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Exploring Fort Knox.

A preliminary feasibility study suggests that there may be enough gold on Gilmore Dome, near Fairbanks, to justify building one of the nation's largest open pit mines. According to the study, the Fort Knox deposit could yield as much as 4.3 million ounces of gold over a 12-year period.

Additional studies and analysis will be necessary before Fairbanks Gold can begin development of a $100 million mine at the site. And ultimately, it may take the experience and resources of a much bigger company than Fairbanks Gold to tackle the job.

Based on existing data, Fairbanks Gold anticipates that building the eine would entail digging a pit 1,000 feet deep and nearly a mile wide. The effort could create as many as 600 construction jobs for almost two years. At the height of operations, when the mine becomes fully productive, it could employ 400 people.

Fairbanks Gold Ltd., a Canadian company based in Vancouver, British Columbia, was founded four years ago by Eric Friedland, 28, a graduate of the Colorado School of Mines. Exploration at the Fort Knox project has been conducted as a joint venture between Fairbanks Gold Ltd., which holds a 51 percent controlling interest and acts as project operator, and Ventures Trident Ltd. of Colorado.

In 1989, Fairbanks Gold Ltd. began work to explore a 2,700-by-1,600-foot area on Gilmore Dome. Samples taken last summer indicated gold in an area as large as 5,000 feet by 1,700 feet. Early tests suggested mineralization of as much as .04 ounces of gold per ton of one, and the company predicted that the deposit contained about 4 million ounces of gold.

John Wood, northern regional manager for the state Division of Mining, notes that the Fort Knox project so far appears to be economically viable. "There's a tremendous ore body out there," he says. "The grade may be marginal, but they're attempting to define it better, and it may turn out to be a highly profitable operation."

"Marginal" means the amount of gold per ton of ore makes the economics of mining the ore questionable. But in the mine's favor, the gold appears to be close to the surface and a milling operation might allow the project's operators to recover gold profitably. The mine also is close to the city of Fairbanks, which means lower operating costs.

Wood points out that Fort Knox could serve as a new geological model. "They found gold where conventional wisdom says you shouldn't find it," he says.

"This gold, rather than occurring in gold quartz veins, intruded into surrounding rock, into a schist. So rather than high-grade quartz veins, and a little of it, you have this huge mass of a lower-grade ore."

Last summer, as a part of a $9.3 million development plan that concluded in March, five drill rigs were operated. Conventional open-pit-mining equipment was used to excavate a 170,000-ton bulk sample for analysis.

In addition, a near-surface 42,000-ton bulk sample was taken to verify the accuracy of results from core and reverse-circulation drilling. Studies by Strathcona Mineral Services Ltd. of Ontario helped define the grade of the deposit, provide samples for metallurgical tests and assist in mine and process design.

To date, Fairbanks Gold has drilled nearly 350 holes. After more than 190,000 feet of drilling, the deposit's depth has not yet been defined, nor have its limits to the southeast and southwest. Work over the summer was expected to expand the proven area of the reserve.

A preliminary feasibility study completed in May by Davy McKee Corp. outlined two approaches for mining Fort Knox. According to Ian Gray, president of Fairbanks Gold Ltd., either would represent the largest gold-milling operation, by throughput, in North America.

Building the mine would take about 23 months, according to the study. The pit would be cut into the side of a hill over an expanse of 340 acres. Based on results of the study, the mine would employ 279 people its first year in operation.

One option is to mine 35,700 tons of ore per day -- 12.5 million tons of ore per year -- over the first 11 years. Operating costs were calculated to be $4.85 per ton of ore. Lower-grade stockpile processing the next five years would produce a total of more than 4.1 million ounces of gold over a 16-year period. The total investment would be $209 million.

The larger-scale alternative would mine 52,000 tons of ore per day, or 18.2 million tons of ore per year, at operating costs of $3.83 per ton. Production would average more than 400,000 ounces of gold per year for each of the first three years of operation, yielding 4.3 million ounces of gold over a 12-year period. The total investment would be $267 million. Included in the higher costs are additional power requirements, a ball mill and expanded tailings facilities.

In either case, the operation would enlist a method called "pebble reject" to maximize production. This process allows for selective processing of ore, based on pebble size.

Tests have shown that gold-bearing quartz is readily liberated during drilling, crushing, grinding and washing operations, because veinlets weaken the rock. The quartz, which fractures away from its harder, lower-grade host rock, contains more gold concentrated in the finer pebbles. Thus, by eliminating larger pebbles, the gold yield is increased.

