Tower Hill jumps on initial Livengood economics
DAILY NEWS 11/30/2009
Vancouver - Positive results from the first economic assessment of the Livengood gold discovery in Alaska propelled International Tower Hill Mines' (ITH-T) share price, already up 600% for the year, to a new high.
The preliminary study assessed the economics of developing and running an open pit, heap leach operation at Livengood. In this initial model, a crushing facility would churn through 100,000 tonnes of oxide ore each day to produce 459,000 oz. gold annually.
The study did not consider mining or processing any sulphide ore, though adding a sulphide milling and recovery circuit to the operation is certainly part of Tower Hill's plan. According to president and CEO Jeff Pontius, the company completed the oxide-only assessment to give people a feel for the strip ratio and scale of operation.
"We went for a big operation that would be meaningful in terms of annual gold production," says Pontius. "We want people to start getting comfortable with that."
Since metallurgical testwork on the sulphide rock is not yet complete the company was unable to include a sulphide milling operation in this initial study, but an updated study assessing a combined heap leach and milling operation is already in the works.
"This is a good first step but what we really want is to get a picture of what the operation will look like with a mill," said Pontius. "We're pretty excited about getting that going, and really that picture is much more important because that's the way all the analysts are modelling it and that's the way we really see it happening."
Working through the oxide numbers nevertheless gives Tower Hill a solid head start on the combined oxide-sulphide study. In an oxide-only scenario, a pit shell, based on a gold price of US$700 per oz. and a cut-off grade of 0.35 gram gold, contains 308 million indicated tonnes grading 0.68 gram gold plus 132 million inferred tonnes averaging 0.71 gram gold, for 9.7 million contained ounces. Based on an average gold recovery rate of 60%, the operation would produce 5.8 million oz. gold over its 12.6-year lifespan.
The shallowly dipping, near surface deposit enables a strip ratio of 0.78 tonnes waste to 1 tonne ore. To develop the operation would cost US$665 million, including a 20% contingency fund, and over its 13 years of operation the mine would require another US$297 million in sustaining capital, on top of the US$533 needed to produce each ounce of gold.
"The big items in terms of capital costs are leach pad construction - this is a valley-fill, triple liner system - and a mining fleet to move 178,000 tonnes a day," says Pontius. He also pointed out that the study assumed three-stage crushing, based on the crush size used in the initial oxide metallurgical work, but more recent tests have shown a coarser grain produces a similar recovery. "We'd probably go with 2-stage crushing, which would save a fair bit on our capex and increase the throughput."
Using a gold price of US$850 per oz., an oxide-only mine a Livengood would produce a 14.6% internal rate of return and carries a net present value of US$440 million, using a 5% discount rate. Taxes and royalty charges were not included in the study. Net smelter return royalty rates vary from zero to 5% across the project and average 2.5%, assuming exercise by the company of all of its available royalty buy-out rights.
Pontius says a combined operation will maintain the same 100,000-tonne-per-day throughput; he expects the next model will assume an operation crushing 60,000 tonnes of oxide ore and milling 40,000 tonnes of sulphide ore each day. The combined operation will increase average recovery rates, since the heap leach recovers only 60% of the ore's gold while the sulphide facility, involving milling, gravity concentration, and carbon-in-leach recovery, is expected to recover at least 85% of the rock's contained gold.
"It will be the same 100,000 tonnes a day but with better recoveries we'll be able to push annual gold production up to 600,000 oz.," he says. "So that's the next big step."
In October a new estimate lifted Livengood's resource count to 296.8 million indicated tonnes grading 0.85 gram gold and 164.2 million inferred tonnes averaging 0.84 gram gold, using a 0.5-gram-gold cut-off grade, for 12.5 contained gold oz. When the cut-off grade is lowered to 0.3 gram gold, the resource climbs to 17.6 million oz. gold contained in 860 million indicated and inferred tonnes. The low-grade resource forms a coherent body 3 sq. km. in area.
The resource is roughly half oxide and half sulphide. In the combined operation ore grading better than 0.7 gram gold would go into the mill while ore carrying between 0.3 and 0.7 gram gold would be crushed and heap leached.
The Livengood resource remains open to the west, east, and at depth. Tower Hill plans to resume drilling at the site in February, with a program focused on expanding the higher-grade Southwest zone and connecting the Sunshine and Core zones through the heart of the deposit.
Tower Hill controls leases to the entire 44-sq.-km Livengood project; the main lessor is the Alaska Mental Health Trust, which is mandated to promote resource development on its lands.
The project is located 110 road km north of Fairbanks, along the paved Elliot Highway. The Alaska state power grid reaches roughly half that distance, bringing hydropower to within 55 km of Livengood, along the proposed Alaska natural gas pipeline route.
On news of the economic assessment, Tower Hill's share price gained 60¢ or 8.4% to close at $7.74, a new all-time high. A year ago Tower Hill shares were trading at $1. The company has 58 million shares outstanding.