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Mar 2008 - Small Gold Mines

The Re-emergence of Small Gold Mines

The history of gold mining shares often follows a well-known path from artisanal mining, through to collectives and smaller mines, discoveries to larger >100,000ozpa or >500,000ozpa producers, followed by larger companies taking over smaller companies. And eventually by those larger companies dropping the small mines (usually <50,000ozpa, occasionally <75,000ozpa) as they are too small to have any impact or occupy too much management time.

New large discoveries are becoming increasingly rarer such as Tropicana in WA, and although Independence Groups’ (IGO’s) Dalwallinu is making progress, it too may initially only become a small gold mine prospect.

Currently as the mining industry has evolved, a number of small gold mines that were closed (seemingly unnoticed by the investment community) by the larger companies throughout the world are being reopened and restarted by junior gold companies, becoming junior gold producers. In addition there are numerous artisanal workings throughout the world that are coming under scrutiny as possible gold mines, since the artisans often only mine to ~50m below surface or when they encounter the water table.

Having said that we continue to be impressed by the innovations that artisans apply. It is the first time that I have seen bamboo rails (with part of an oil-drum) on them such as in China (by artisans on Golden Tiger’s [GTX’s] Baishishan prospect in eastern Guangxi) as shown in the left side of Figure 1. Or even a hose being used as a speaking tube for hoisting men or rock up a shaft in Brazil (by garimpeiros on Mundo Minerals’ (MUN’s) Chapada prospect in the Tocantins area of central Brazil) as shown on the right side of Figure 1.

The collectives of the artisans often become extremely organised even to the extent of having explosives and detonators for sale (like a supermarket) as at Chapada in Brazil. Where dynamite was for sale at R$ (Reals or Reais) 8/kg, Anfo at R$5/kg and detonators at R$2.75 per detonator (1A$ or 1US$ approximately = 1.5R$). It was all officially above board, with monthly reports of usage being made to the army.

MUN are in the process of reopening the old Engenho gold mine in Iron Quadrangle of Brazil (basically a 150km-sided square containing a number of gold mines surrounded by iron ore mines) of Minas Gerais, initially at 35,000ozpa which could conceptually increase to 50,000ozpa. The Engenho mine was previously operated by Anglogold Ashanti as an open-cut and closed, whereas MUN are re-opening it as an underground operation.

MUN are also driving a ramp into the Torrecillas underground mine in Peru to increase resources, improve production capability and mine access, compared to the original (current) access by walk-in man-sized decline, wooden and chain ladders, and ropes only to a depth of about 150m below surface. Grades are high at up to 330g/t (10oz/t) and the average production has historically been >20g/t. Again a small gold mine prospect, that could become larger.

In China, which is known for its numerous small gold mine operations, Golden Tiger have been working their way through from geochem, to drilling to potential production at a number of areas that all have historic artisanal workings (some still active).

The requirement to have a minimum production level of 100,000ozpa, no longer applies as we have seen with Sino Gold’s planned start up at White Mountain in China and probably even Sino Gold’s initial expected production from Beyinhar and Eastern Dragon (Dong’an).

In Australia, Silver Lake (SLR) have taken over Daisy Milano and are examining Tuckabianna (now that’s a name from the past). We can recall many companies looking at Tuckabianna but as soon as they seemed to be getting somewhere they moved onto something else. The last company that had it, I think was Newcrest, many years’ ago.

Of mines that have fallen by the wayside, North Queensland Metals and Heemskirk (a 60/40 JV) have restarted Pajingo in Queensland as an expected 60,000ozpa to 70,000ozpa gold mine (previously taken over by Normandy and later Newmont). The move shows that even funds are becoming involved as also evidenced by Lion Selections’ (LST’s) move on Cracow (which is in fact a >100,000ozpa producer) but is being sold by Newcrest possibly because NCM’s 70% of the mine puts it for them into a small mine category.

While a number of the goldfields are undergoing revival as we have seen with Avoca (AVO) at Higginsville into an expected sizeable producer, and Norton (NGF) restarting Paddington, reawakening old gold mines is not necessarily that simple as has been seen by Gleneagle trying to reopen Fortnum or View at Bronzewing.

In the early 1990s numerous new gold mines started, that resulting in a peak of about 70 listed gold mining producers before they gradually merged and/or were taken over by larger companies to result in the remaining few. Perhaps some of the historically closed mines will re-open such as Red October or Yilgarn Star, however what has happened is that new mines no longer need to produce >100,000ozpa, they can be just as profitable on ~50,000ozpa or even less.

Gradually a new or revised group of gold mine producers is emerging for investment alternatives, largely based on small gold mines. This column has mentioned just a few of them, there are many others at various stages of progress.

Addendum :
As a footnote to our previous month’s column in Paydirt on the demise of the US$. In Brazil, the preference was for Euros or the local currency of Reals (or Reais) as it has steadily strengthened against the US$. In Peru, where the ATMs dispense both US$ and Solés, the preference was for Solés which has similarly strengthened against the US$. Although A$ were accepted in Brazil, they were not recognized (even by banks) in Peru, however, we saw many approved Euro/US$ money changers on the streets of Lima.

Disclosure and Disclaimer: This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

Figure 1. Artisanal Mining In China and BrazilGDNmar08

  • Written by: Keith Goode
  • Saturday, 01 March 2008