Robert S Taylor,
General Manager Goldfields Exploration Pty Limited
Over 25 years ago, when I started out in the minerals exploration business, the Chief Geologist of the company I was then working for told me something I have never forgotten:
“Explore in the Bust to produce in the Boom…
…and God help you if you get it wrong!”
How right he was!
The year 2000AD was the start of a new millennium; the dawn of a new era. It was a good year for Goldfields Exploration. In January we put the first two diamond holes into a little-known prospect called Romeo, 2km south of our Kundana Gold Mine near Kalgoorlie; both hit a narrow (20 cm) steeply dipping, laminated quartz vein assaying 154 and 34g/t gold respectively. By the end of December, less than 12 months later, Goldfields had started removing dirt from the top of the one-million ounce, high grade (56g/t) Raleigh gold deposit.
Yet only three years previously Goldfields was facing a “doom-and-gloom” scenario. Reserves at the Paddington mine had been re-optimised at spot, not hedge price as used by the previous owners, and mine life was reduced from 8 years to approximately 18 months.
Kundana pursued a hand-to-mouth existence; it was lease bound and had geotechnical challenges underground. The Henty mine in western Tasmania was operating with just 4 years of reserves.
Goldfields essentially comprised its 25% holding in the Porgera mine in the highlands of Papua New Guinea. The share price reflected this sad state of affairs, sinking into the $0.70 range at one stage from its float at $3.30 in 1995.
“Smile they said, it could be worse…
So I smiled and it was worse!”
From 1997 to the present, Goldfields as a company has been the subject of major change, with dramatic impact on its exploration activities. There has been:
· collapse of parent company RGC and its merger with Westralian Sands
· the subsequent separation of Goldfields from the merged entity
· Goldfields share buy-back, its independence, but with a heavy debt load
· internal re-structuring, budget cuts and retrenchments
· impact of short mine lives at Henty, Paddington and Kundana
· a major drought at Porgera in late 1997 that affected production
· the before, during and after takeover of Gilt-Edged Mining placing severe additional workloads on both management and exploration teams
· the formation and dismemberment of exploration programs due to cash requirements elsewhere
· real and apparent takeover threats with a South African mining house taking a significant position on the register and an Australian miner taking a spoiling position
Goldfields was forced to evolve, changing from being just the manager of three Australian operations into the active evaluation, purchase and development of new projects to replace wasting assets to ensure future growth. Cash availability for new exploration programs became very restrictive, forcing us to focus on the areas we were familiar with and knew best – at and around our existing operations!
How did we cope?
Early in the life of Goldfields there were a few key decisions which, ruthlessly pursued and rigorously applied, became fixed focal points in the turbulence of exploration life:
· move to IT/GIS, standardisation of geology, upgrading of exploration standards, and building the database
· the insistence on very high data quality and standards
Goldfields Exploration was expected…to discover economic mineralisation...in an area conducive to development…under attractive financial conditions (ie. find it, mine it, make money!)
Corporately, the objectives for our exploration activities were to:
· significantly increase resources at the mines – this was the top priority
· find new stand-alone deposits for growth – with whatever was left
Where did all this leave us?
With insistence on IT/GIS and high quality data came the need to audit, maintain and upgrade the systems, and train explorationists in their use. Not just in the office behind a computer screen, but in the field, collecting the data, and using it to better locate drill-holes so as to more efficiently find ore. The system had to be user-friendly and be based on the KISS principal.
We created a Technical Support team of senior, experienced geologists, led by the Chief Geologist , with its own budget and a mandate to go to any project anytime to render assistance to the field geologists. Assistance was, and continues to be, by hands-on practical example; a Goldfields version of the “master and apprentice” system of old.
With all the various cut-backs and project terminations we were left with the “cheap” grass-roots exploration programs and very few advanced ones. There was a strong realisation that we were “bottom-heavy” on the Exploration Pyramid.
The challenge was how to rectify this, increase the number and quality of advanced projects under exploration, and hence increase the chances of success.
Fortunately, despite all the upheavals we managed to retain several of the more senior supervising geologists with varied and wide ranging experience in all facets of the business. They were given the task of coming up with the next generation of projects and programs, the more advanced the better, and re-supply the Exploration Pyramid.
Until mid 1999, for various reasons Goldfields was unable to pursue and consummate M&A activities. Instead it relied on its Exploration Division for organic growth. This meant that in order to acquire the favorable property positions around our mines, and elsewhere, we had to modify our commercial approach to be more responsive to the changing economic and structural events in the world around us:
· the post-BreEx fiasco and the collapse of the gold price, Asian crisis – juniors conserving cash and willing to do equity JV deals for property maintenance.
