THE INSIDE STORY: Let’s start with a quick quiz. How many current developing gold producers are fully-funded through to production with their own processing plant?
In May, Blackham Resources (ASX: BLK) announced a $38.5 million funding package with Orion Mine Finance, a US$2 billion resources fund out of New York.
The funding will support the development of Blackham’s 100 per cent-owned Matilda gold project through to production, which is expected to commence in Quarter 2, 2016.
The funding package consists of a $2.5 million equity private placement, a $6 million non-amortising loan facility, and a $30 million project facility loan.
Apart from the funding the parties also struck a gold offtake agreement, under which Blackham will sell 55 per cent of the gold produced from Matilda to Orion up to the point it has delivered 275,000 ounces of gold.
“The funding package with Orion is a significant deal for us as it means we can continue our regional exploration work to extend the Matilda mine life while we complete our Definitive Feasibility Study,” Blackham Resources managing director Bryan Dixon told The Resources Roadhouse.
“Basically the Orion financing provides something a lot of companies would give an arm for – a fully-funded solution to bring the Matilda gold project into production.”
The Matilda gold project is located near the town of Wiluna in the Northern Yilgarn region of Western Australia.
The project has a Resource of 4.4 million tonnes at 3.3 grams per tonne gold for 4.7 million ounces of gold.
All the resources are situated within a 20 kilometre radius of the company’s 1.3 million tonnes per annum Wiluna processing facility, which it plans to recommission as it pushes towards its Q2, 2016 production target.
The Wiluna plant consists of two milling circuits, one configured for open pit – ore and one for harder – underground ore, which when combined are capable of producing around 100,000 ounces of gold per annum.
“Historically this project has produced over four million ounces of gold – we think it is good for another million ounces giving it another 10 years of mine life,” Dixon said.
“Of the combined 44 million tonnes at 3.3 grams per tonne gold for 4.7 million ounces of gold Resource, 48 per cent sits in the Indicated Resource category.
“We have confidence in the geology around the Resources and believe we have the right mix of open pit and high-grade underground Resources feeding the Wiluna plant.”
Blackham’s strategy since its acquisition of the Wiluna plant in 2014 has been to build a substantial Resource by combining both underground and open pit sources to overcome hurdles previous owners had to contend with.
“Where the Wiluna plant struggled over recent history is being able to feed it,” Dixon explained.
“The underground mine can only deliver 0.5 million tonnes per annum and the mill is capable of generating 1.3 million tonnes per annum with the soft dirt out of the Matilda mine.
“So you need the open pits to make this a sustainable mining story.”
Blackham is concentrating its efforts on free-milling gold targets and resources within open pit or shallow underground depths, close to the Wiluna plant and infrastructure that are capable of being brought on stream in the early years of the current mine plan.
To that end, Blackham has identified a number of targets within the Matilda projects 20km radius, which it has pared down to three ore bodies to commence operations – the Matilda mine and the Galaxy and Golden Age deposits.
The company recently upgraded the Resource at the Matilda mine to 12.5 million tonnes at 1.8g/t for 713,000 ounces of gold with a Measured and Indicated Resource totalling 7.26 million tonnes at 1.8g/t for 424,000 ounces of gold.
The Galaxy and Gold Age deposits are high-grade quartz reefs with ore that will complement that from the Matilda mine in terms of feedstock for the Wiluna plant.
Galaxy is located just 13km from the Wiluna plant and currently boasts a Resource of 550,000 tonnes at 2.9g/t gold for 51,000 ounces.
Its mineral inventory includes an 80 per cent Indicated Resource level at a 3.3g/t diluted head grade and has delivered gravity and leach recoveries of 96 per cent.
Blackham recently received Department of Mines and Petroleum approval to re-enter the Wiluna underground mine, which is the access to the Golden Age deposit.
Golden Age is another high-grade free milling reef with historic production of 160,000 ounces of gold at nine grams per tonne.
It has a remaining resource of 0.6 million tonnes at 6.7g/t for 125,000 ounces of gold.
Blackham is carrying out a sizeable program of drilling in and around the Matilda mine area, which includes Galaxy and Gold Age.
“The Matilda mine is the base load, which provides us with a sustainable mine plan we expect will turn Wiluna into a very profitable operation,” Dixon said.
“We’ve got 80 per cent of our feed coming out the open pits. We’ve been working on those open pits over the past three years, which has provided us with a good lead-up time to really understand what we are dealing with.
“Having a diluted head grade of 1.9 grams per tonne open-pittable ore feeding the mill will be the base-line solution and then we can look at introducing ore from the high-grade quartz reefs between Galaxy and Golden Age to really spike that grade and get the average mill-feed grade up.”
What Blackham has been able to do at Wiluna is silence any doubters who may not have been convinced there is enough free-milling ore available at Wiluna to sustain the operation.
Having determined Resources of 22 million tonnes at 1.9 grams per tonne for 1.4 million ounces, the company is keen to establish 500,000 to 600,000 ounces into the mine plan, as it works to complete its DFS by September.
The great advantage of the Wiluna plant acquisition is the considerable affect it has on keeping the project’s capex outlay extremely low.
“We have $30 million in a project facility that will come in once the feasibility study has been completed and that will fund us through to production, which we anticipate to be around June 2016,” Dixon said.
“We will spend $32 million over the next 12 months – the current mine plan is estimated to give us back around $150 million – at today’s gold price.
“So we are risking $32 million in order to make $150 million over the first four years of operation.
“All in sustaining costs come in at around $1,100 per ounce, which means we could pay off the capex within nine months.”
Blackham is busy working through the DFS in order to convert its current Resources to a Reserve, which it anticipates getting up to 600,000 ounces by the time the feasibility study is completed.
“There are five million tonnes at 2.8 grams per tonne gold for 450,000 ounces – four million tonnes of that is coming out of the open pits, average 1.9 grams per tonne,” Dixon said.
“Previous operators did not have a lot of open-pittable ore to chase, which meant they were not able to establish mine lives of any significant length.
“That’s the comparative advantage of what we are doing at Wiluna.”
Blackham Resources Limited (ASX: BLK)
… The Short Story
Level 2, 38 Richardson St.
West Perth WA 6005
Ph: +61 8 9322 6418+61 8 9322 6418
Fax: +61 8 9322 6398
Paul Murphy, Bryan Dixon, Alan Thom, Greg Miles, Peter Rozenauers
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