEO of Rye Patch Gold Corp.
...assistant to the president, and finally CEO and president. I’ve seen all aspects of food preparation and the mining process from early exploration to feasibility, mine construction, mine operation including making dore’ bars and holding the refined product - gold and silver bars. It gives me perspective on how things fit together and work.
For a large portion of my career, I worked for a large multinational mining company, Placer Dome Inc., that was bought by another bigger multinational mining company in early 2006. During my last years at Placer, I was the assistant to the president and worked to prepare a strategic plan for the group and integrate it with the overall strategic plan of the company. During this time, gold price fell to US$252 per ounce (The sentiment feels a lot like it does today with gold at $1,200 per ounce). The world had changed and my company wanted to use the opportunity to develop a plan and focus the exploration group on finding a company making gold deposit – a Valhalla. The plan was Dilbertly called the “Holy Grail” and the exploration team was the Sir Galahads – I am not kidding, cross my heart!
While developing this plan, I needed to know what a company-maker deposit looked like from the early stages to the actual mine. This research produced some eye opening information which when boiled down shows the five necessary ingredients to produce a quality gold mine.
A total of 699 gold deposits were analyzed from their discovery history to their production results. From that initial group, nine deposits met the “Holy Grail” criteria, but more importantly, the upper quartile of gold deposits all shared the same quasi-physical characteristics. Those characteristics, in order of importance, are jurisdiction, infrastructure, geometry, metallurgy and grade.
Jurisdiction is easy. You want the project to be in a politically stable region of the world. Its not to say you can’t find good deposits in unstable parts of the world, it just makes it harder which is code for more expensive and less money making capacity. I can’t emphasize the Fraser Institute to help find out the best places.
Infrastructure is another no brainer. It’s a significant cost to bring people, power and supplies to a remote place. The more infrastructure you have the better economic result you will get. Energy is roughly 30% of the mine’s costs. Generating your own power via diesel generators or bringing in power lines can be a project breaker. The recent decline in oil could have a major positive impact on many mining operations.
Geometry is less intuitive but can best be quantified by strip ratio. This is the number of tons of waste material versus the number of tons of ore-bearing material usually expressed as a ratio (i.e. 4:1 which means four tons of waste for every one ton of ore). The bigger the first number the higher the strip ratio and the higher the cost to mine the deposit so higher grades are needed. Numbers greater than 6 tend to be problematic. The geometry plays a interplays significantly with the grade of the deposit.
Metallurgy is another of the more significant items to pay attention to. There are ways to process oxide, sulfide and refractory ores; however, the cost to process increases dramatically depending on deposit metallurgy. As an example an oxide heap leach mine cost around $3.00 per ton of ore while a refractory ore process can cost upwards of $30 per ton so the grade must be much higher for refractory ores. In Nevada, the rule-of-thumb for gold grade and process type is greater than 0.01 opt (0.3g/t) for a heap leach, greater than 0.03 opt (1 g/t) for an oxide mill, greater than 0.1 opt (3 g/t) for a refractory mill. Remember oxide metallurgical processes do not work on refractory material. Another step is required and that is generally where the higher costs come from.
As you can see grade, geometry, and metallurgy are closely linked, and infrastructure is the great equalizer. An oxide deposit with low-grade gold and good metallurgy near infrastructure (say Nevada) can make more profit than an oxide deposit with high-grade gold and good metallurgy but poor infrastructure (say Mongolia).
Now you can make your matrix and assess your favorite gold project(s) like the pros. I’m sure it will be an eye-opening experience that just might have you saying Holy Cow, I mean Holy Grail!
Editor’s note: William (Bill) Howald is the co-founder of Rye Patch Gold Corp, a TSX listed company. Prior to joining Rye Patch, he was General Manager of Exploration, United States and Latin America, for Placer Dome Inc. During his tenure at Placer Dome, Mr. Howald was an integral part of the teams that delivered over 100Mozs of gold resources to the Placer portfolio. A number of these resources are now being mined or are at the feasibility stage and heading for a production decision. Mr. Howald has 30 years in the international gold exploration and mining industry gained primarily in Nevada, Mexico, and Central and South America.
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