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Alaska 2002: mining in review.

As is usually the case, mineral exploration and development in Alaska saw some properties return the promise of turning into Alaska's next operating mine while others are having their names quietly scribed on the scroll of the dead. This year's exploration landscape was composed of several large projects, like Donlin Creek, Pogo and Pebble, along with lots of smaller ones spread across the state. Several new operators entered Alaska and brought new ideas and new approaches to mineral exploration. New ideas are definitely welcome since new ideas have been largely responsible for Alaska's enviable gold discovery record, which added an average of more than 7 million ounces of gold each year to statewide resources since 1994. The average cost of these resources is an amazing $5 per ounce over that same period. To quote Lee Iacocca, "If you can find a better place to explore, go there"!

WESTERN ALASKA

Teck-Cominco's Red Dog mine continued its record-setting production pace in the first half of 2002, but low zinc prices contributed to a $7 million loss during the period. For the first half of 2002, the world's largest zinc mine generated 277,900 tonnes of zinc and 51,700 tonnes of lead in concentrate and sold 215,500 tonnes of zinc and 16,300 tonnes of lead. For 2001, the mine produced 517,700 tonnes of zinc in concentrate and 95,300 tonnes of lead in concentrate. The mine managed to squeeze out a $4 million operating profit in 2001. The company reduced zinc production worldwide in 2002 in order to dry up supplies and strengthen base prices meaning Red Dog is scheduled to decrease production in 2002 by 60,000 tonnes of concentrate to 1 million tonnes.

Alaska's top news generator for the last year is unquestionably NovaGold Resources and its monstrous Donlin Creek gold project in Southwest Alaska. NovaGold controls the property though an option from Placer Dome and landowner Calista Corp. Following work in 2001, the company announced that Donlin's measured and indicated resources increased by 92 percent to 4.4 million ounces of gold grading 5.1 grams per tonne. In addition, inferred resources have increased 161 percent to 6.2 million ounces of gold grading 5.2 grams per tonne. Total resources ballooned from 13.5 million to 22.9 million ounces of gold at an average grade of just over 3 grams per tonne. Donlin Creek now ranks as the 22nd largest gold deposit on record and it is likely to grow further after the 2002 drilling results are tabulated.

According to preliminary economic studies released in March, NovaGold believes production could reach 1 million ounces/year. Capital costs would range from $380 million to $600 million, with total production costs up to $241 an ounce. The project would have a pretax rate of return of 15-25 percent, based on gold prices up to $350/ounce. Since then NovaGold has completed an additional 27,000 meters of drilling and discovered several new zones: the Akivik Zone returned 16 meters grading 32.95 grams of gold per tonne while the Aurora zone returned 6 meters grading 5.45 grams of gold per tonne and 31.5 meters grading 5.21 grams of gold per tonne. Other significant intercepts came from the Vortex zone (15.2 meters grading 5.71 grams of gold per tonne), step-out drilling at Akivik (17.5 meters grading 6.81 grams of gold per tonne) and North Acma (9.1 meters grading 9.85 grams of gold per tonne). First drilling results from its Far East zone include 12.2 meters grading 7.84 grams of gold per tonne. Elsewhere on the property, infill diamond drilling in the Acma zone has verified grade and continuity of previous holes. The company indicated that results to date suggest that year-end resource updates will significantly increase the size of the Donlin Creek deposit.

Another hot property in Alaska is the Northern Dynasty Minerals' Pebble copper-gold project near Iliamna, where three new discoveries were announced in 2002. Initial drilling was budgeted at 22,000 feet of core in approximately 30 to 40 holes designed to test a series of previously defined geochemical and geophysical targets within a 34-square-mile IP chargeabiity anomaly. The season's first discovery intersected 160 meters grading 0.32 percent copper and 0.33 grams of gold per tonne. The second discovery intersected 79 meters grading 0.40 percent copper and 1 gram of gold per tonne. The third discovery intersected 28.9 grams of gold per tonne over 6.1 meters. In response to these discoveries, the company initiated a 141-hole second-phase-drilling program to include both grid-based delineation drilling and reconnaissance-style drilling. Current drill indicated resources at Pebble stand at 1 billion tonnes grading 0.3 percent copper and 0.34 grams gold per tonne. A higher-grade core area contains resources of 54 million tonnes grading 0.54 percent copper and 0.46 grams gold per tonne.

