The Economics of Restarting a Past-producing Mine

Gold is considered by many investors to be a stable market, and over the past summer, the price surged above US$2,000 per ounce. While there are many uncertainties heading into 2021, gold continues to be a bastion of stability in an otherwise unpredictable market. 

Mining companies present investors with a viable alternative to direct gold exposure by providing them with additional upside related to new discoveries, production and other aspects of the mining industry as a whole.

Both precious and strategic metals are in high demand within various industries, including jewelry, manufacturing, consumer goods, tech and other heavy industries. Companies such as Arizona Gold (TSX:AZG,OTCQB:KERMF) are looking to capitalize on this growing demand through the process of restarting a past-producing mine.

While the idea of restarting a past-producing mine may seem odd, it provides significant benefits by allowing companies to target proven deposits in safe jurisdictions, leverage existing infrastructure, reuse existing permits and licenses and further develop an existing mine with established output.

It all starts with choosing safe and reliable jurisdictions

Targeting exploration programs in safe and reliable jurisdictions is one of the primary indicators for success in mining projects over the long-term. Maintaining safe working conditions for employees, minimizing impact on the environment and the project’s health should be top priorities.

Positive political and social dynamics in a particular jurisdiction can play a big part in your mining activities. A safe mining jurisdiction like Arizona offers both rich mineral deposits and reliable infrastructure. The Patagonia Mountains hold excellent value for emerging gold mining companies like Arizona Gold or Tarku Resources (TSXV:TKU), who operate nearby.

In 2020, Tarku Resources acquired 75 percent of 1,250 hectares of mineral claims in Arizona’s past-producing Tombstone area, a district known for its high-grade gold and cooperative government. Finding a jurisdiction that minimizes the variables and security risks can provide a solid social foundation for a company’s production.

Leveraging proven deposits and existing infrastructure to cut costs in restarting a past-producing mine

The takeover of existing or nearby deposits can fast-track a mining company’s target objectives. Additionally, it can minimize operating expenses, labor and costs related to exploration, drilling and other testing campaigns.

In Sonora, Mexico, Barksdale Resources’ (TSXV:BRO) San Javier project is situated along a structural belt of porphyry copper deposits extending from La Caridad, Mexico, to Mineral Park, located in the northwestern part of Arizona. The San Javier project and the company’s three other projects are connected by a national highway. Having projects so close to each other creates a well-positioned resource-rich network, capitalizes on the region’s high-grade copper and gold deposits, and maintains optimized accessibility.

Developed infrastructure is another critical component of restarting a past-producing mine. Reliable infrastructure allows companies to engage in mining-specific targets and specialize in particular areas of prospective mineral deposits and favorable geological trends. This includes utilizing specialized equipment and advanced surveying technologies, which can open numerous opportunities for further research and development into new exploration techniques.

In 2000, the Office of Industrial Technologies of the US The Department of Energy commissioned a study from the National Research Council that revealed innovative designs were incredibly important to in-depth drilling campaigns. The study demonstrated that innovative designs ensured both the short-term and long-term stability of the mine structure, as well as the improvement of existing mining processes. However, the availability of these advanced mining technologies is directly tied to whether the infrastructure enables them.

Bypass bureaucratic hurdles using existing permits and licenses

Finding highly prospective mineral and precious metal deposits can put mining companies in a significant strategic position for capital growth. However, discovery is only one part of the equation. Mining companies must secure the proper permits and licenses to actively engage a developing asset.

In a 2015 global survey of 34 junior and mid-tier mining firms, first-stage exploration companies found slow permit approvals and misaligned permit renewals to be one of the most significant challenges they faced. These permitting processes for exploration activities can be significant obstacles as they are time-consuming, impose costs and can deter investment.

Reusing existing permits and licensing puts companies at a significant advantage in terms of time and money spent on acquisition and can also increase investor visibility for a particular property.

Restarting a past-producing mine often expedites the development process

The three major mining components — exploration, mining and processing — all seek to benefit from the common approaches listed above.

With a reduction in the barrier to entry, companies can shorten the path to mining production and invest more in advanced processing technologies, a popular trend in modern mining. According to the National Academies Press, “Many mineral discoveries since the 1950s can be attributed to geophysical and geochemical technologies developed by government agencies and mining interests.”

With these innovative and more readily available technologies, companies operating on existing mines are favorably positioned to rapidly transition to production, allowing them to bypass competitors that may still be in the exploration stages.

The mining industry, like many heavy industries, is complex and heavily regulated. Successful mining companies must explore, develop, mine and process any metals they discover. Planning around the various obstacles that often occur during the explorative stages is no easy task. Add to that the complexities of obtaining permits and licenses, completing geological surveys, building infrastructure and scaling operations — and it’s clear why past-producing mines are a desirable alternative to developing a brand new mine.

Restarting a past-producing mine: Can they weather economic downturn?

Economic downturn continues to be a significant obstacle in capital-intensive industries. Innovative mining companies are turning to past-producing mines as a way to overcome the obstacles created by economic downturn.

Gold Fields (NYSE:GFI), one of the world’s largest gold producers, is an example of this shifting trend. While the company’s South Deep asset is South Africa’s deepest underground mechanized gold mine, the company experienced monthly losses of 100 million rands. However, the company’s seasoned management team kickstarted new plans to restructure the mine in an effort to increase the asset’s value. The company is on track to save as many as 3,500 skilled jobs.

Gold Fields isn’t the only company to leverage the strategic benefits offered by past-producing mines. With renewed mining and milling permits issued on the Mon property in Yellowknife, Sixty North Gold (CSE:SXTY) was able to restart the past-producing Mon gold mine despite ongoing COVID-19 restrictions.

“We are pleased with our progress to bring a gold mine back into production in the historic Yellowknife Gold Camp,” said John Campbell, Chairman and Chief Financial Officer of Sixty North Gold. “There are still many steps to go, but restarting a past-producing mine using the same operators that had placed it into production in the past makes Sixty North Gold a unique company in our industry.”

Arizona Gold is another company that has shown what a seasoned management team can accomplish. The company managed to successfully raise capital through Star Royalties to restart its Copperstone mine project. 

“We are proud to announce our partnership transaction with Arizona Gold to advance the restart of Copperstone,” said Alex Pernin, Chief Executive Officer of Star Royalties. “We have structured a mutually beneficial streaming arrangement which should translate to a win-win outcome for both parties’ shareholders. This gold stream will provide for significant, near-term cash flow from a highly prospective deposit in a world-class jurisdiction. We look forward to the successful restart at Copperstone and to its exploration upside under Kerr’s experienced and knowledgeable management team.”

After acquiring the Copperstone gold mine in 2014, Arizona Gold has made significant strides in mining production advancement. In January 2020, the US Bureau of Land Management issued a Decision of Record to increase previously allowed project capacity from 450 tonnes per day to 600 tpd.

Takeaway

Past-producing mines provide mining companies with significant benefits over developing new projects. The availability of existing infrastructure, permits and licenses, and developed mine systems in safe jurisdictions can increase production, reduce operational costs and expedite a company’s path to profitability.