IAMGOLD Extends Mine Life by Maximizing Resources

Mid-tier miner recovers found gold from mines reaching their limits

By Steve Fiscor, Editor-in-Chief, E&MJ

Gold miners today are in an enviable position among their peers. A high pricing environment has improved cash flows. While other miners struggle to finance projects and retain talent, gold miners are scouring every option knowing that even marginal ounces are now profitable. It hasn’t always been this way. They remember that; the gap in the project pipeline reminds them.

IAMGold is a mid-tier gold miner that produces about 1 million oz annually from mines in West Africa, the Guiana Shield in South America and Canada where it has a pipeline of development and exploration projects. The company has set a target of 1.8 million oz of gold production by 2012. Reaping record production from an expansion project at its flagship operation and, with the development of several good projects underway, it is well-positioned to reach that goal. Bridging the gap, as several shorter-life mines deplete their reserves, however, has become a central focus for some of its key operations. And, they have stepped up to the challenge.

The company’s production portfolio consists of four joint venture (JV) projects in West Africa, the Sadiola and Yatela mines in Mali, which are operated by Anglogold Ashanti, and the Damang and Tarkwa mines in Ghana, which are operated by Gold Fields.

Sadiola and Yatela are open-pit mines, located near the Senegal-Mali border. In 1990, IAMGOLD obtained rights and explored Sadiola Hill and the surrounding areas. They formed a JV with AngloGold Ashanti (then Anglo American) to develop the mine site. Production permits were granted in 1994. Sadiola poured its first gold in 1996. Sadiola produced 172,000 oz in 2008 at a cash cost of $389/oz and it’s expected to produce 132,000 oz in 2009. It uses carbon-in-pulp and gravity separation to process ore.

IAMGOLD and AngloGold Ashanti acquired Yatela, located 25 km north of the Sadiola, in 1997. Production at Yatela commenced in 2001. In 2008, the mine produced 66,000 oz at a cash cost of $514/0z and in 2009 it’s expected to produce 85,000 oz. It uses heap leach and ore is processed at Sadiola.

Damang and Tarkwa are open-pit mines, located in the Ashanti region of southwest Ghana. Gold Fields and IAMGOLD acquired rights to the Tarkwa mine in 1993 and through a series of expansions have grown the operation to 9.8 million mt/y heap leach and 12.3 million mt carbon-in-leach (CIL). Tarkwa produced 119,000 oz in 2008 at a cash cost of $521/oz and is expected to produce 130,000 oz in 2009. IAMGOLD acquired an 18.9% interest in Damang following its merger with Repadre Capital in 2003. Damang produced 37,000 oz in 2008 at a cash cost of $676/oz and it’s expected to produce 39,000 oz in 2009.

IAMGOLD also owns and operates five mines; the Rosebel mine in Suriname, Mupane in Botswana, the Doyon and Mouska mines, which together make up the Doyon division in Québec; and the Niobec mine in Québec, which is North America’s only source of pyrochlore, the primary niobium ore, and one of only three major producers of niobium in the world. Last year, the company sold the Sleeping Giant mine, which is located in the same region.

The company acquired Rosebel when it purchased Cambior in late 2006. During 2008, Rosebel achieved record mine throughput and gold production. It recently completed the third phase of a mill expansion and optimization project that increased the nameplate capacity to 11 million mt/y. In addition, an enhanced mining fleet, revised pit design and increased operating efficiencies combined to achieve significantly increased mine production. Rosebel produced 315,000 oz in 2008 at a cash cost of $466/oz and is expected to produce 365,000 oz in 2009. It has reserves of 3.53 million oz with 96.36 million mt grading 1.1 g/mt. The mine is an open-pit operation and it uses gravity separation and CIL processing.

Citing the recently completed concentrator expansion project at Rosebel, Gordon Stothart, executive vice president and COO, IAMGOLD, describes the company as one that has some good assets that are starting to gain momentum. Stothart joined IAMGOLD in December 2007 and brought with him more than 20 years of industry experience. In his previous role, he was responsible for technical management and development of three major copper projects in South America as well as oversight of the Antamina and Collahuasi mines. He also sees near term potential in several of the company’s shorter-life assets.

“We have a large commitment within the company to grow,” Stothart said. “Looking at the suite of assets and their respective lives, and the additional growth projects in the pipeline--Westwood, Quimsacocha and Camp Caiman--the timing was not ideal. A lot of the shorter-life assets were going down and we would have a production gap before the new projects came online.”

Stothart and his team began looking at strategies on the operating side, knowing that the best bang for the buck would be found in the larger projects. With the JV projects, their involvement in production decisions is minimal. “IAMGOLD’s history is that of a royalty company,” Stothart said. “But, with this new team, we view ourselves more as an operating company and we have ideas to bring to the table.”

Working with what they have, they began to review the smaller assets, the Quebec operations and Mupane as well. They kept asking themselves: How can we maximize the cash flow from these mines as they wind down? “When a mining company walks away from an underground mine, anything that remains will be left there forever,” Stothart said.

