I just toured Andover Ventures’ (TSX: V.AOX, Stock Forum) Tintic district property, 70 miles South of Salt Lake City, Utah. The 16,000 acre property, representing the third largest land holding in Utah, has cumulatively produced 2.3 million ounces of gold, 250 million ounces of silver, 250 million pounds of copper, 350 million pounds of zinc, and 2.2 billion pounds of lead over the last century, all from ore bodies above the water table (due to a lack of mine technology that has since been developed).
The first of Andover’s three active Utah projects is the Trixie gold and silver mine, which is fully permitted and bonded with a modern 250 ton per day mill. In 2012, production of roughly 10,000 ounces of gold and 500,000 ounces of silver is targeted, with the resulting cash flow earmarked solely for dressing up the Tintic, as well as Andover’s world-class scale VMS deposit in Alaska, Sun, for immediate sale. Irrespective, for a projected incremental cost of just $2 million, mill capacity can be doubled, enabling Andover to re-enter the properties’ myriad underground mine drifts.
Trixie last produced in 2002, but the operation was abruptly shuttered following the imposition of a $60 million fine by the EPA for mining damages incurred a century ago. Touring the mill was eerie, as it was obvious the previous operators had left town the day the fines were imposed, leaving ore on the belts and tails ponds full of near-finished product. Moreover, the facility had just been upgraded in 2001, leaving behind a modern, fully-furnished mill.
Andover’s CEO, Gordon Blankstein, an international businessman with a history of acquisitions and divestitures, acquired the Tintic District in 2008, essentially out of bankruptcy, betting $16 million of his family’s money that he could rid the Tintic of its environmental liabilities. He negotiated a settlement in June 2010, mandating five annual payments of $225,000.
The Burgin Extension deposit, just one of five known mineralized zones in the “Burgin Complex,” is the second of Andover’s three active Utah assets. A significant producer in the 1970s and 80s, Burgin had an NI 43-101 Canadian resource report completed last month by Mine Development Associates, to the tune of approximately 40 million silver equivalent ounces (45% silver, 5% gold, and 50% lead/zinc). The deposit remains open on-strike and down dip, so Burgin has a lot of blue sky exploration potential. Moreover, Andover is in possession of data from tens of thousands of meters of Rio Tinto/Kennecott (RTK) drilling programs from that period, indicating the presence of significantly larger ore bodies than those reported in the 43-101. This “historical” data cannot be used for official resource calculations, but will be prominently utilized in developing long-term mine plans.
A Preliminary Economic Assessment (PEA) on the Burgin Extension will be completed this fall, and early projections are that the mine life will be roughly eight years. Dividing the 40 million ounces by eight years yields annual production of five million silver equivalent ounces.
Aside from Burgin and Trixie, the Tintic’s Big Hill area possesses similar geology to the giant Bingham Canyon porphyry mine 40 miles away. Bingham Canyon, which has been operated by RTK since 1906, is one of the world’s largest open pit mines, and the only one visible from space. It covers 1,900 acres, is nearly a mile deep, and generates 25% of annual U.S. copper production, 23% of its molybdenum, 10% of its silver, and 7% of its gold.
Immediately following the EPA settlement, Andover signed a joint venture agreement with RTK, which was keen to explore Big Hill for another Bingham Canyon type deposit. RTK must pay all expenses to feasibility to earn a 55% ownership stake.
Andover does not intend to produce any of its assets other than Trixie. Here are a few other catalysts:
- Completion of the Burgin Extension Preliminary Economic Assessment– Anticipated in the fall, the Burgin PEA will complete the 2011 workscope of Mine Development Associates. The PEA is expected to demonstrate the economic viability of building a new mill on the property (or just expanding the Trixie Mill), which should increase the perceived valuation of the property.
- Commencement of production at Trixie – Trixie’s initial production mix is still uncertain (surface ore vs. toll milling), but the most conservative assumption appears to be operational start-up around year-end at an annualized rate of roughly 10,000 ounces of gold and 500,000 ounces of silver, and an operating cost of just $100-$300 per gold equivalent ounce.
- A significant porphyry discovery at Big Hill by RTK – Such an occurrence can best be viewed as a “lottery ticket”, but it is very rare for a major to put such large resources into blue-sky exploration. RTK intends to drill three major, 5,000’+ holes this summer, seeking a similar deposit to its world-class Bingham Canyon open pit mine just 40 miles away.
- Completion of the initial Sun 43-101 resource report in Alaska – Andover’s Sun deposit has been recognized as one of the world’s largest undeveloped VMS deposits. An historical (pre- 43-101) Prefeasibility Study undertaken by Anaconda in 1980 calculated resources equating to more than 200 million silver equivalent ounces (45% copper, 25% zinc, 24% silver, 6% lead), and a 2,500 meter drill program is currently under way, to be utilized in publishing an initial NI 43-101 compliant resource later this year.
- Improved clarity regarding development of the Ambler VMS district in Alaska –Sun is located in the Ambler Mining district of Northwestern Alaska, an area which, cumulatively, is recognized as the largest undeveloped VMS district in the world.
Andy Hoffman ofSan Diego Torrey Hills Capital can be reached at: ahoffman@torreyhillscapital.com.
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