Kirkland Lake and Newmarket Merging to Create Midtier Gold Producer

Kirkland Lake Gold and Newmarket Gold have entered into a definitive agreement to merge, creating a midtier gold company that will produce more than 500,000 ounces per year (oz/y) from underground mines in Canada and Australia. Combined cash costs of production during 2016 are estimated at under $650/oz, and all-in sustaining costs are estimated at under $1,015/oz.

Kirkland Lake owns and operates its flagship Macassa mine complex, shown here; and the Holt, Holloway and Taylor mines in northeast Ontario. It is targeting production of 270,000-290,000 oz of gold in 2016. (Photo: Kirkland Lake Gold)

Both companies are headquartered in Canada—Kirkland Lake in Toronto and Newmarket in Vancouver. The combined company will carry the name of Kirkland Lake Gold and will have a market capitalization of about C$2.4 billion. Existing Kirkland Lake and Newmarket shareholders will own approximately 57% and 43% of the combined company, respectively. The companies expect the transaction to close before year-end 2016.

Kirkland Lake owns and operates its flagship Macassa mine complex and the Holt, Holloway and Taylor mines in northeast Ontario and is targeting production of between 270,000 oz and 290,000 oz of gold in 2016.

Newmarket has three mines in Australia, its flagship Fosterville mine, its Stawell mine in the state of Victoria and its Cosmo mine in the Northern Territory. The company is forecasting production of 225,000 oz to 235,000 oz of gold during 2016.

Newmarket also has a pipeline of growth projects in Australia, including the Maud Creek gold project in the Northern Territory and the Big Hill gold project in Victoria.

Kirkland Lake President and CEO Tony Makuch said, “The combination with Newmarket is a very attractive opportunity for our shareholders. The potential that exists at Macassa as we continue to access higher-grade mineralization in the South Mine Complex at depth will be complemented by Fosterville, a high-grade operation with exceptional successful drilling results.”

New PEA Expands Potential of Seabridge Gold’s KSM Project

Seabridge Gold has reported the results of a new preliminary economic assessment (PEA) of it KSM gold-copper-silver project in northern British Columbia that includes underground mining of inferred resources in the project’s Deep Kerr and Iron Cap Lower zones. The PEA identifies significant potential project improvements in comparison to an earlier 2016 preliminary feasibility study (PFS) that included only measured and indicated resources.

Seabridge Gold Chairman and CEO Rudi Fronk said, “Seabridge has had great success at KSM upgrading inferred resources to higher categories, and we therefore believe that the improvements suggested by the PEA could be realized.”

In the PEA mine plan, open pits would account for only 22% of life-of-mine KSM production, compared to 70% in the PFS. The Kerr deposit would be mined exclusively as a large underground block cave along with the Deep Kerr deposit. The PEA also reduces the amount of waste rock by 81% compared to the PFS, substantially shrinking the project’s footprint and its environmental impact and reducing water treatment costs.

By including Deep Kerr, the average maximum KSM throughput of 130,000 metric tons per day (mt/d) envisioned in the PFS is increased to 170,000 mt/d in the PEA without significant redesign of facilities. Increased throughput would increase metal production, reducing payback periods and improving estimated projected internal rates of return and net present values.

The PEA estimates initial capital costs to develop KSM at $5.5 billion, approximately 9.7% higher than the initial capital estimate in the PFS. Most of the capital cost increases are related to higher plant throughput, which will require a larger mining fleet at the start of production, larger equipment sizes in the mill, and a larger tailing management facility.

Base case total cost per ounce of gold produced in the PEA is estimated at $358 compared to $673 in the PFS. The lower total cost is due to higher byproduct credits from significantly higher copper production, which more than offsets higher sustaining capital required for expanded underground development in the PEA.

As a result of the approximately 77% more copper that would be produced over the projected mine life, base case life-of-mine operating costs in the PEA are estimated at negative $179/oz of gold produced, compared to the positive $277/oz in the PFS.

The PEA envisages a combined open-pit/underground block caving mining operation operating over a span of 51 years. Mineralized material would be fed to a processing plant to produce a gold-copper-silver flotation concentrate for transport by truck to Stewart, British Columbia, for shipment to Pacific Rim smelters. The KSM processing facility would also produce a separate gold-silver doré.

