Donlin Creek
Exploration drilling at Donlin Creek |
Current Status of the Project
Updated 11/2006: Donlin Creek is an advanced exploration project in the feasibility stage. A significant gold occurrence, the prospect is located entirely on lands owned by the Kuskokwim Corporation (TKC), a village corporation representing several predominantly Yupik villages. Calista Corporation, the second largest of Alaska's 13 regional Native corporations, owns the subsurface rights; both TKC and Calista were formed under the Alaska Native Claims Settlement Act (ANSCA) of 1971.
Exploration is being conducted by Barrick Gold Corporation
and Novagold Resources, Inc. through a joint venture agreement with Calista and TKC. Barrick is currently the world's leading gold producer with mines in Nevada, Africa, Latin America and Indonesia. It became involved in Donlin in early 2006 when it bought out Placer Dome, which held the original 20-year lease with Calista.
Novagold is a junior Canadian exploration company with no prior mine development experience. The company has significant holdings in Alaska, including a project in the Ambler Copper Belt, and the newly permitted Rock Creek open pit mine currently under construction just outside of Nome.
Location
Donlin Creek is located near the Kuskokwim River in southwestern Alaska. It is 280 miles west of Anchorage, and 12 miles north of the village of Crooked Creek, population about 140. Access is principally by air; there is a 5,000 foot airstrip capable of handling large aircraft up to a C-130 Hercules. In addition there is a 15-mile long private gravel road from the barge site at Crooked Creek to the project site. The road was funded and constructed by Barrick during the summer of 2005. There is also a permanent 75-man exploration camp consisting of kitchen, living quarters, equipment shop, drill shack and other buildings required for support of year-around exploration activities.
Type of Deposit and Resource
The Donlin Creek prospect is a major gold occurrence hosted in northeast trending felsic dikes and sills that intrude the sedimentary rocks of the Kuskokwim Group. This is a low-temperature, low-sulfidation epithermal system, with approximately 95% of the gold mineralization occurring within the crystal structure of arsenopyrite, an arsenic-iron sulfide mineral. Native arsenic, realgar (arsenic sulfide) and stibnite (antimony sulfide) are also present. Mineralization is generally disseminated and low grade, therefore the mining method would be open pit, bulk tonnage.
As of September 2006, the measured and indicated gold resources total 16.6 million ounces, at a cut-off grade of 0.02 ounces/ ton, and an assumed gold price of $500/ounce. Inferred gold resources, at the same cut-off grade and gold price, measure 17.1 million ounces1. As of the fourth quarter of 2006, neither Novagold nor Barrick has released any reserve calculations for Donlin.
Land Status
The Donlin Creek deposit, all of the land required for its associated mine site infrastructure, and its access road and airstrip are located on land belonging to the Kuskokwim Corporation. Alaska Native corporation lands are private lands; thus development of these lands is at the discretion of the landowner. Applicable laws and required permits are primarily those addressing environmental protections, such as protection of air and waters of the United States, endangered species, and disposal and storage of solid waste.
Operating Agreements
Although the Kuskokwim Corporation owns the surface rights - the rights of use which Placer Dome (now Barrick) leases from the corporation - Calista Corporation owns the subsurface rights. Thus, on May 1, 1995, Placer Dome entered into a 20-year lease with Calista for the Donlin Creek property, with the right to indefinitely extend the lease as long as mining or processing efforts continue in good faith. Under lease conditions, Calista holds a retained net royalty of 1.5%, increasing to 4.5% after payback of mine capital. Annual property payments to Calista are $200,000, increasing to $500,000 per annum after a feasibility study is completed. Annual work commitments are $ 1 million, with excess expenditures carried forward.
