Kirkland Lake’s Fosterville Gold Mine: the story

“Patience is a virtue, possess it if you can” – from an old rhyme

Not far from where I live, Kirkland Lake’s Fosterville gold mine is the largest gold producer in Victoria, Australia. The mine will produce around 400,000 oz in 2019, 500,000 oz in 2020 and more than 575,000 oz in 2021. This production growth is supported by reserves of 2.72 million oz at 31 grams per tonne (g/t). It is one of the world’s highest-grade, most profitable gold mines. This is the 35-year story of how it became so.

Gold was first found in the Fosterville area of Bendigo in 1894. It was mined for near-surface oxide gold until 1903, during which time it produced 28,000 ounces. A small amount of tailings re-treatment took place in the area during the 1930s and some small-scale operations were carried on by individuals until 1952. Between 1973 and 1983 the field was looked at by Lone Star Exploration NL, Noranda Australia Ltd, Pennzoil of Australia Ltd, Newmont Pty Ltd, and Apollo International Minerals NL. They all thought it was too small.

Source: https://smallcaps.com.au/record-production-kirkland-lake-gold-best-ever-cash-flow/

When I first worked on the project, a chain of abandoned mine workings extended north-south for about 8 km across undulating state forest, crown land, and private farms. There were small mullock heaps, shafts and open cuts. From the north, these were named Robin’s Hill, Fosterville, Central North, Central Ellesmere, Harrington’s Hill, and Daley’s Hill. My friend David Wright had acquired the Fosterville property for his first tailings retreatment project, run by McNiece-Wright Mining, in the period 1982-1984. This was the first CIP plant in Victoria. He recovered about 3500 oz at an average grade of one gram per tonne and went on to establish several successful tailings projects in central Victoria under the banner of Bendigo Gold Associates, later Bendigo Gold Limited (BGL).

Soon David’s thoughts turned to proper mining at Fosterville. Exploration by percussion and later diamond drilling produced a resource estimate of 3.5 Mt at 2.3 g/t of material suited to open pit mining and heap leaching. AMC was engaged to prepare a feasibility study for the project.

The social environment at the time is reflected in some of Chairman Robert Johanson’s comments in the 1988 BGL Annual Report; “The procedure in Victoria for obtaining permission to commence a mine such as Fosterville is complicated and cumbersome. We are well-aware of the difficulties caused to the mining industry, landowners and other members of the community by the existing archaic and confusing Mines Act.” He went on to say, “There is a good deal of hostility to any sort of development from small special interest groups and from those who would rather not have to bother”.

The tortuous Victorian environmental approvals process had forced the company’s management to announce critical decisions ahead of the feasibility study, locking in a series of expensive errors. As approved, the project required each tonne of ore to be handled six times. First, it was dug from the pit, loaded into a truck and hauled to the crushing station located mid-way between the pit and the leach pads. There it was picked up, crushed and stockpiled, then picked up again and agglomerated with cement to make stable pellets for leaching. The pelletized ore was then loaded from the stockpile into trucks and hauled to the bitumen leach pads where it was dumped on the ground, before being picked up and carefully spread on the pads. After leaching, the material was picked up off the leach pad and carried to a tailings storage facility.

The high cost of this process was compounded by the poor leach performance of the ore. Financial projections based on column testing had been based on achieving a high gold recovery within 28 days, but actual recoveries were modest and a much longer leach time should have been allowed. For cash flow reasons the ore could not be left on the pad any longer but had to be removed and dumped to make way for fresh ore. There was also a problem with in-pit grade control that was never satisfactorily resolved by BGL.

BGL was taken over in 1991 by Brunswick NL. David Wright, who by then owned 27% of BGL, argued strongly against shareholders accepting the offer, but was outvoted.  The Brunswick scrip turned out to be worthless and led to a legal disputation that went on for several years. Brunswick continued heap leaching ore from shallow open pits but was placed into receivership after about six months. The troubled mine was then acquired from the receivers by Perseverance Corporation (Perseverance). Perseverance had operated a heap leach mine at nearby Nagambie and was able to redesign the mine with a single-use pad and many other changes that would not have been allowed under the original permits. Perseverance produced around 25,000 to 35,000 ounces of gold each year until it too ceased mining at Fosterville in 2001. Some 21 shallow pits had been developed to depths of 35 to 60 m over a strike length of 10 km. Between 1988 and the cessation of oxide mining in 2001, a total of 7.46 t of gold was produced. There were a lot of ups and downs along the way, and times when the future looked bleak

Under the chairmanship of ex-Newcrest mining boss John Quinn, Perseverance was significantly refinanced in 2001. John initiated an intensive drilling program which established a gold sulphide resource. In 2003 a feasibility study supported a $75M investment in open pit and underground mining at a rate of 800,000 tonnes per annum to produce 110,000 oz of gold. A bacterial leaching plant was completed in 2005, initially fed with open pit ore. Underground development began in March 2006 and stoping progressed into the Robin, Harrier, Vulture, Raven, and Phoenix deposits.

In February 2008 Canadian corporation Northgate Minerals made a successful $282M bid to acquire the Stawell and Fosterville gold mines. A series of mergers and acquisitions then saw ownership pass quickly through AuRico Gold Inc., Crocodile Gold Corp., and Newmarket Gold Inc. to Kirkland Lake Gold Ltd in 2016.

The mine’s head grade had been around 4-5 g/t but exploration success with the development of the high-grade Eagle and Swan mineralized zones transformed its potential. By the end of 2018, the sulphide plant had produced over 55 t of gold since its commissioning in 2005. The mine was a big success, lauded by the local community and governments for employing around 600 people.

Today’s success rests on a series of brave decisions – BGL’s original investment in a heap-leach mine, Perseverance’s purchase and reinventing that heap leach mine, John Quinn’s energetic development of a sulphide project, and Northgate’s bid for an asset that was not on the radar of Australian gold producers. Did the corporate shenanigans add value? I think so, because each change of ownership brought an opportunity to inject further capital into exploration and development.

The Bendigo locals ask – how did the Canadians come to own our gold mine? The answer is that the Canadians recognized an under-valued asset and had the wherewithal to buy it. Our politicians now hold out Fosterville as the sort of mining project that they like and support. I suspect they have no concept of the thirty-five years of hard work and tears that made it possible.

 Peter McCarthy

pmccarthy@amcconsultants.com

Chairman Emeritus / Principal Mining Consultant

2019-11-07T06:23:07+00:00