Work on the Fort Knox project this year included completion of initial metallurgical testing, reserve enhancement, geotechnical drilling and environmental studies, at a cost of $3.36 million. A bankable feasibility study also is expected to be complete by year's end.

Says Friedland, "There is good upside potential for increasing production and further improving the very strong project economics." He notes many factors could have significant positive impacts on the economic parameters, including increasing the percentage of pebble reject, early processing of the low-grade stockpile material, additions to the open-ended ore reserves, and a mine equipment supply and maintenance contract.

Fairbanks Gold is actively soliciting another joint-venture partner for the Fort Knox prospect's development phase or a buyer for the property. Last November, the company hired Yorkton Securities Inc. and Gordon Capital Corp. to seek and assess offers of interest in the common shares of the company or its assets. According to the George Cross News Letter, a mining industry bulletin published in Vancouver, British Columbia, 18 major companies were contacted initially.

"We've been receiving a lot of industry interest in the project," says Friedland. Industry reports in recent months indicate that Fairbanks Gold has been approached by the likes of Kennecott Corp. The Alaska Economic Report newsletter wrote in January that an offer by the Salt Lake City-based operation, believed to have been in the range of $50 million to $60 million, was rejected.

More recently, Denver-based Newmont Gold Co., the nation's largest gold miner, visited Fairbanks. The company's inquiries of local mining and equipment experts suggested it, too, was considering the venture. The Division of Mining's Wood says he has been asked about the Fort Knox claim by a number of companies, including Newmont.

Fairbanks Gold has been scrutinized since its inception, partly because of its boastful claims, but also because it trades on the Vancouver Stock Exchange. The exchange frequently is criticized for its lack of regulation and because illegitimate companies have appeared and disappeared from its rolls.

Friedland, 28, maintains that his company, unlike many others on the VSE, is a sold prospect. An impressive roster of field staff and board of directors suggests Friedland is not alone in his optimism.

Among those is Hank Giegerich, who has nearly four decades of development and engineering experience. He was responsible for the development of the highly successful Red Dog zinc mine and has teamed up with Friedland as president of Fairbanks Gold Inc., the Canadian company's U.S. subsidiary.

Ian Gray, president of Fairbanks Gold Ltd., has more than 30 years of international experience in the natural resources field, holds a doctorate from the Royal School of Mines in London, and spent more than a decade developing B.P. Minerals International Ltd. Others involved in the project include Harris Saxon, executive vice president of Fairbanks Gold Ltd. and an attorney who graduated from Harvard Law School and holds a master's in geology from Stanford University.

Ken Pohle, project manager for the Fort Knox project, holds bachelor's and master's degrees in mining engineering from the Colorado School of Mines. Before joining Fairbanks Gold, he was vice president of North American operations for Metal Mining Corp. Previously, he was mine manager at Round Mountain in Nevada, the largest heap-leaching operation in the world.

Skepticism about the prospects for Fort Knox likely will persist until the mine becomes a reality, but support for the project -- which has cost about $15 million so far -- is apparently widespread. Despite what he called "bad press" for Fairbanks Gold in the past, Dick Swainbank, state mining and minerals development specialist, considers Fort Knox a credible venture. "The types of deposits that are being looked for are increasingly the larger deposits with a lower grade, rather than the smaller ones with high-grade deposits," Swainbank explains.

"They seem to have done a thorough job -- increasingly diminishing the risk -- of trenching, drilling, deeper drilling, and cross-checking with more drilling. They have been thorough in that they have had professional engineering consultants do the sampling, so it's done by a disinterested party." Fairbanks Gold also hired a respected company to do its pre-feasibility study, Swainbank points out.

Acccording to the Division of Mining's Wood, a mine at Fort Knox would set a milestone in the state's mining history. "This will be Alaska's first major hard-rock mine on state claims, as opposed to Red Dog, which is private, or Green Creek, which is federal," he explains. That makes the prospective operation exciting and raises hopes that it will lead to other discoveries, he adds.
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Title Annotation:Special Section: Mining's Rough Ride; includes related article
Author:Martin, Ingrid
Publication:Alaska Business Monthly
Date:Sep 1, 1991
Previous Article:Revival of Juneau-area gold mines still stalled.
Next Article:Throwing the switch at Bradley Lake.

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