Taking a philosophical stance, Stothart explained that he views resources as a gift from nature in one form or another. “If a company is exploiting non-renewable assets, they have a professional responsibility to maximize the opportunity and not waste it before they walk away.

“Putting aside [or temporarily parking] traditional accounting principles such as lowest average cash cost, if there’s a dollar to made, how does a company maximize the value those operations, understanding that they will be shut down and the industry is experiencing one of its highest pricing environments,” Stothart asked. “Even though there are ounces to be had and they are at a relatively high cost, as long as the company is making a healthy margin as it winds down, it still makes sense to go after those ounces.”

Reviving Organic Growth

Working with the management teams at the mine sites and the corporate technical group, Stothart challenged the operations to find ways to extend their lives. “Obviously, it’s in their best interest to sustain the operation as long as possible,” Stothart said. “It helps to bridge to opportunities with new projects in the pipeline. There is direct payback for those operations. It was also a good opportunity as a group to generate team spirit to conquer these issues.”

Stothart and his team were impressed with some of the innovative ideas they saw materialize. For instance, the Sleeping Giant mine last year looked at how they could close the mine more efficiently and safely. At the time, the mine was running five days a week, which is common in Canadian operations, while the mill was running seven days a week. For their last year, they went to a 7-day work week underground to accelerate the closure of the mine and reduce the overhead (fixed cost) of those operations. That generated a lot of value for the company and in the end delivered some impressive returns with respect to cost per ounce.

They also exceeded their gold production target handsomely, Stothart explained, producing 73,000 oz vs. the budgeted 57,000 oz. Because they were mining quickly, there were able to get in and out of some areas much faster, which helped with ground controls issues. “Mining slowly at depth is sometimes detrimental because it gives more time for the opening to collapse,” Stothart said. “If the miners are able to get in and out quickly, they can be a little more aggressive.”

The mine was closed sooner than originally scheduled, but they were also able to work a few more headings than they would have normally worked with the higher fixed charges, Stothart explained. “In effect, they sort of altered the cut-off grade,” Stohart said. “Higher metal prices worked in their favor and they carried off the effort very admirably from a safety standpoint.”

In October 2008, the Sleeping Giant mine was sold to Cadiscor Resources. During May, North American Palladium completed a merger with Cadiscor Resources and it expects to bring the mine back into commercial production during the fourth quarter of 2009 at an annual rate of 50,000 oz.

Mupane Changes Status to Owner-Operator

The Mupane mine is located near the eastern Botswana-Zimbabwe border. It was acquired by IAMGOLD when it purchased Gallery Gold during March 2006. Gallery discovered Mupane in 1998. Construction of the processing plant was completed in October 2004. Open-pit mining commenced at the Tau pit in May 2004. The first gold was poured in November of that year. Full gold production was achieved in January 2005.

Mupane produced 101,000 oz in 2008 at a cash cost of $367/oz. It’s expected to produce 63,000 oz in 2009. The reserves are 203,000 oz with 3.16 million mt grading 2 g/mt and the resources are 598,000 oz with 8.86 million mt grading 2.1 g/mt. They mine from multiple open-pits and use sulphide flotation and CIL processing.

Mupane had some production issues this year, mostly beyond its control, Stothart explained. “Last year was a real success, but it was a short-life asset that was scheduled to close by the end of 2008 with four to five months of stockpile operations,” Stothart said. “It would have been closed by now.”

The management team at Mupane reviewed the whole business case and looked closely at their cost structure. At the time they were under a pretty onerous hedge. Even though the average spot price for gold last year was $860/oz, they were selling for $405/oz. So, cash flow was a big issue for the mine.

“The team a Mupane presented a case that put the extra equipment from the stalled Camp Caiman project to work and they justified the expense of moving the equipment to Botswana,” Stothart said. “The mine transitioned from contracted operations to an owner-operators case, which dropped the operating costs and the cut off grade extending the life of the mine.” This move added another 18 months of operation, extending from mid 2009 to sometime in 2011 and they are continuing to look for opportunities.

Mupane had some satellite resources that were not well-defined. “Certainly at the previous cost structure, they didn’t even constitute reserves,” Stothart said. “There was no way they would be economic. The change to owner-operator status allowed them to put forward a profitable plan to mine those additional resources and extend the life.

“The jury is still out as to how successful they we will be in extending the mine life further,” Stothart said. “With the current cost structure, we have been able to maintain that business case quite happily. They have retired the hedge obligation and they are producing at full marginal revenue.”

Doyon Recovers Remnant Ore

The Doyon Division is comprised of the Doyon and Mouska underground gold mines, located approximately 80 km west of Val d’Or. It is situated within the Cadillac-Bousquet gold belt in the Abitibi region, one of the most prolific gold-mining camps in Canada. The mines that are separated by 5 km and they are reported as one division, but they operate semi-independent, although all the milling is done at the Doyon mill.