· lack of investor funds and the rush to go dot com(ic) – loss of value in gold assets
· willingness to re-negotiate high royalty rates, or be bought out.
· continued squeeze on gold – “Cash is King”
New geologic and predictive models gave confidence in identifying the key properties to acquire. We started to actively pursue these, willing to make commercial deals that were seen to be fair and reasonable and better reflected the vendor’s changing needs. We dealt with all parties from prospector to junior to major company on the same basis. Goldfields wanted to become “partner of choice” which would go out and do the exploration required.
Prior to December 1998 all joint venture and acquisition agreements had to be approved by the Managing Director and documented through the RGC Corporate office in Sydney. This was time consuming, arduous and allowed little flexibility. From January 1999, everything was to be, and still is, handled locally, at the sharp end by the Exploration Commercial Manager who is in daily contact with the field teams. The use of local legal services and standardised documentation allows speed and flexibility in negotiations and gives us credibility with property holders. The MD and now independent Goldfields’ Board fully supports these efforts and is willing to give final approval by ring-around rather than having to wait for scheduled meetings. This is reflected in Goldfields’ expanded property position around the Kundana mine (referred to later) where the majority of the district has been secured within 18 months, despite Goldfields having been there since the early 1990’s.
The Exploration Strategy as applied was, and continues to be:
· Identify highly prospective gold districts – Must be able to host 1 to 3+m oz as single or cluster deposits, fragmented groundholding (ability to acquire main part of district), under-explored from Goldfields’ point of view.
· Acquire the ground and known resources – Get the lot, as early as possible when it’s at its cheapest. Even in a prolific district, only 10% of the ground hosts ore and we don’t initially know which 10% that is.
· Aggressively explore – To increase known resources and unlock the added value that is perceived. This requires access to funding!
In some ways this became a mantra! The GM’s exploration chant.
Exploration rose to meet the challenges of corporate growth, often leading the charge and promoting new projects. The over-riding priority is to keep the mills supplied with feed and significantly increase their available resource base. From programs spread throughout Australia and overseas, we are now focussed on mine-site and near-mine exploration. Key landholdings are identified, targeted and persistently pursued. Projects that do not fit the strategy are relinquished or farmed out.
Where are we now? Exploration around the minesites has been reasonably successful and the Exploration Pyramid is looking much healthier. Project evaluations and input into corporate M&A activity now occupy a considerable slice of exploration time and effort. Grass-roots exploration is at a minimum.
Our successes have been:
Paddington Mine and the Bardoc Tectonic Zone (BTZ). Regrettably, we did not find a sizeable open pit replacement for Paddington, but the mill (three years on) continues to produce and has at least another four years of feed ahead of it. A virgin discovery at Aphrodite holds at least 900,000 ounces of gold but is refractory and will require underground extraction. Some day, no doubt it will be mined.
Henty Mine, Western Tasmania. The mine was developed on four years of high-grade reserves with the belief that additional mineralisation, not even in the resource category, would prove to be viable. The exploration geologists had high expectations of being able to find more ore in this area, and fantasised over one million ounces of reserves.
By the end of 1997 a resource of 731,000 tonnes grading 7.6g/t Au for 180,000 contained ounces had been defined at Mount Julia; marginal for deep underground development. But drilling had also intersected mineralisation within the 1.5km zone between the mine workings and the northern side of Mount Julia. With this encouragement came a new surface deep-drilling campaign and, in September 1998, hole MJ20 intersected mineralisation 300m to the south of Mount Julia in the same alteration zone. We knew we had a winner!
At a downhole depth of 824m, MJ20 hit 32.3m averaging 7g/t gold, including 6m at 16.4g/t. Exploration was revitalised, and the decision was taken to develop a decline from the existing mine workings to Mount Julia, and beyond, for underground exploration and development.
The Henty alteration zone has now been proved to host high-grade gold mineralisation over a 3.5km strike length and underground drilling and development is ongoing to prove up additional reserves. One million ounces is fast becoming a reality.
Exploration at and around Goldfields Kundana Mine, west from Kalgoorlie, is our biggest success story to date. Hiding in the shadows of the Paddington operation and the high profile BTZ exploration program, the exploration team working around Kundana doggedly pursued the three-point strategy. Having identified the main mineralised structures, we started acquiring the land, building up to the present holding through joint venture, property purchase and a corporate takeover of Gilt Edged Mining NL. This turned Kundana from a lease-bound operation into a potential major production centre with control of over 3moz of gold.
The Raleigh discovery is just the latest, and most spectacular, success in Goldfields’ ongoing, evolving exploration strategy. Where will it end and where are we going? Only time will tell, but somewhere in this current downturn, the next generation of multi-million ounce producers is being identified by companies with the vision and courage to “Explore in the Bust”.