AIM-listed African Consolidated Resources has successfully completed the definitive feasibility study (DFS) on the initial phase of development at the 3.2 Moz Pickstone Peerless gold project in Zimbabwe.
Phase 1 development, focussing on the oxide cap, being a subset of the entire Pickstone Peerless mine, is being accelerated in order to generate near term cash flow with low capital expenditure intensity. In addition, the company has announced an updated JORC-compliant mineral resource estimate and updated capital requirements for the project.
“The completion of this DFS on time and on budget represents a significant achievement in the transformation of African Consolidated from an exploration company to a mining company,” says chief executive, Craig Hutton.
“I should like to emphasise that the DFS relates to the oxide cap only, just one component of the much larger Pickstone Peerless gold project, and will support the funding of the much larger and higher grade sulphide ore (Phase 2) outlined in the PEA. Restricting Phase 1 to the oxide cap reduces the capex that would otherwise be necessary and enables us to use plant facilities already in place. We have increased the funding requirement for Phase 1 principally to stockpile ore for four months to maximise early grade. Scheduling for implementation of Phase 1 remains on track for first production of gold in June 2014.”
“Meanwhile, work on the pre-feasibility study for Phase 2 is in progress. This study is expected to be complete in September/October 2013 and as a result of this we are targeting a reserve of 1 Moz at that time.”
Definitive feasibility study
Considering the state of current market conditions and the requirement to raise funds to achieve production, the company has prioritised cash generation from the Pickston Peerless gold mine. Consequently, the focus of the DFS has been to keep the capital expenditure intensity to a minimum whilst maximising the near term cash flow. To this end, it was decided that only the oxide cap would be considered in Phase 1 at a production rate of 20 000 tpm, as part of the two-phased strategy to exploit the previously reported open pit mineral inventory of 813 000 oz (at 5.1 g/t).
The DFS therefore represents a subset of the larger project and allows the company to declare a maiden reserve of 136 000 oz at 2.06 g/t based on a gold price of USD$ 1500/oz and a cut off grade of 0.4 g/t and to generate in excess of USD$50 million cash over a five5 year period on an EBITDA less tax basis despite the lower grades that relate to the oxide cap and the higher concomitant unit costs of production. This strategy provides the company a way to generate organic cash flows to reinvest in the development of the Phase 2 (50 000 tpm) operation.
This strategy also benefits shareholders as the company will be able to redeem previously capitalised exploration expenditure as well as financing further capital expenditures thereby minimising the burden on existing shareholders and limiting the dilutionary effect of new capital raised to bring these assets into production.
The company has been able to maximise early projected cash flows by decoupling the open pit mining from the plant feed by building stockpiles in advance of milling. This strategy enables the grade reporting to the plant to be managed thereby decoupling the in-situ average grade from the average plant feed grade that will contribute to the funding and development of Phase 2 expansion to 50 000 tpm. The projected effect of this in the first five years of the mine is significant – engineering an estimated average 3.04 g/t feed grade to the plant from an estimated 2.10 g/t in situ grade.
The reduction in capital intensity has been largely due to utilising existing infrastructure and focusing on the oxides portion so as not to incur additional capital in the plant to treat the sulphides. Additional capital would have been required for floatation and increased leaching facilities and which has been avoided.
Phase 2 is now being considered at a pre-feasibility level of study, and it is the company’s intention to have this study completed in September/October 2013 together with a conceptual study of underground mining which would represent Phase 3. The significance of the expanded Phase 2 operation is that the higher grade sulphides can be liberated, whilst the increased rate of production will realise economies of scale. The combined effect of these two considerations will reduce both the USD/oz. and the USD/t cost of production thus significantly improving the project margin.
Basil Read Matomo, a division of Basil Read, a South African construction, engineering and mining development company, was appointed as the lead contractor for the DFS and will remain for the pre-feasibility study for Phase 2. PDNA Minxcon, a South African based minerals and mining consultancy company, was retained to undertake the mine design, mine scheduling and financial valuation of the DFS.
Updated JORC resource estimate
The JORC-compliant mineral Resource estimate update (30 June 2013), undertaken by ExplorMine Consultants, in substance confirms the previous resource estimate as announced on 13 September 2012. The updated resource estimate reflects 39.50 Mt of ore at a grade of 2.50 g/t containing 3.2 Moz of gold in-situ.