Global markets influence dramatic decline.

• Author: Freeman, Curtis J.
• Position: 2009 Alaska Mining Overview

In trying to summarize the plight of the Alaskan mining industry over the last year, I find myself unable to find words adequately describing what will go down in history as one of the most momentous periods since the early days of the Great Depression. Words like tumultuous, unpredictable, singular, turbulent, chaotic, confusing, and unsettling hardly do justice to events of the last twelve months. When I submitted last year's version of this Alaska Mining in Review summary, the world economic collapse was still a few days in the future and most pundits still believed that the metals supercycle was in its infancy. A week later, the world's economies, as well as our little Alaskan mining industry, were plunging down a precipitous slope toward an uncertain but devastating economic bottom. Although most sectors of the economy continued to decline well into 2009, metals prices and some parts of the mining sector hit something of a bottom in the December--January time period. Although the world's economies are still struggling, the first nine months of 2009 have seen the price for most metals recovering, albeit not to the stratospheric levels they had reached in 2007 and early 2008. Oddly enough, this increase in commodity prices has been accompanied by a rapid and extreme corporate retrenchment in the mining industry similar to that suffered in the 1997-2001 metals market crash. In short, while the commodities we mine have recovered much of the ground lost in the dark days of late 2008, the companies that explore for and mine these commodities have not recovered. Exploration budgets have been slashed or eliminated wholesale while development scale projects have been placed on the back burner or shelved indefinitely. Producers were no less affected, with mine closures and cutbacks coming hot and heavy over the last 12 months. So how does all this translate into Alaska-centric terms? Pretty simple, pretty ugly: grass roots exploration, where much of Alaska's exploration occurs, declined dramatically in 2009. Minesite exploration and advanced project exploration were the focus of most exploration efforts with the or and intermediate producing companies accounting for most of this work. Gold regained center stage as virtually the only metal of interest for Alaska-bound explorers however recent increases in the price of copper pushed it to the front of the line for base metal explorers. On the cost side, labor, fuel, drilling rates, helicopter costs and virtually every other expense item related to mineral exploration has decreased in price dramatically over 2004-2008 rates. In short it is a buyer's market out there for those capable of "buying straw hats in the winter"!

WESTERN ALASKA

Teck Cominco American's announced year end 2008 and first half 2009 results from its Red Dog mine. During 2008 the mine produced 515,200 tonnes of zinc in concentrate. Zinc ore grade for the year remained unchanged at 20.1 percent while mill recoveries increased slightly to 84.1 percent. The mine also produced 122,600 tonnes of lead in concentrate for the year. Lead ore grade for the year decreased slightly to 6.1 percent while mill recoveries increased to 67 percent. The mine posted a $171 million operating profit during 2008 versus an $819 million operating profit for the year in 2007. The precipitous drop in the price of lead and zinc over the second half of 2008 affected production revenue while a main crusher failure affected 4th quarter operating costs. During 2008 the mine paid partner NANA Inc. and the State of Alaska royalties of $111 million. During the first half of 2009 the mine produced 280,400 tonnes of zinc in concentrate. Zinc ore grade increased to 21.1 percent while mill recoveries remained steady at 82.7 percent. The mine also produced 63,200 tonnes of lead in concentrate. Lead ore grade were 5.7 percent while mill recoveries decreased to 69 percent. The mine posted a $67 million operating profit for the first half, down significantly from the $137 million profit in the year previous period. The decreased operating income was attributed mainly to lower zinc prices. The mine plans to ship 1,025,000 tonnes of zinc concentrate and 220,000 tons of lead concentrate from the port facility during the 2009 shipping season.

Zazu Metals Corp. announced revised mineral resource estimates on its Lik zinc--lead--silver deposit in the western Brooks Range. At a 3 percent combined lead plus zinc cutoff grade, indicated resources at Lik South deposit came in at 22.13 million tons grading 7.98 percent zinc, 2.58 percent lead and 1.53 ounces of silver per ton with an additional inferred resource of 1.39 million tons grading 6.73 percent zinc, 2.09 percent lead and 1.02 ounces of silver per ton. At a 7 percent combined lead plus zinc cutoff grade, inferred resources at Lik North deposit came in at 5.71 million tons grading 9.65 percent zinc, 3.25 percent lead and 1.48 ounces of silver per ton. The resource estimate was based on the results of 204 diamond drill holes, totaling 34,460 meters. Highlights of recent drilling include 26.82 meters grading 7.84 percent lead, 19.23 percent zinc and 291.3 grams of silver per tonne in hole 161, 8.23 meters grading 4.29 percent lead, 18.28 percent zinc and 158.8 grams of silver per tonne in hole 157, 7.62 meters grading 7.64 percent lead, 22.22 percent zinc and 200.68 grams of silver per tonne in hole 159 and 14.94 meters grading 8.58 percent lead, 23.46 percent zinc and 149.14 grams of silver per tonne in hole 171. The company continues with baseline environmental, engineering, transportation and shipping studies designed to be incorporated into a preliminary assessment study to be released in the future.