Alaska newcomer TNR Resources Ltd. announced that it had entered into an agreement with NovaGold Resources to explore the Rock Creek gold deposit near Nome. The companies recently announced promising results from trenching including 12 meters grading 5.12 grams of gold per tonne from a trench 130 meters south of the current resource base. Measured and indicated resources stand at 555,000 ounces grading 2.74 grams of gold per tonne and inferred resources stand at 303,000 ounces grading 2.78 grams of gold per tonne. Three-dimensional geologic modeling is in progress and additional trenching and drilling are planned.

Also, newcomer Rio Fortuna Exploration Corp. announced the acquisition of the Divide project north of Nome. Previous work exposed coarse, visible gold in trenches that returned values up to 16.7 meters grading 16.2 grams of gold per tonne. Subsequent drilling returned intercepts up to 5.7 meters grading 8.1 grams of gold per tonne. In August the company initiated exploration drilling of 16 diamond core holes from eight drill pads to test stratigraphically controlled mineralization along a graphitic schist horizon within an area measuring 1,500 meters by 1,000 meters. Assay results are pending.

Rio Fortuna also announced acquisition of the Full Auto prospect located west of Nome from Royal Pretoria Gold. The property, under option from Bering Straits Native Corp., has received virtually no previous lode gold exploration, however historic placer gold operations returned gold with associated native bismuth, scheelite and gold-bearing native bismuth metals more commonly associated with gold deposits of the Tintina Gold Belt of Interior Alaska and the Yukon. Anomalous gold (to 2,900 parts per billion) with elevated arsenic and antimony was detected in rock samples collected by the state Division of Geological and Geophysical Surveys in 1994. During June and July of this year, the company collected a total of 560 stream sediment, soil and rock samples from the project. Assay results are pending.

EASTERN INTERIOR

Alaska's largest gold mine, Kinross Gold's Fort Knox-True North, churned out 411,221 ounces of gold at a cash cost of $236 per ounce from 14.2 million tonnes of ore grading 1.05 grams of gold per tonne. At year-end 2001, resources in all categories stood at 3.78 million ounces at approximately 1 gram of gold per tonne. For the first half of 2002 the combined operations produced 182,693 ounces of gold at a total cash cost of $255 per ounce. Total production costs increased to $375. Production shortfalls were due primarily to planned maintenance expenditures, lower than reserve grade production from the Fort Knox pit and trucking delays, which slowed ore delivery from True North. Current 2002 production estimates from the combined Fort Knox-True North operations are approximately 313,000 ounces from Fort Knox and 205,000 ounces from True North.

Partners Teck-Cominco and Sumitomo continued permitting on their 5.6-million-ounce Pogo gold deposit in the Goodpaster District. The most important development at the project is a proposed revision of the project's physical layout that would eliminate shaft hoisting. This option would significantly decrease capital costs and thereby improve project economics. The company has updated its water management plan to address these changes, completed about 30,000 feet of diamond core drilling and expects the preliminary draft of an environmental impact study to be released in the third quarter.

AngloGold USA Exploration announced acquisition of two properties in the Goodpaster District to go with its Gobi prospect, held under option from Continental Ridge Resources. AngloGold acquired the Eagle and ER-OGO-Fire properties from Rimfire Minerals Corp. The company also signed an agreement on the West Pogo project with North Star Zeus. AngloGold conducted trenching on the Gobi prospect in 2000, followed by rock sampling, prospecting and airborne geophysics in 2001. The 2002 program budget of $265,000 is designed to test the Gobi prospect with 800 meters of drilling in two holes. Results are pending.

International Freegold Mineral Development announced it acquired the Rob gold project in the Goodpaster District. Previous work at Rob returned surface grab samples up to 186 grams of gold per tonne and drill intercepts up to 4.1 meters grading 31.4 grams of gold per tonne from the Gray Lead prospect, surface grab samples up to 990 grams of gold per tonne from the Michigan prospect and surface grab samples up to 953 grams of gold per tonne and drill intercepts up to 23.6 meters grading 1.4 grams of gold per tonne from the Blue Lead prospect. The company initiated reconnaissance work on the project beginning in early August to prioritize targets for additional drilling and/or trenching. Results are pending.

