Mining for Gold at Minus 45 Celsius – by Alister MacDonald and John W. Miller (Wall Street Journal – February 23, 2014)

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Meadowbank Project Is One Test of Whether Arctic’s Resources Are Within Reach

MEADOWBANK GOLD MINE, Nunavut—Gold miner Alain Belanger contends with 75 mile an hour winds, winter temperatures so cold they have cracked the steel on his 287-ton excavator and white-out blizzards that can halt mining for days.

This open-pit mine west of Canada’s Hudson Bay has had such steep construction and operating costs—flying workers in and out, stocking a year’s worth of food, employee turnover and battling snow drifts that can reach eight feet—that the project is unlikely to break even over the long haul, Agnico-Eagle Mines Ltd. AEM.T +0.37% executives now concede.

As the world warms, miners dream of unlocking trillions of dollars in diamonds, gold, nickel and other metals in the Arctic, a treeless cap that spans northern parts of Canada, Alaska, Russia and Scandinavian countries. So far, it has proved a quixotic quest for all but a few tenacious miners like Agnico.

“We know there is extreme wealth in the Arctic,” said Agnico’s Chief Executive Sean Boyd in an interview. “The reality, though, is you have to have a lot going for you to get it out the ground.”

Meadowbank recently has been worth it. The mine where Mr. Belanger labors for two-weeks at a stretch was Agnico’s star performer last quarter, generating more cash than any of the company’s six other mines and contributing to its second year of record gold production.

But more than 200 Arctic mining projects that have been announced in recent years lie either abandoned or in an early planning stage, according to data supplied by Raw Materials Group. Only six mines are now operating in North America’s vast arctic.

Some of the world’s largest miners are putting off Arctic projects as metal prices have weakened. Gold now trades about $1,350 an ounce, down from $1,850 in 2011. Some have flown into Meadowbank to better assess the risks and determine whether Arctic resources can be within their reach and wherewithal.

“The question they [have to] ask is whether they want to take the Arctic on,” Mr. Boyd said.

Early on, Agnico officials estimated they could dig gold at Meadowbank for about $450 an ounce. But after it opened in 2010, costs quickly ballooned to $1,000 an ounce. In the latest quarter, costs had fallen to $637 an ounce. The company expects to shave costs by another $8 an ounce this year.

Agnico’s recent success was hard fought, and includes US$1.2 billion in write-downs. It has changed how it operates: Rock is now stockpiled, so when a blizzard halts mining, the mills still have material to work on. To cut down on fuel usage, the mine uses exhaust from the massive electricity generators to help heat the camp.

Overall fuel use, the biggest single expense, has fallen to 51,127 gallons a day from 54,700 gallons in the fourth quarter of 2012. Savings: $1.2 million.

“In the Arctic, if you make a mistake it is going to hit you very hard,” said Jean Beliveau, the mine’s general manager. In 2011, after a fire destroyed Meadowbank’s kitchen, most of the mine’s 550 employees had to be flown out until a replacement kitchen arrived from Phoenix. Total cost of the incident was $18 million.

For Agnico and other arctic miners, the biggest problem is the lack of ports, road and rail links. Agnico Eagle needed to build a $50 million, 110 kilometer highway. The road is the longest in Nunavut, which stretches over an area the size of Mexico but is home to only 32,000 people.

The mine has an eight-week window to bring a year’s worth of food and other supplies before Hudson Bay freezes, including 200,000 eggs and 2,500 liters of ketchup. Anything that has been forgotten or needs replacing must be flown at a cost of $6 a kilogram.

Meadowbank may not ever recover its initial costs, but Agnico hopes to apply the lessons learned from operating in this inhospitable climate to a nearby project with even richer ores. The dream of wild riches may not be realized here, but it lives on.

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