In September 2008, NovaGold Resources Inc. announced that it had received regulatory authorizations and has begun production at its Rock Creek gold mine near Nome. The mine is designed as a year-round, truck and shovel, conventional open-pit mining operation, with milling capacity of 7,000 tonnes per day using a simple gravity, flotation and carbon-in-leach recovery processes. However, in late November the company announced that due to ongoing mechanical, processing and regulatory issues, it had suspended operations at Rock Creek. Issues at the mine site include non-compliance with certain permit conditions, an electrical fire in the milling circuit and problems with the processing and recovery circuits. During the first quarter of 2009, resource updates for the project expanded the deposit resources by 24 percent, bringing total project resources to nearly 3 million ounces of gold. The company indicated that it is deciding whether to recommence startup activities when the market becomes more favorable, bring in an operating partner or possibly sell the property. The remaining care and maintenance budget at Rock Creek for 2009 is approximately $7 million.

Millrock Resources announced results from drilling at the Daniel's Creek prospect and surface sampling at the Koyana prospect at its Bluff project near Nome. Five holes totaling 403.26 meters were drilled at Daniels Creek with a goal of substantiating historic drill results reported by BHP and expanding the estimated boundaries of the reported mineralization. Highlights of the drilling at Daniels Creek include 5.94 meters grading 1.397 grams of gold per tonne in hole BLF1001 and 1.37 meters grading 3.819 grams of gold per tonne in hole BLF 1003. Significant nugget effect was noted in the drilling results and additional drilling will be required to determine the true grade and thickness of mineralization. At the Koyana prospect, work completed in 2008 extended mineralization 500 meters to the southeast to what is now known as the Koyana Beach showing. Grab samples of quartz-carbonate-arsenopyrite veins returned significant gold values ranging from 8.8 to 38.6 grams of gold per tonne.

Millrock Resources also announced drilling results at its Divide project near Nome. Significant results include 15.24 meters grading 3.1 grams of gold per tonne in hole DIV3004, 1.52 meters grading 9.9 grams of gold per tonne in hole DIV3019, 10.67 meters grading 1.2 grams of gold per tonne in hole DIV3002 and 6.10 meters grading 1.8 grams of gold per tonne in hole DIV3012. In addition, trenching results include 22.86 meters grading 2.2 grams of gold per tonne in trench DIV2016T, 16.76 meters grading 1.5 grams of gold per tonne in trench DIV2008T and 15.24 meters grading 1.1 grams of gold per tonne in trench DIV2012T. The 2008 exploration program consisted of geological mapping, twenty-two reverse circulation holes totaling 2,656.3 meters and twenty-four trenches totaling 1,243.6 meters. The drilling and trenching successfully tested a previously identified, strong gold--arsenic soil anomaly that measures over 2,600 meters long and 660 meters wide. Geological mapping identified a strong east-west structural trend with veining that is interpreted to control thicker, higher grade zones.

NovaGold Resources and partner Barrick Gold announced the long-awaited results of their feasibility study at their Donlin Creek gold project. The highlights of the study indicate that the project has proven and probable reserves estimated at 29.3 million ounces of contained gold at an average grade of 2.37 grams of gold per tonne. Initial plans suggest a 21-year life of mine with milling of 53,500 tonnes of ore per day. Average stripping ratio is 5.69 tonnes of waste for every tonne of ore. Production in the first five years is estimated at 1.6 million ounces at a total cash cost of $394 per ounce of gold. Average annual after-tax cash flow is estimated at $779 million at a $900 per ounce gold price. Over the first 12 years, the mine would produce an average annual gold production of 1.5 million ounces with life of mine average production of 1.25 million ounces of gold per year. Mining costs were pegged at $4.60 per tonne mined while milling costs came in at $30.03 per...