Early in the year, EMEX Corp. announced results from 2001 exploration conducted through its subsidiary, North Star Exploration, at its Northway polymetallic project near the Yukon border. Results included 7.8 feet grading 1.89 grams gold per tonne and 121.2 grams silver per tonne in hole RM-01-06 and 9.9 feet granding 2.1 grams gold per tonne in hole RM-01-13. A strong IP chargeability anomaly was outlined over an area measuring 1,650 feet by 1,600 feet. Additional drilling was conducted on the property in 2002. Results are pending.

ALASKA RANGE

Golconda Resources and partner Shear Minerals have announced what is thought to be the first ever lode diamond discovery in Alaska at their Shulin Lake property in the southern Alaska Range. A total of 15 white and transparent micro-diamonds and one macro-diamond were recovered from a 9.9 kilogram sample collected from one of two drill holes that penetrated volcaniclastic-tuffaceous rocks thought to be lamproitic intrusives. Additional samples were collected from above and below the diamondiferous interval. The company then completed an additional 3,221 feet of drilling and reported that the horizon, which produced the diamonds in previous drilling, was intersected in several holes. Sample results from the new drilling are pending.

Early in the year, Nevada Star Resources announced that shareholders approved the company's takeover of MAN Resources and with it, control of the 120-square-mile Eureka-Tangle Lakes platinum group element prospect in the central Alaska Range. Nevada Star had previously acquired the Canwell prospect from FNX Mining. During the season, the company conducted core drilling on the Canwell prospect, induced polarization geophysical surveys over the Tangle block and geologic mapping and prospecting on other areas of the property. Drilling on the Canwell property concentrated on three significant showings: the Odie prospect, which has returned values up to 0.86 percent nickel, 0.3 percent copper, 12.3 parts per million platinum and 1.2 parts per million palladium; the Canwell West Ridge prospect, which has returned values up to 8.56 percent nickel, 0.86 percent copper, 1.86 parts per million platinum and 3.16 parts per million palladium; and the Upper Canwell prospect, which returned values up to 6.9 percent nickel, 2.3 percent copper, 3.5 parts per million platinum and 2.6 parts per million palladium.

Northridge Exploration announced it discovered the source of massive sulfide float boulders on its Forbes-Emerick property, near Isabel Pass. Samples from the new discovery included values up to 4.8 percent copper, 1.3 percent lead, 2.7 percent zinc, 103 grams of silver per tonne and 1.9 grams of gold per tonne. Gold and copper values in grab samples ranged up to 26 grams per tonne and 8.5 percent, respectively. Additional field results are pending.

Early in 2002, EMEX Corp. announced results from 2001 exploration conducted through its subsidiary Platinum Palladium Holdings at its Chip Loy and Roberts nickel-copper-platinum group metals prospects in the western Alaska Range. Surface samples returned grades up to 16.9 grams of platinum group elements per tonne, 2.27 percent nickel and 1.31 percent copper. Drilling results at Roberts included 15 feet grading 2.38 grams platinum plus palladium per tonne, 0.43 percent copper and 0.90 percent nickel while drilling results at Chip Loy include 4.5 feet grading 1.54 percent nickel and 0.37 percent copper. Additional work was conducted in 2002; results are pending.

SOUTHEAST ALASKA

Kennecott (70.3 percent) and Hecla (29.7 percent) announced first half 2002 production from the Greens Creek mine on Admiralty Island. The total cash cost per ounce of silver was $1.68. The average grade of ore mines was 703 grams of silver per tonne. During the first half of 2002, the mine produced 5.68 million ounces of silver, 52,858 ounces of gold, 14,644 tons of lead and 41,001 tons of zinc. Total production costs were $4.24 per ounce of silver produced. At year-end 2001, total proven and probable reserves at the mine were 7.6 million tons grading 4.5 grams of gold per tonne, 572 ounces of silver per tonne, 4.6 percent lead and 11.6 percent zinc. Total resources in all other categories were 2 million tons grading 4.8 grams of gold per tonne, 552 grams of silver per tonne, 4.6 percent lead and 11.3 percent zinc.

