Bendigo Goldfield – History

Alluvial gold was discovered along the banks of the Bendigo Creek in 1851 and resulted in a major gold rush. The discovery is usually attributed to Mrs Kennedy and Mrs Farrell, the wives of two of workers on the Mt Alexander North pastoral property. In Christmas 1851 there were 800 people on the field and by the following June, 20,000 diggers had arrived in the alluvial field. Alluvial gold production was dominant in the first ten years of the field to 1860 and is estimated to account for up to four million ounces or almost one fifth of the total gold won from the Bendigo Goldfield.

Sourcing the alluvial gold back to the quartz reefs was easily recognised and outcropping quartz reefs were soon brought into production. The appointment of government geologists from 1852 and the formation of the Geological Survey of Victoria in 1856 assisted in the rapid understanding of the controls of gold mineralisation.

The close association of all types of reefs with the anticline axis was recognised early in the development of the field. The reefs were found to be persistent along the anticlinal axes forming ribbons which repeated with depth. This early breakthrough in the predictability of ore gave mine management and investors confidence in the practice of deep shaft sinking on productive anticlines as the main exploration tool. Deep, often speculative, shaft sinking remained the pre-eminent exploration tool throughout the early productive life of the field (1851 to 1954).

Throughout the mining history of the Bendigo Goldfield in excess of 5,000 shafts were sunk (90 km of shaft sinking in total). At least 140 shafts exceeded 300 m in depth, 67 exceeded 600 m, and 11 were over 1,000 m deep. Shafts below 1000 m occur on three separate anticlines and the two deepest shafts are the New Chum Railway at 1,312 m deep and the Victoria Quartz at 1,406 m. Both shafts intersected significant gold mineralisation below 1 km depth. Despite this amount of shaft sinking the vast majority of the field is tested to depths of less than 200 m due to the physical and technical constraints on mining and exploration in the 19th Century. The Bendigo Goldfield represents the largest concentration of deep shafts anywhere in the world.

Throughout the mining history of Bendigo there were a number of logistical and technical factors which severely constrained exploration and the profitable mining of gold.

The combination of small leases and the great depths of mineralisation created problems in raising capital, limited the utilisation of expensive assets (shafts etc), reduced the chances of developing economies of scale and limited geological knowledge to a small fraction of the whole field. In addition the small leases restricted the exploration potential and increased the cost of exploration as companies could only continue to explore for new gold resources by continuing to deepen shafts, an expensive and time consuming form of exploration. These factors in turn dramatically increased the exploration risks faced by each company. At times the field supported as many as 1,300 separate companies with thousands of small mining leases.

The depths of mineralisation at Bendigo placed some of the field at the leading edge of mining technology with shafts being the deepest in the world at that time. The depths involved in exploration and mining at Bendigo placed technical constraints on a company’s ability to explore and mine at ever increasing depths.

The gold mineralisation, while metallurgically simple, can be geometrically complex often making it difficult to predict grade boundaries and ore occurrences on a local scale. Evidence of this is seen at the historical North Deborah Mine where miners stopped short of a potentially highly mineralised saddle reef after being confused by a false saddle reef.

Mineralisation within the Bendigo Goldfield is characterised by erratically distributed coarse gold. This extreme nugget effect makes it difficult to determine grade using a small sample charge assay technique such as fire assay. This problem was recognised early in the life of the field and a system of large-scale (20 t to 100 t) bulk sampling and visual identification of coarse gold was used to determine ore boundaries. Mining essentially involved continuous bulk sampling with individual parcels of ore treated separately through stamp batteries to give a running check on grade.

Capital raising was difficult due to the speculative nature of exploration and mining, competition from up to 1,300 companies on the field and the small size of individual leases. In addition the practice of paying almost all profit out in dividends often left companies short of working capital for future exploration and mine development.

