Ecclestone on Anaconda Mining’s goal to double gold production
Anaconda Mining (TSX: ANX) – Fabled Name: I am not sure why a snake should have captured the imagination of mining promoters, but there is a long history of companies called Anaconda in the mining space with three notable examples we can think, the most famous of which was the mammoth (to mix a metaphor) US mining company, Anaconda Copper (which developed Chuquicamata amongst other mines) that was eventually taken over by Atlantic Richfield in 1977. The most prominent exponent of the name these days is a Canadian miner that by pursuing a stealth strategy has ended up owning a goodly chunk of Newfoundland and has one mine in operation and should, if things go to plan, end up with a whole string of satellite mines feeding the same central plant.
The Back Story
There is a long history of mining in Newfoundland, with small-scale mining efforts as early as the 1770s. However the first major mining development in Newfoundland was begun in Tilt Cove, on the northeast coast, in 1864. Large copper deposits and fairly high traces of gold had been discovered there in 1857, and from 1864 to 1917, Tilt Cove was at times one of the world’s largest producers of copper. The main mines on the island over the last century were however fluorspar and asbestos.
In the mid-1980s, following the discovery of the Hope Brook gold deposit on the south coast of Newfoundland, exploration companies began to focus on the island’s gold potential. This intensive period of exploration produced more than one hundred new gold discoveries including:
- the Deer Cove deposit, discovered by Noranda in 1986
- the Romeo and Juliet prospect discovered by South Coast Resources Inc. in 1987
- the Lightning Zone, discovered by Varna Gold Inc. in 1988 respectively
- the Stog’er Tight deposit discovered by Noranda in 1988
Subsequent exploration adjacent to the Lightning Zone outlined the Thunder Zone. Collectively these are referred to as the Pine Cove deposit.
As the map below shows, Anaconda has made like an aggressive Monopoly player and virtually collected the whole playing board on the Ming Peninsula.
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The Mining Operation
The mine at Pine Cove dates back to 2007 when Anaconda commissioned the Pine Cove open pit mine. At the time the deposit had an indicated resource of 2.63 million tonnes grading 2.93 g/t gold and an inferred resource of 254,150 tonnes grading 2.11 g/t gold.
Construction was initiated in 2007 and production commenced in 2008. The original Gekko plant proved to be unsuccessful and as a result, Anaconda entered into a toll processing agreement with Crew Gold Corporation in May 2009 at the nearby Nugget Pond mill and, subsequently, terminated the agreement by early 2010 during the construction phase of Anaconda’s mill expansion.
The expansion included installing a primary ball mill with throughput capacity up to 1,000 tonnes per day and a flotation circuit to produce a gold-pyrite concentrate. The expanded production facilities began operation in August 2010 and achieved commercial production by September 2010 enabling Anaconda to earn a total of 60% of the project, per the terms of the exclusive option agreement with New Island. In January 2011, Anaconda closed the acquisition of the 40% interest in Pine Cove not previously owned by Anaconda from New Island.
The Pine Cove Mine is an open pit, truck, and shovel operation with eight haul trucks and two excavators. It is contract mined but the mine has in-house supervision and management, with single shifts of 10 hours. On average, 9,000 tonnes per day are extracted from the mine. The pit is currently at 40 metres below starting elevation.
The baseload production at the mill is approximately 15,000 ounces per year.
Production Expansion through New Deposits
Anaconda’s goal is to double annual production of gold from the current production of approximately 15,000 ounces to approximately 30,000 ounces. It also wants to extend the life of the project to 10 years or more. The strategy to this is to develop two styles of mineralization:
- Develop more Pine Cove-like pits (i.e. Stog’er Tight) that provide bulk tonnage at roughly 2 g/t
- Exploit high-grade veins like Deer Cove, Romeo & Juliet, that can be blended with the Pine Cove pit feed (or future Pine Cove-like pits) at a lower incremental cost while increasing the overall head grade.
The Point Rousse deposit is being targeted as it has a high-grade “layer”, which along with a marginal increase to throughput, would produce the incremental ounces to reach approximately 30,000 ounces of annual production. Anaconda envisions creating an operating complex on the Ming’s Bight Peninsula with multiple pits and trucking the ore back to the Pine Cove mill.
The Stog’er Tight gold deposit is located three kms east of the Pine Cove mill near Baie Verte. There have been two attempts to mine the Stog’er Tight deposit. Exploration work in 2014 included the drilling of sixteen infill holes, with the best of them returned 10.52 g/t Au over 3.5 metres, 8.13 g/t over 4.0 metres, and 7.2 g/t over 4.0 metres. Several historical holes had returned high grades, including 4.23 g/t over 7.9 metres, 10.10 g/t over 2.5 metres, and 5.2 g/t over 3.7 metres.
Based on historical results as well as those from the 2014 program, Anaconda is preparing a resource estimate for Stog’er Tight that is to be ready by the end of March 2015. The last estimate dating from 2010 included 65,200 tonnes of reserves at 4.96 g/t Au, 95,000 indicated tonnes at 7.04 g/t, and 53,000 inferred tonnes at 5.75 g/t.
It’s a pleasure to look at a company with earnings for a change. In the case of Anaconda it hasn’t been a happy picture in recent quarters, mainly due to the sloppy gold price.
This company is a good example though of the type of company that should benefit from the greater macro tailwinds. Working in an isolated place as it is, it is obviously a first-line beneficiary from the lower oil prices. Working in gold means that the improvement in the price of the metal since November gives a small kicker to margins also. Working in Canadian dollars brings a big benefit in light of the dive in that currency in recent months. Therefore, if the company can up the flow rate of ore through its plant we should be looking for a return to a positive bottom line in upcoming quarters.
Production is king and right-sized production meshes with our mantra even more. Anaconda certainly has a vast territory that appears prospective for many other deposits to feed its central mill. In some ways this is very similar to one of my other favoured stocks, Galane Gold, that operates in faraway Botswana.
Such a plan requires constantly adding new mineable resources at other sites within driving distance. Point Rousse is next off the rank and the Stog’er Tight deposit should add more fuel to the fire. Finding a really substantial resource at one of these (or yet uncovered locations) could really knock the ball out of the park for Anaconda.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>