Quaterra Resources also announced discovery of a new copper-nickel-platinum group element prospect at its Duke Island property in Southeast Alaska. Rocks samples from the Marquis zone returned values up to 1.95 percent copper, 0.5 percent nickel and 1 gram per tonne platinum plus palladium. Drilling conducted in late 2001 intercepted semi-massive to massive pyrrhotite-chalcopyrite mineralization in all holes with values up to 2 feet grading 1.25 percent copper, 0.24 percent nickel and 0.57 grams per tonne platinum plus palladium. In 2002 the company completed 891 line-kilometers of airborne electromagnetic and magnetic surveys over a 10-by-12-mile area. The survey identified 311 high priority electromagnetic anomalies, including a number of anomalies outside areas previously sampled. Additional fieldwork is planned for this year.

In late 2001, Quaterra Resources announced drilling results from its Union Bay platinum group element property in Southeast Alaska. Results included 0.5 meters grading 10,590 parts per billion platinum and 565 parts per billion palladium from the North zone and 0.3 meters grading 1,007 parts per billion platinum and 155 parts per billion palladium from the Mount Burnett zone. Mineralization was encountered in multiple horizons and confirmed the geometry of mineralization in both zones. The property is being offered for joint venture at present.

RELATED ARTICLE: 2002 Mining Trends

Although the final curtain has yet to fall on the 2002 exploration season, we can draw some obvious conclusions from the work that has been completed and the results that are in hand.

1. The bump in the gold prices, along with the slow but steady increase in the abysmal prices for other metals, has infused the mining industry with an optimism not seen since the mid-1990s.

2. Alaska's major metal mines--Red Dog, Fort Knox and Greens Creek--started the year in bleak commodity price terrain, but are now seeing light at the end of the tunnel as metal prices have slowly increased through the year.

3. Statewide exploration expenditures for 2002 are likely to be similar to last year's $23.4 million expenditure level.

4. As in past years, quality projects continued to be funded and advanced regardless of the commodity they contain (e.g. Donlin, Pebble, Pogo, etc.).

5. Exploration expenditures for gold and base metals increased slightly. in 2002, particularly in Southwest Alaska, eastern Interior Alaska and on the Seward Peninsula.

6. Exploration expenditures for platinum group elements probably decreased slightly over the $2 million level reached in 2001, primarily as a result of falling prices for platinum group elements early in the year.

7. Exploration expenditures for rare metals (tanatalum, niobium, rare earth elements) increased, due almost exclusively to work on the Kougarok project on the Seward Peninsula.

8. Exploration for diamonds reached a benchmark not previously seen in Alaska with the first-ever lode diamond discovery at the Shulin Lake. A discovery like this in Canada would have resulted in staking of millions (yes, Dorothy, millions) of acres of land. The industry is cautious about diamonds in Alaska, but then most of Alaska's current resources "were not suppose to be there" according to the geologic dogma of the times.

9. Virtually all of the funds expended in Alaska in 2002 came from the coffers of Canadian companies. This change, from an historic ratio of three Canadian dollars for every non-Canadian dollar, is due in large measure to a drastic drop in non-Canadian players in Alaska.

10. The outlook for the future is one of guarded optimism: increased metals prices will give producing companies a little extra money that can be put toward exploration. Increase base metal and platinum group prices will generate extra cash for exploration by majors and juniors alike. This will be even more true of major gold companies that are producing at phenomenal rates of 3 to 8 million ounces per year.

11. One area where Alaska's mineral industry is still behind is on bringing, home to John Q. Public just how the mineral industry affects modern life. If the mining industry does not educate consumers on the integral role played my mining and minerals in the humdrum affairs Of every day life, the industry can hardly be surprised by public apathy, ignorance and open hostility.

12. Spurred by the heinous crimes of Sept. 11, 2001, corporate risk analysts have become increasingly aware that not only are capital and infrastructure at risk but so too are people. In view of such developments, Alaska's position in the global scheme of things has done nothing but improve.

Curt Freeman is the founder and president of Avalon Development Corp., a Fairbanks-based geological consulting firm serving the mining industry. He is a University of Alaska MS graduate and resident of Fairbanks since 1982. Freeman's work has taken him to most parts of Alaska as well as Canada, the Lower 48, South and Central America, Africa and New Zealand.
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Author:Freeman, Curtis J.
Publication:Alaska Business Monthly
Geographic Code:1U9AK
Date:Nov 1, 2002
Words:3148
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