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First presented at the AIG Mineral Exploration Discussion Group Western Australia meeting, October 2004.
Dr Pietro Guj
The above paper may be downloaded in Adobe Acrobat (pdf) format (8.9 Mb) by clicking on the link above.
Greg Corbett, Consultant Geologist
AIG Presidential Lecture 2001-2002
Epithermal gold (± Cu & Ag) deposits form at shallower crustal levels than porphyry Cu-Au systems, and are primarily distinguished as low and high sulphidation using criteria of varying gangue and ore mineralogy, deposited by the interaction of different ore fluids with host rocks and groundwaters. Low sulphidation deposits are in turn further divided according to mineralogy related to the depth and environment of formation, while high sulphidation systems vary with depth and permeability control, and are distinguished from several styles of barren acid alteration.
Low sulphidation epithermal Au + Cu + Ag deposits develop from dilute near neutral pH fluids and are divided into two groups: those which display mineralogies derived dominantly from magmatic source rocks (arc low sulphidation), and others with mineralogies dominated from circulating geothermal fluid sources (rift low sulphidation). The former are classed with decreasing crustal level as: quartz-sulphide gold + copper, passing to polymetallic gold-silver veins, carbonate-base metal gold and shallowest epithermal quartz gold-silver. These ore types are zoned in time and space with shallower styles overprinting the deeper, and metal contents which vary as high Cu at depth, to Ag and Au dominant in elevated crustal settings. Low sulphidation adularia-sericite epithermal gold-silver systems comprise the rift low sulphidation style. These are dominated by gangue mineralogies deposited from meteoric water rich circulating geothermal fluids, typically formed in rift settings. Sediment hosted replacement gold deposits are interpreted to develop from low sulphidation fluids in reactive carbonate bearing rocks.
High sulphidation Au + Cu ore systems develop from the reaction with host rocks of hot acidic magmatic fluids to produce characteristic zoned alteration and later sulphide and Au + Cu + Ag deposition. Ore systems display permeability controls governed by lithology, structure and breccias and changes in wall rock alteration and ore mineralogy with depth of formation. One of the challenges is to distinguish the mineralised systems from a group of generally non-economic acidic alteration styles including lithocaps or barren shoulders, steam heated, magmatic solfatara and acid sulphate alteration.
Quentin Amos, Head of Precious Metals, HSBC Bank Australia Limited, and
Phil Breaden, Consulting Director, Westpac Institutional Bank.
Note: The following paper represents the views of the authors and not necessarily those of HSBC Bank or Westpac.
The JORC Code (the “Code”) “sets out the minimum standards, recommendations and guidelines for Public Reporting of exploration results, Mineral Resources and Ore Reserves in Australasia” (JORC, 1999). The Code goes on to define Public Reporting as a report “prepared for the purpose of informing investors or potential investors and their advisers”, and as the Australian and New Zealand Stock Exchanges have adopted the Code into their listing rules, it is natural that companies focus their attention on the needs and requirements of the equities markets.
However the banking community also relies on reserve estimates and reports in evaluating whether or not to advance finance to the resources company. This paper focuses on the understanding, use and reliability of reserves estimates produced under the Code for banking purposes and expresses some concerns of the authors which we believe are shared by the banking community.
Ian Levy, Gympie Gold
Do this as a worked example – it saves words.
The gold price has “jumped” to A$500 per ounce and we, the Miner, want to lock this “good” price in for 1,000 ounces to be delivered in exactly 12 months time.
Rates For This Example
Spot price = A$500 per ounce.
Australian 12 month cash interest rate = 7%
12 month gold lease rate (or gold borrowing fee) = 2%
Banker’s profit margin = 0.25% (depends on “credit rating”)
How Hedging Happens
- Miner (ie. our company) advises its “dealer” counterparty (eg. Rothschild Bank) to sell 1,000 ozs forward for 12 months at this spot price.