In 2004, surface drilling discovered the Westwood deposit 2 km east of the Doyon mine. Continued positive results led to a decision to undertake an underground exploration project and a preliminary assessment study completed in January 2009 supports a development scenario with annual gold production of 200,000 at a cash cost of $290 over the first 13 years, with production targeted for early 2013.

In November 2006, IAMGOLD acquired the Doyon and Mouska mines through the Cambior transaction. The Doyon Diivision produced 118,000 oz in 2008 at a cash cost of $548/oz and is expected to produce another 102,000 oz in 2009. The division has reserves of 93,000 oz in 265,000 mt grading 10.9 g/mt and resources of 453,000 oz with 2.82 million mt grading 5 g/mt. It’s an underground mine that uses gravity separation and carbon-in-pulp processing.

The Mouska mine is a fairly specialized mine, which uses shrinkage stoping. Stothart refers to it as up-close-and-personal mining. “The guys work right at the face employing a technique rarely used in the western world anymore; it’s physically difficult mining,” Stothart said. “With the demand last year for miners in the Abitibi, they struggled to retain people and their safety record was not exactly admirable.”

This year they have totally recast their entire operation. “Morale- and safety-wise, they are on a wonderful run now,” Stothart said. “They have not had an LTI all year, which is really remarkable. They have never had a year like that. The frequency rates are typically pretty low. Everything is working well.”

On the production side, the management team at Mouska looked at a lot of their old stopes. The gold occurs as a single vein deposit. The orebody is tabular and sub-vertical. In a shrinkage stoping operation, the ore is removed in panels and sometimes pillars are left behind as massive amounts of ore flows down the footwall toward the draw points.

The Mouska miners revisited some of the sites where they knew ore-grade material was being left behind. They assembled a team to study how much of this material they had and to devise the safest method of recovering it. “This program was very successful last year and even more so this year,” Stothart said. “Year to date they have recovered 3,000 oz of gold, which would represent 10% of the mine’s production.”

The miners refer to this method of recovering remnant ore as column recovery. It’s a relatively low-cost technique, because there is no need for drilling and blasting. The miners use remote cameras to identify the locations. Using a drill to gain access to the ore zone, they use high-pressure water to wash the ore down. The management team invested a lot of time on the safety aspects. “They even used a peer-reviewed process to make sure that they weren’t talking themselves into a dumb idea,” Stothart said. “In this case, a small crew generates some good returns. That program is ongoing, although it does have diminishing returns over time.”

IAMGOLD announced earlier this year that Mouska would close at the end of 2009. They are doing a lot of work on options that would carry them into 2010 and possibly 2011, Stothart explained. “Not only do we have this added ore recovery and a better cost structure, but they have identified some ore they can go after using paste backfill hauled from the plant at Doyon and accessing some stopes that would have been left behind,” Stothart said. What started out as new technique for capturing remnants from small pods of high grade ore below the main orebody has now transitioned to using paste backfill options over a limited area to produce more gold ounces. “All of these moves will help bridge them to future operations,” Stothart said. “Compared to the rest of the mines in the company, these ounces would be considered high cost, but they are still profitable in this pricing environment.”

It was announced earlier this year that Doyon was scheduled to close in May 2009. They have been able to extend their life into the fourth quarter, Stothart explained, and they will find a way to push it to the end of the year.

The effort to maximize resources at Doyon has centered on ground control. As the mine reached the deeper levels, they found themselves working smaller stopes in higher seismic areas. “These were certainly riskier ounces,” Stothart said.

The Doyon management team developed a comprehensive program with an external geotechnical engineering firm along with a blend of instrumentation and regular inspection, to provide a detailed geotechnical analysis of extraction sequences to access some stopes that they thought they were going to have to abandon last year. “It’s quite a detailed protocol they have developed to mine these areas,” Stothart said. “In November of last year the budget was issued, they thought they would have six months of operation and they have now pushed that to 12 months.”

None of these techniques for extending mine life are what one would consider earth-shattering, but form a cultural perspective, Stothart explained, it’s rewarding and is adding to the bottom line. “By engaging the operating teams at the mine sites, they now understand the business case behind what they are doing rather than just blindly chasing production quotas and driving costs down,” Stothart said.

At the end of the day, IAMGOLD is wisely maximizing its resources. “Whether it’s a wonderful high grade ore body or a great mine reaching the end of its life, there is no reason not to maximize the inherent value.” Stothart laments that low grade ore and tough mining conditions make good miners. “It doesn’t make much money, but it makes tough miners,” Stothart said. The IAMGOLD miners that have succeeded with these exercises will gain that perspective as the company exploits more lucrative reserves in the future.

Ownership Note: Damang and Tarkwaw (18.9% IAMGOLD, 71.1% Gold Fields, 10% Republic of Ghana), Sadiola and Yatela (40% IAMGOLD, 40% AngloGold Ashanti, 20% Mali) and Rosebel (95% IAMGOLD, 5% Suriname).

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