In 2001, Novagold Resources entered into a joint venture agreement with Placer Dome that earned a 70% interest in the project upon expenditure of $10 million over ten years on exploration and development. Placer Dome reserved a back-in option, which it exercised in early 2003. To earn an additional 40% interest in the project, Placer Dome must expend in excess of $30 million, complete a bankable feasibility study, and decide to construct a mine with a minimum production capacity of 600,000 ounces of gold per year. These commitments must be completed by November 13, 2007; otherwise Novagold will retain its current 70% interest in the project.
Exploration drilling at Donlin Creek |
Current Status of Project
Barrick is in the process of completing an 80,000 meter drill program consisting of 70,000 meters of in-fill resource, exploration and condemnation drilling, and 10,000 meters of geotechnical drilling. In September 2006, Novagold released a preliminary assessment, compliant with National Instrument 43-1012, of the Donlin Creek project. The assessment was executed by SRK (US), Inc., a geotechnical and mining consulting firm, based on information and data provided by Novagold. SRK concluded that although Donlin presents significant challenges based upon its remote location, a mine capable of processing 60,000 tons of ore per day could be built. This processing rate is determined to be the minimum required to render this project economically feasible, given specific modeling assumptions (i.e. price of gold, average grade, grade cut-off, metallurgy, etc.). SRK also recommended that a preliminary feasibility study be conducted within the next six months, additional in-fill drilling be conducted to move inferred resources to indicated or measured category, and the gold grades should be re-estimated using an estimation plan more appropriate to a lower grade deposit.
Despite the lack of a formal feasibility study, Novagold, Placer Dome and Barrick have gone on the record stating that Donlin will be moving towards construction, with environmental permitting underway, by the fourth quarter of 2007 - with Donlin producing gold by 2013. But as of October, 2006, neither company is on schedule to reach that goal. Furthermore a legal and corporate battle erupted in August that not only threatens to delay Donlin development but will also determine which company will retain majority control over the project.
In July, 2006, in a likely effort to consolidate its interests in Donlin Creek, and to moot the back-in deadline for its commitments, Barrick attempted a hostile take-over of Novagold, which as of late October, 2006, the Novagold Board of Directors and major shareholders continue to reject. The company subsequently filed suit in the US Fourth District Court (Alaska) alleging Barrick, among other items, is in breach of contract because it cannot meet the construction requirement in the joint venture agreement by the November 2007 deadline. Despite efforts of Barrick to have the suit dismissed, it remains viable, and Novagold recently filed an amended complaint seeking a jury trial. Meanwhile, Barrick continues to extend its hostile takeover bid offer, with Novagold still successfully fending it off.
Proposed Operation, Infrastructure and Estimated Costs
Donlin Creek, if developed, will be a mammoth open pit mine using a combination of froth flotation, pressure-oxidation and cyanide leaching to recover the gold. Similar to the existing Fort Knox gold mine near Fairbanks, Donlin Creek will consist of one or more open pits from which ore will be excavated, a series of waste rock dumps, an ore processing mill, and a tailings impoundment.
Using conventional open pit mining methods and a large truck and shovel fleet, ore will be blasted, loaded and transported to a large crushing & grinding facility. There it will be finely ground, then fed to the flotation plant that will collect the gold-bearing sulfide minerals. This concentrate will then be oxidized under high heat and pressure in a pair of autoclaves before passing onto the carbon-in-leach cyanidation circuit. Resulting tailings will be treated to remove residual cyanide, buffered to lower ph and then deposited in the tailings impoundment.
Mine site infrastructure will include roads, maintenance shops, living quarters for 200 staff, drinking water supply and domestic sewage disposal. In addition, an associated limestone quarry could be developed in order to provide lime for cyanide neutralization. There is an identified limestone deposit in the upper Holitna River valley that could be quarried and transported to Donlin, but Placer Dome officials have stated that all lime needed for processing will be barged in via the Kuskokwim.
Other major infrastructure construction to support the mine will include the building of a 29-mile all-weather road from the proposed barge landing at Jungjuk Creek on the Kuskokwim, replacing the existing private road from Crooked Creek to the mine site as the primary access route. There will also be a new airstrip built at the mine site; it will be 6,000 feet long, capable of accommodating commercial 737 jet traffic from Anchorage for the transport of supplies and mine personnel.