Despite these constraints on exploration and mining, prospectors, miners, mine managers, geologists and investors were successful in locating, delineating and mining 18 Moz at an average head grade of 17 g/t of gold from reefs within the Bendigo Goldfield. They also achieved an average production rate in excess of 270,000 oz/y for the 60 years between 1854 and 1915.

The geological understanding of the field peaked in the period from 1900 to 1920 with a concentrated effort by government and company geologists to document the styles and controls of mineralised reefs. Papers by Rickard 1892, Cundy, 1916 and Pabst, 1919 were instrumental in developing the geological understanding of the field. With the waning of production from the 1920s much of this geological knowledge dissipated and was effectively lost.

In 1917 Bendigo Amalgamated Goldfield Ltd was formed from the amalgamation of 35 companies with operations on the Garden Gully, Sheepshead, Deborah and Derby lines of reef hoping to increase profits of these existing operations through economies of scale. This was difficult to achieve as the shafts involved were spread throughout the goldfield.

Diamond drilling and good geological practices were introduced (Pabst was Chief Geologist) leading to some exploration success. However costs were rising rapidly and in 1923 the directors, deciding that mining would soon become unprofitable, dissolved the company returning assets to the original vendors.

Mining was, once again given a boost for a period in the 1930’s. This was related to the higher price of gold and the discovery of significant new reefs on the Deborah line.

The 1930’s saw an attempt at large scale production by Bendigo Mines Ltd (a precursor to WMC) which undertook an extensive programme of development on the Nell Gwynne, Napoleon and Carshalton lines of reef. The venture met with little success as the assumption that opportunity in these areas was equal to the rest of Bendigo was not substantiated and it came to an end in 1937.

The Deborah line however proved profitable with the establishment of three successful mines which produced gold for nearly twenty years.

The closure of the Deborah Mines in 1954 ended over one hundred years of successful mining in Bendigo with the total production of gold of about 22 million ounces. The extent of the mining in Bendigo over this period is attested to by the fact that between 1938 and 1954 an estimated 500 shafts had been capped with concrete and a further 5,000 filled in.

The majority of exploration in this period was undertaken by WMC Ltd, who at that time controlled exploration and mining leases covering most of the field. WMC Ltd commenced exploration in 1978 and spent a total of $28 million over 14 years on exploration, research, underground development and installation of surface infrastructure including a small plant for bulk sampling (New Moon). They completed 45,000 m of diamond core drilling and 65,000 m of RC drilling and undertook an extensive compilation, consolidation and cataloguing of the available historical data.

Ultimately their exploration was unsuccessful in locating significant economic mineralisation and they withdrew from the goldfield. However their work was fundamental to the later exploration successes in the goldfield. The failure of the WMC Ltd effort can be attributed to three factors:

In 1985, Bendigo Mining listed on the ASX with ownership of leases along the Deborah line of reef. In 1992, the Company consolidated ownership of the entire Goldfield when it purchased WMC’s interests.

In October 1992, the opportunity to be the first company in history to amalgamate the leases over the goldfield presented itself when Western Mining sold its entire interest in the field. The tenements were purchased for $1.6 million, plus a gold royalty capped at $8 million, which when combined with the Company’s existing leases, gave complete coverage of the entire Bendigo Goldfield and surrounding region.

The acquisition included $28 million worth of data collected over 14 years by WMC. This included a large catalogue of historical production data, modern drilling data and infrastructure, including a bulk-sample mill at New Moon.

In October 1993, $11 million was raised from a placement of shares to the late Sir James Goldsmith and Kerry Packer, to fund further exploration.

Exploration remained focussed on shallow remnant mineralisation throughout the goldfield and underground on the Deborah line of reef which was again dewatered allowing access to kilometres of historical workings.

In September 1996, a resource of 300,000 oz gold was published (1996 BML annual report) which included an open pit at Williams United and underground remanent ore. Resources were estimated using the knowledge derived from detailed bulk sampling, drilling and historical records.

In early 1997 information derived from geological mapping, both underground and on the surface, combined with the data from almost 40 man-years of work in cataloguing historic production, led the Company to predict geology and structure across the field.

