Web posted Friday, August 26, 2011

High gold prices prompt look at Popof mine

By Andrew Jensen
Alaska Journal of Commerce

Economic turmoil is pushing the price of gold to once unthinkable heights and making prospects worth exploring even in the remote Shumagin Islands.

As of Aug. 23, gold was $1,828 per ounce and silver was near $42 per ounce. Gold prices have more than doubled since the onset of the financial crisis of fall 2008 and silver prices have more than quadrupled in the same period as investors flock to the safety of precious metals.

As prices soared this summer — gold has gained about $350 per ounce since July 1, while silver has ranged from $34 per ounce to $42 per ounce — the first mineral exploration activity since the mid-1980s commenced on Unga and Popof islands in known deposits previously identified by Battle Mountain Gold.

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Popof Island is home to Sand Point and neighboring Unga Island to the west is one of the oldest mining claims in Alaska. Both are part of the Shumagin Islands. The Apollo deposit on Unga Island produced 145,000 ounces of gold from 1891 to 1904.

Back then prices were about $20 per ounce, making the Unga gold worth about $2.9 million. At today's prices it would be worth more than $265 million.

Full Metal Minerals Inc. is the lessee for Unga and Popof and Alaska Earth Sciences Inc. of Anchorage is conducting operations. Full Metal Minerals has partnered with Canadian junior mining company Red Star Gold, which purchased old federal claims from NGAS Resources.

The federal claims pre-date the Alaska Native Claim Settlement Act, but some exploration extends into subsurface mineral rights owned by Aleut Corp. Surface rights are held by Unga and Shumagin village corporations.

In conjunction with Chilean mining company Antofagasta PLC, Full Metal Minerals is also in its second season exploring on the Alaska Peninsula just north of Unga Island near Balboa Bay at the Pyramid copper deposit. Antofagasta is the fifth-largest copper miner in the world, and Full Metal Minerals Vice President of Exploration Rob McLeod said the company is considered the best in the world for developing mines in seismically active areas.

Full Metal Minerals set up a camp this summer with about 25 people and a pair of drill rigs to further explore the Pyramid deposit. Pyramid has known copper and molybdenum mineralization and is similar to the porphyry formation that extends up the Alaska Peninsula and includes the vast Pebble deposit near Iliamna.

A total of 18 holes have been drilled between the 2010 and 2011 seasons at Pyramid. Work has wrapped up at Pyramid, and one rig will be demobilized and the other will begin work soon at Unga and Popof.

Exploration by Battle Mountain Gold in the 1980s and by Metallica Resources in 2005 and 2006 also indicated gold values that have "greatly improved" the value of the Pyramid deposit, according to the Full Metal Minerals website.

Bill Ellis, a geologist with Alaska Earth Sciences, discovered a gold deposit at the end of the landing strip at Sand Point while working for Battle Mountain Gold in the 1980s.

As many as 12 exploration holes were planned for drilling this summer in and around that area on Popof Island; as many as 23 drill holes were planned for Unga Island mostly surrounding Apollo Mountain.

The geologic nature of the Aleutian Islands and the Alaska Peninsula, what's known as a subduction zone where the Pacific plate dives under the North American plate, produces epithermal gold and silver deposits that are typically located about a mile below the surface.

Such subduction zones typically produce epithermal and porphyry-type deposits.

"There's a couple different targets," Ellis said. "There's some gold vein systems and some disseminated gold in volcanic targets."

The Aleutians and the Alaska Peninsula are the only areas along the Pacific Ring of Fire that do not have current mining production operations.

The last major spike in gold prices set off the most recent exploration in the Aleutians. Amidst high inflation in the late 1970s and early 1980s, gold prices rose from less than $140 per ounce to more than $840 per ounce between 1977 and 1980.

By 1985, with inflation in check and the economy booming, gold had fallen from $840 per ounce to less than $300 per ounce and exploration in the Aleutians dropped off along with the prices.

McLeod of Full Metal Minerals said it will take at least two more seasons before the economic viability can be established. Most companies are using conservative estimates for projects of $1,000 per ounce for gold and $2 per pound for copper. The current price for copper is about $4 per pound.

McLeod said, "$1,800 gold makes all these projects look good, but you have to be conservative if there are any banks that are going to lend you money. Mines that are operating at these prices are enjoying a windfall."

Andrew Jensen can be reached at andrew.jensen@alaskajournal.com.