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20/8/2014 — Gold
Earnscleugh dredge mothball hits local economy
By Simon Hartley
A depressed gold price and the high New Zealand dollar has forced the privately-owned Earnscleugh alluvial gold project near Alexandra to close - stripping 35 jobs and millions of dollars from the local economy.
The loss of the more than five-year-old project - considered to be the largest alluvial gold operation in the country - will hit the local economy hard, being one of the area's largest employers.
Sole director Geoff Loudon of Mintago Investments Ltd, part of the wider L&M Group, said the operation had succumbed to the prevailing low gold price, but more so, to the high New Zealand dollar.
“There's still more gold there, but it's been marginalised by the combination of [the gold] price, and New Zealand dollar,” he said.
The depressed gold price and rising production costs had similarly prompted hard rock miner OceanaGold Corporation to lay off about 270 staff and contractors, at both its West Coast (Reefton) and East Otago (Macraes) gold mines in recent months.
The Earnscleugh start-up phase of the project has been estimated at $3 million, with the company claiming about $10 M was spent in the area annually while, by 2012, the project was averaging about 750 ounces a month from Earnscleugh flats.
Only last December, the project owners had confirmed they were considering seeking an extension to continue mining past the consented April 2016 deadline.
Dredging for the alluvial gold started in July 2009 on the 150 hectare site, and had built into a 24-hour operation at Earnscleugh; targeting more than 110,000 ounces of gold during the seven-year project.
Geoff Loudon said the high kiwi dollar meant the $NZ gold price per ounce was reduced from $NZ2,000 to $NZ1,500 per oz.
“This [high dollar] has continuously been challenging the viability of the mine,'' he said.
While gold mining will cease within a month, there is a further six months of remedial work to restore and return the area to pasture grassland, he said.
L&M owns more than 400 ha of land in the immediate area, but no decision had yet been made on selling it, or whether the dredge will be sold or dismantled, L&M Group chief financial officer Shirley Herridge said.
It was “incredibly unlikely” the project could resume if the gold price strengthened, because the costs to re-start were prohibitive, she said.
L&M, which began as Lime & Marble in 1930s, is estimated in the past three decades to invested more than $50 M in exploration around Otago, Southland and the West Coast.
Loudon said since the operation started, the New Zealand and US dollar exchange rate had increased from US65c to US85c and there was no certainty where it would be long term.
Gold hit a record $US1,921/oz ($NZ2,262/oz) in September 20011, which encouraged many small mining operations to resume or kick-start production. However, during the past six months the gold price had been drifting around $US1,300/oz, or less; trading at $US1,299/oz on Monday.
At less than $US1,200/oz where it slumped last December, even the major high volume mines around the world come close to being commercially impaired.
The tenement at Earnscleugh flats had never been mined before, but was near the historic Earnscleugh tailings reserve, where gold was mined through the 19th and 20th centuries. The project had planned to move 32 M cubic metres of overburden soil, and wash about 14 M cu m of gravel.
“We'll rehabilitate the mine site for future agricultural use, leaving the land in a better state than when it was acquired,” Loudon said of the restoration; part of 132 resource consent conditions imposed by local councils.
“Continuous rehabilitation has been ongoing since 2012, creating quality pasture from previously unproductive land,' Loudon said.
He said the land restoration mirrored L&M Group's rehabilitation programmes at earlier projects at Glenore, Nokomai, Arahura, Rimu and others, which began in the 1990s.
Loudon wanted to thank everyone associated with the project during the past five years, including councils, local community, contractors and staff.
“Their hard work and enthusiasm under difficult circumstances has been appreciated''.
In January last year the company's 30m long by 12m wide, 400 tonne gravel dredge sank and took about 10-weeks to refloat, and had its diesel plant switched to electrical at the time.
Loudon said that this change had driven costs down from about $350,000 to $225,000 per month.
The Earnscleugh project operates under the wider L&M Group which in recent decades had been exploring for oil, coal and gas around Otago and Southland.
Mintago's majority shareholder is L&M Earnscleugh Ltd. A year ago Loudon made a successful almost $13 M takeover bid for dual listed L&M Energy, and delisted it from the NZ and Australian bourses.
*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.