- Dealer immediately borrows 1,000 ozs of gold from a major Central Bank (eg. Bank of England) and sells it into the spot market: Dealer raises 1,000 x 500 = $500,000 cash and promises to repay the gold in 12 months plus the interest rate charged by the central bank on gold, usually called the gold lease rate or more legally, the gold borrowing fee.
- Dealer’s bank (eg. Rothschild) immediately invests the $500,000 onto the cash interest rate market to earn normal interest minus the lease rate.
Therefore, in 12 months time, Dealer can pay Miner more than the $500,000 for 1,000 ounces of gold because the Dealer:
|Still has the $500,000 it raised on the 1,000 ozs||$500,000|
|Earns cash interest on the$500,000 of 7%||$35,000|
|Pays the gold borrowing fees of 2%||$10,000|
|Takes a bankers fee of 0.25%||$1,250|
|Net amount payable to Miner||$523,750|
So, all Miner needs to do is deliver 1,000 ozs of gold to Dealer in 12 months time to receive $523,750 – an effective gold price of $523.75 per ounce.
Nobody has “bet” against the miner/dealer, this all happens because of the prevailing interest rates for cash and gold loans. Nobody loses if the gold price falls below $500 in 12 months time. Miner loses an opportunity to make more money if the gold price rises above $523.75 in 12 months time because the 1,000 ozs must be delivered into the $523.75 contract with the Dealer so that the gold can be returned to the Reserve Bank.
And that is all that happens in basic gold hedging, the rest is jargon and variations on this theme.
We complicate this process a bit by paying a fee or taking a fee and contractually making the hedge transaction optional for one or other party. Option pricing is beyond the scope of this note. Options are a valid activity and are actually not overly complex until we start creating multiple-option “derivatives”.
J.G. Donohue and S.N. Sheard, MIM Exploration Pty Ltd
Conventional geophysical techniques have been applied in North West Queensland to assist in locating economic mineralisation for some considerable time. The value of large scale airborne surveys such as magnetics, radiometrics and electromagnetics in both mapping and direct detection has been shown in the last decade with such discoveries as Cannington and Osborne (Anderson and Logan, 1992) by targeting discrete magnetic highs (Figure 1).
Ground techniques such as electrical geophysics have been responsible for at least two discoveries in the North West Queensland region in the last decade. Both Ernest Henry (Webb and Rowston, 1995) and Eloise (Brechannini and Asten, 1992), were found by drilling time domain electromagnetic anomalies (Figure 1). These ore bodies are situated in the Eastern Succession of the Mount Isa Inlier. (more…)
Ian Morrison1 and Joe Treacy2
1Lantana Exploration Pty Ltd, 2Kagara Zinc Ltd
Kagara Zinc Limited is currently undertaking a programme of detailed infill and ore delineation drilling at the Mt Garnet zinc skarn deposit. A feasibility study will then be completed to assess the viability of mining. If successful, development should commence within 12 months.
The global resource currently stands at 3.94 Mt at a grade of 6.5% ZnE (Zinc Equivalent) calculated at 3% ZnE cut-off; measured and indicated resources comprise roughly 65% of this global resource (Kagara Zinc Ltd prospectus, 1999). The current drilling programme has revealed high grade mineralisation below the previously interpreted base of the orebody which will add substantially to the resource. It is expected that re-optimisation of the planned open pit will include a substantial amount of this ore. (more…)
Anthony M Hespe, Western Metals Ltd
Gunpowder– now called Mount Gordon – will be a familiar name to those who have worked in the mining industry in Queensland. It has a history of intermittent copper production, attempts at novel treatment processes and periods of closure dating back to the 1920s. Recent developments in geology, exploration and production, which have transformed the economics of the deposit, are the subject of this presentation.