The mine production plan starts in lower-cost open-pit areas using conventional large-scale equipment before transitioning to block cave underground bulk mining later in the mine life.

Life-of-mine average annual metals production is estimated at 592,000 oz/y of gold, 286 million lb/y of copper and 2.8 million oz/y of silver.

Subsequent to reporting the results of the new KSM PEA, Seabridge announced it has received permits from the British Columbia government necessary to develop an exploration adit into the Deep Kerr deposit. The proposed 2,100-meter (m) adit is designed to facilitate underground exploration drilling of the Deep Kerr deposit at depth.

Brazilian Prosecutors Charge Samarco, BHP, Vale Execs Over Dam Disaster

On October 20, Brazil’s Ministerio Público Federal filed a series of charges, including qualified homicide, against 21 former and current executives of Samarco Mineração, BHP Billiton and Vale in connection with the failure of Samarco’s Fundão tailings dam on November 5, 2015, which resulted in the deaths of 19 people. Additional charges were filed against the companies as well as some individuals, including charges of serious bodily injury and flood, landslide and environmental crimes.

Samarco is a joint-venture company owned 50/50 by BHP and Vale. Most of the individuals charged served varying lengths of time on the Samarco board in the years leading up to the dam failure. The prosecutors charge that these board members were aware of potential problems regarding the stability of the dam and they did not act on that knowledge, making them criminally liable.

In a statement releaed by Samarco, it said, “Samarco refutes the charges made by the Federal Public Prosecution Service, which failed to take into account the defense and other statements made by Samarco throughout the investigations initiated immediately after the collapse of the Fundão dam, which prove that the company had no prior knowledge of risks to its structure.

“The Fundão dam was inspected regularly, not only by the authorities but also by independent international consultants. Any and all measures suggested and implemented with regard to the management of the structure followed best engineering and safety practices.

“The stability of the Fundão dam was attested to by the consultant Vogbr. Safety has always been a priority in Samarco’s management strategy, and the company reiterates that it never reduced its investments in safety.”

The BHP statement said, “BHP Billiton Brasil rejects outright the charges against the company and the affected individuals. We will defend the charges against the company, and fully support each of the affected individuals in their defense of the charges against them.”

Vale said it “vehemently repudiates” the charges.

A judge must accept the charges before the case goes to trial. If that happens, the ensuring legal process could extend over a period of months or, possibly, years.

The charges of criminal liability are only the latest fallout from ongoing issues related to the Fundão dam failure. In March, Samarco, BHP and Vale agreed to pay an estimated $6.37 billion over 15 years to fund restoration of the environment and communities affected by the tailings dam failure; however, the federal prosecutors’ office has challenged the agreement as inadequate, claiming that payments of as much at $65 billion for damages are justified.

The Samarco mine has been shut down since the Fundão dam failure, with no assurance as to when, or if, production will be restarted.

BHP recorded an exceptional loss of $2.2 billion after taxes related to the Fundão dam failure in its financial results for its fiscal year ending June 30.

PEA Supports Avalon’s Separation Rapids Lithium Project in Ontario

Avalon Advanced Materials has reported the results of a positive preliminary economic assessment (PEA) of its 100% owned Separation Rapids lithium project near Kenora, Ontario. The PEA assumes an average open-pit mining rate of 950,000 mt/y to produce an average of 14,600 mt/y of lithium hydroxide for 10 years and 100,000 mt/y of feldspar mineral concentrate for 20 years.

Total project construction capital costs are estimated at C$514 million, inclusive of C$86 million in contingencies and C$7 million in sustaining capital.

The development model for the project includes an open-pit mine and concentrator located approximately 75 kilometers (km) north of Kenora and a hydrometallurgical plant at an industrial site near the city. The concentrate would be transported by truck to the hydrometallurgical plant.

Next steps toward Separation Rapids project development are oriented primarily toward gathering technical information to support completion of a feasibility study in 2017 and securing customer acceptance of the products, followed by operation of a demonstration-scale production facility. Commercial operations could begin by 2020.

The Separation Rapids PEA was prepared under the oversight of Micon International Ltd.

Construction of a new dam wall and water decant tower at the Samarco site. (Photo: BHP Billiton)