The proposed barge dock and storage facility to service the mine will be constructed at the terminus of the all-weather road at Jungjuk Creek. It will have the capacity to off-load two barges at a time, with storage for a nine-month inventory of fuel and supplies, since the Kuskokwim is ice-free only from about early June to late September. Novagold estimates it will need a fleet of ten barges to service the mine, with dock crews working around the clock to unload barges arriving at the approximate rate of 1.6 barges per day.
A floating lightering station consisting of two 10,000 ton barges will be established at the mouth of the Kuskokwim River at Johnson Creek, roughly 240 miles downriver from the mine. Ocean-going barges will transport the majority of supplies and fuel from Seattle/Vancouver to the lightering station at Johnson Creek. From there fuel and supplies will be transferred to the smaller, shallow-draft river barges.
Powering the proposed mine provides probably the greatest challenge to eventual mine development. The power requirement for Donlin is currently estimated to be 140 MW during mine operation. For comparison, the Golden Valley Electric Association, which provides 90,000 Interior Alaska residents with electricity, and is the second largest utility in the state, has a power capacity of 192 megawatts. Therefore, an operation that services roughly 200 people will be using ¾ the amount of electricity used by 90,000 customers.
Several alternatives for power supply are under consideration. Novagold favors a phased approach to the mine power supply, with diesel-operated generators powering the construction phase, followed by an intertie power line connecting the mine to the Anchorage-Fairbanks power grid. The company estimates completion of this line would take seven years (four for permitting, three for constructing) and will consist of a 350-mile power line from Nenana, 40 miles west of Fairbanks. GVEA, which is an electrical cooperative, would also have to add a 60 MW gas turbine generator and the Fort Knox gold mine would have to be closed in order to meet the increased energy demand. If Fort Knox remained operational longer than currently projected, GVEA would have to construct a second gas-fired turbine.
Novagold also anticipates that as Phase Three, there would be successful permitting and construction of a coal-fired power plant at the Usebelli coal mine near Healy, south of Fairbanks. As above, GVEA would fund and construct this coal-fired power plant for the sole purpose of providing power to the Donlin Creek mine.
Calista Corporation, the underlying land-owner, favors the building of a coal-fired power plant in Bethel. Such a plant would run on an annual supply of approximately 400,000 tons of coal shipped to Bethel from British Columbia, and would provide power to the mine via a 191-mile transmission line. Because a coal-fired plant in Bethel could not only provide power to Donlin, but cheaper power to villages in the Calista Region, the regional corporation actively promotes this alternative through its subsidiary Nuvista Light & Power. Retained by Nuvista in 2004, Bettine, LLC conducted a feasibility study that concluded the Bethel generation plan-power line option produced the lowest wholesale power costs for the mine's energy needs.
According to the Preliminary Assessment commissioned by Novagold, total estimated capital costs for construction of mine and its associated infrastructure is $2 billion US. This excludes costs for on-going exploration, environmental studies, feasibility studies and permitting, which are estimated to run about $113 million US. Included in the construction capital costs at this time are those for the barge/lightering facility ($60 million US), and the jet airport ($2 million US). The intertie power line costs are estimated to be $400 million US and Novagold is actively seeking federal and state subsidies sufficient to cover the entire cost of constructing the power infrastructure.
Additional information about the Donlin Creek Project may be obtained from the following technical document:
Donlin Creek Preliminary Assessment, September 20, 2006 Click here to download report. [This is a 243-page, 39 Mb .pdf file, so please allow for download time.]
1Donlin Creek Preliminary Assessment, September 20, 2006, SRK Consulting (US), Inc.
2NI-43-101, Standards of Disclosure for Mineral Projects, is a rule developed by the Canadian Securities Administrators, following the financial market crisis occasioned by the Bre-X gold scandal in 1997.
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