Ian Kelso1, Terry Briggs1 and Paul Basford2
1Pasminco Century Mine Limited, 2Pasminco Exploration, Melbourne
The Century zinc-lead-silver deposit is located 250km northwest of Mount Isa in the Gulf of Carpentaria region of Queensland. Initial discoveries of lead and silver in the region by prospectors in 1887 led to sporadic small-scale mining and exploration activities up to the 1970’s. In 1987 (hence the name Century), CRA Exploration (CRAE) commenced a regional exploration program in the area resulting in the discovery drill hole intersecting the Century deposit on the 4th April 1990. Resource definition drilling and feasibility studies from 1990 to 1996 by CRAE and Century Zinc Limited (CZL) resulted in the estimation of an in-situ mineral resource of 167Mt grading 8.2% zinc, 1.2% lead and 33 g/t silver. In 1997, Pasminco acquired the deposit from RTZ-CRA Limited and commenced project development culminating with the first ore mined and treated in the Pasminco Century Mine concentrator on the 6th November 1999.
The Century open pit will occupy an area approximately 300ha and extend to a final depth of 340 m. The mining rate is scheduled at 5Mtpa of ore by selective mining and around 80Mtpa bulk waste mining by truck and rope shovel fleet. The ore will be processed on site and then pumped as zinc and lead concentrates along a slurry pipeline 300km to the port facility at Karumba in the Gulf of Carpentaria. The Pasminco Century Mine will be the world’s largest zinc mine producing 780,000 tpa of zinc concentrate over a 20-year mine life.
Craig MacDougall, Noranda Pacific Pty Ltd
The Lady Loretta Pb-Zn-Ag deposit is located 140km NNW of the city of Mt Isa in NW Queensland and was discovered in 1969. To this day it remains undeveloped. The published resource estimate for the deposit lists a global geological resource of 8.3Mt grading 8.5% Pb, 18.4% Zn and 125 ppm Ag (Hancock and Purvis, 1990). This is a small, but high grade example of a sediment hosted Pb-Zn deposit, typical of those giant deposits for which the Mt Isa Inlier is world famous. At the time of Noranda’s initial involvement regarding the evaluation of the deposit, the grand total of our knowledge with respect to the deposit is summarized in this opening paragraph.
In 1998 after a considerable evaluation and due diligence, Noranda Pacific Pty Limited, a wholly owned subsidiary of the Canadian based Noranda Inc., entered into a two-year option agreement to evaluate the Lady Loretta Pb-Zn-Ag deposit with the Australian junior mining company BUKA Minerals Limited.
A brief description of Noranda is given to acquaint the Australian reader with Noranda and set the context for the exploration group’s project hurdle targets. Noranda is one of Canada’s largest diversified mining and metals companies employing 18,000 people, at 15 operating mines, 18 metallurgical plants and 11 fabricating facilities worldwide with total assets of US$8.25B. Associated subsidiaries or major interests include a 49.9% interest in Falconbridge (the world’s second largest Ni producer) and a 28.4% interest in Battle Mountain Gold (a million ounce/ per annum gold producer). Attributed annual refined metal production totals 500,000t Cu, 300,000t Zn, 100,000t Pb, 45,000t of Ni, 40Moz Ag and 1.0Moz of Au. Major new projects include a 37.5% interest in the US$2.5B Antamina Cu-Zn project in Peru, and the US$500M Magnola magnesium project in Quebec, Canada.
As a major base metal producer and miner it is obvious that the hurdles set for the exploration group are such that any given project must demonstrate the potential to impact significantly on our total metal production, over a significant production life and by extension impact the bottom line. This can be a daunting hurdle to overcome as an explorationist within a large organization. As a result many good projects are turned down not because they are not good exploration projects, but rather because we are simply unable to demonstrate sufficient upside to meet the high expectations. Thus, explorationists must in addition to their keen exploration skills bring a thorough “business minded” approach to the opportunity in order to satisfy internal corporate expectations.
With the long history and folklore surrounding the Lady Loretta deposit, and the context above, one of the most frequently asked questions since Noranda got involved with this project is why? In this paper, I will review the thinking of Noranda’s exploration group regarding the assessment and hurdle setting of this base metal opportunity.