This ability to predict the geology of the field led, in early 1997, to the idea that potential existed beneath the historical workings. The model predicted that gold mineralisation occurred in vertically stacked linear bands, or ribbons, along the lines of reef and that these ribbons repeat at depth at regular 200 m interval. In November 1997, a 5:2 rights issue at $0.10/share raised $35 million to undertake exploration and decline development to confirm this potential. The Swan decline commenced construction in October 1998.

By the middle of 2000 the decline had advanced to a depth of around 500 m where drilling of the targeted ribbons was able to commence. In the northern end of the field, drilling from surface to 1,600 m successfully tested for ribbon locations on the New Chum and Garden Gully lines of reef. This work supported the ribbon model.

In April 2000, a 1:6 renounceable rights issue at $0.10/share raised $8.3 million.

In September 2001, Harmony Gold Mining Company of South Africa invested $50 million via a placement at $1.70/share (adjusting for share consolidation) to earn a 31% interest in the Company. It was also granted a two-year option to invest a further A$108 million at A$3.00/share, to increase its interest to 50.1%.

These funds were used to extend the decline to 850 m below surface and enable trial-mining within the reefs.

The reefs were first accessed in September 2002 and over 1.2 km of on-reef development was completed to gather information on grade and grade distribution.

In 2004 a feasibility study was completed which indicated the economic feasibility of re-commencing gold production from the southern end of the goldfield. To fund the initial development $115 million in equity was raised in July 2004 ($100M share placement at $0.72/share and $15M SPP).

Underground development recommenced in late 2004.

In early 2005 the Company announced the development plan would consist of two stages, rather than three, with initial planned production of 120,000 oz/y gold by June 2006. Plant capital of around $53 million was expected to be invested for the 600,000 t/y operation.

Harmony exited the Company in April 2005 with the sale of its 29 m shares at $1.10/share.

In October 2005 the Company raised $140 million by way of a pro rata equity offer and placement. New shares were offered to existing holders on a 3 for 5 basis at $0.80 per share, raising $121 million, and to new investors via a $19 million placement. The offer was conducted by way of a RAPIDS issue and was managed and underwritten by Macquarie Equity Capital Markets Limited.

Together with the funds raised in 2004, the net proceeds of the 2005 raising increased cash in bank to around $200 million. These funds were planned to enable completion of the southern process plant and all south mine underground infrastructure, commence gold production by June 2006 and commence north mine under-ground infrastructure.

The construction of the 600,000 t/y gold plant commenced in late May 2005 and was completed in October 2006 at a capital cost of $65M. Commissioning occurred in the September quarter of 2006, with commercial production declared in the December 2006 quarter.

Shift in strategy to focus on building reserves in more productive areas of the goldfield

With the reconciliation of the December 2006 quarter production results, it became apparent that a general overestimate of the potential of the Sheepshead and Deborah Lines had been made. The significantly lower than expected production results warranted a major shift in strategy. This change resulted in the deferral of production and a focus on building reserves in more productive areas in the south of the goldfield.

Trial Mining commenced in June 2008. The key source of mill feed was the recently discovered Gill reef on the Garden Gully line of mineralisation. The aim of the trial was to test the visual grade estimation methodology.

The results from the initial trial mining were successful with the processing of 59,711 tonnes at an average head grade of 8.1 g/t gold. Production for the 12 months to June 2009 was 148,769 tonnes at 8.5 g/t gold for production of 36,927 oz at an average cash operating cost of A$710/oz.

Production for the 12 months to June 2010 was 205,782 tonnes at 6.2 g/t gold for production of 36,649 oz at an average cash operating cost of A$834/oz.

In April 2011, the Company announced that despite a significant investment in drilling over the past four years, exploration success has not kept pace with mine production and the Kangaroo Flat Mine would enter a production hiatus in April 2011. The process plant and associated infrastructure has been placed on a care and maintenance program, designed to ensure that the facility can remain available to process ore from new discoveries.