Zeev's Turnips Patch-No Politics (ZEEV)

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*** Gold related post (WHT) ***


Wheaton's Peak at the future

Stephen Bell
Thursday, October 09, 2003

CANADA'S Wheaton River Minerals has outlined a bullish vision for its recently acquired Peak gold mine in New South Wales.

Having slimmed down the former Rio Tinto operation and swapped to 100% underground feed, Wheaton is confident of beating production targets. The company has also doubled the project's exploration budget as it looks to build on a five-year mine life.

"We're pretty excited about the potential at Peak and we've made some big changes because of the upside that we see," said Russell Barwick, Wheaton's Asia-Pacific managing director. In an exclusive interview with Australia's Mining Monthly, the former Newcrest chief predicted that Peak this year would "do a lot better" than the 110,000 ounces predicted by Wheaton.

The Canadian group bought the operation in March as part of a US$210 million package that included Rio's 25% stake in the Alumbrera copper-gold mine in Argentina. Wheaton's purchase continued the foreign inrush into local gold mines. Harmony Gold, AngloGold, Gold Fields, Barrick Gold, Newmont and Placer Dome have all plunged into Australian gold assets in recent times. Vancouver-based Wheaton does not rank among these global heavyweights, though it now claims to be the fifth biggest Canadian gold producer with annual output of about 510,000oz.

At Peak, it predicts 110,000oz per year at a cash cost of US$189 per ounce until the end of the current mine life in 2007. But Barwick believes those numbers are conservative. "I honestly believe that we'll be mining Peak for many, many years into the future," he said.

Located near Cobar, 600km west of Sydney, Peak was uncovered by Rio in 1981. Production started in 1992, with ore from a series of underground and opencut deposits feeding into a cyanide leach and copper flotation plant. Wheaton picked up the mine and infrastructure, along with leases and licences covering 350 square kilometres.

In common with many smaller groups taking on big company assets, Wheaton has tried to cut the fat and lift productivity. The mine now runs 135 employees and 90 contractors, roughly 20% down on Rio's levels, according to Barwick. "The operation had more manning than was justified, so the numbers have gone down across the board," he said. "Also a lot of people were reassigned on site."

Management also has several fresh faces, many coming from outside Wheaton. "We've been blown away by the number of people wanting to join us because we are seen as a growth organisation," he said. The company has raised around US$400 million in equity over the past 12 months, along with $90 million in debt for buying an extra 12.5% in Alumbrera. Wheaton now owns 37.5% of the latter mine, which is operated by Xstrata.

At Peak, mine operations are located in two distinct underground zones and a small, nearly depleted openpit. Since taking over, Wheaton has switched to total underground feed for the 650,000 tonnes per annum mill. "Previously it was part opencut and part underground," Barwick said. "But the underground has performed so well that we're feeding the mill 100% underground at much higher grades."

It has also changed the mining method to "improve ore recovery", Barwick said. "Peak is a relatively deep mine and we want to make the most of the infrastructure and get every thing we can out of this place."

Underground trucks haul ore to a shaft where it is hoisted to surface. Ore is mined from the New Occidental and Perseverance deposits, both more than 700m below the surface. Mining at the New Cobar opencut is due to finish in December and Barwick said that Wheaton had built up a "very significant opencut stockpile" of lower grade material sufficient for two years of production.

Wheaton's enthusiasm for Peak shows up in its drilling activities. The group doubled the property's exploration budget to around US$3.5 million and until recently there were seven rigs working. "We're putting a lot of focus on exploration and its profile has risen dramatically on site," Barwick said. "The Peak tenements – our core ground is 20km long – has been grossly under-explored. And we're quite aggressive in looking at new ground."

Wheaton is believed to be pursuing an exploration joint venture around Peak. Juniors active in the region include Golden Cross, Tri Origin, Alkane Exploration and Triako Resources. The area also boasts two other significant mining operations at Elura (Consolidated Broken Hill) and CSA Copper (Glencore).

Much of the renewed exploration is from underground positions developed by Rio Tinto. "We've done a lot of drilling on the Perseverance extension at depth, and between the existing ore bodies," Barwick said. "We've also drilled from surface into the New Cobar underground. We are getting significant encouragement from all this drilling, particularly around Perseverance."

The end game is to grow the mining reserve of 3.25Mt grading 7gpt gold and 0.2% copper for 730,000oz. Barwick said a new reserve could be calculated at the end of the year. "The higher gold price has given Wheaton more scope and I'm comfortabIe that reserves will increase," he said.

Rio developed Peak into a profitable money-spinner, though the asset always looked smallish in the group's global portfolio. The mine was given a "notional" value of US$30 million in the recent sale to Wheaton. Barwick can only speculate as to Rio's motivation for exiting Peak. "But it was no secret that they tried to sell it once before (in 1999)," he said. "And once you get into that mind-set, you may not spend the capital that the project deserves."

In a decade of production, though, Rio did build plenty of infrastructure. "It has very good surface support for the underground operations, including head frames, winder, mill tailings dam and so on," Barwick said. "Peak probably has the best infrastructure of any mid-sized gold mine in Australia."

Wheaton's challenge is to squeeze the most out of that plant by extending the relatively short mine life. It seems to have got off to a blazing start – particularly on the exploration front. But as other offshore groups have discovered to their cost, underground gold mining in Australia can be a hard slog when fuel prices and the local dollar are both trending upwards. The industry will be watching Peak's progress with some interest. - Australia's Mining Monthly

http://www.miningnews.net/storyview.asp?storyid=19217§ionsource=c18