Middle Island eager to apply polish to Sandstone

THE INSIDE STORY: With much love in the air for gold at present it makes perfect sense that a company looking to acquire a project would want one it can bring on stream sooner rather than later.

The acquisition of the Sandstone gold project by Middle Island Resources (ASX: MDI) is a case in point.

In 2013, Middle Island let it be known it was eager to find advanced gold (and gold/copper) opportunities, primarily within Australia and Africa.

The company made its objectives on the subject very clear – it was in the market to acquire an asset which would meet its stringent criteria: that it would mitigate shareholder exposure to sovereign and political risk; provide near-term production and cash flow potential; and require limited capital expenditure to develop.

As its search deepened it became apparent Australia would be the best jurisdiction to find, and work up, such an asset with positive administrative synergies, a favourable recent exchange rate and relatively lower operating cost environment.

There was also a much appreciative audience from improving market support for ASX-listed gold stocks.

The project to raise its head above the parapet was the Sandstone gold project and processing facility, located 12 kilometres south of the township of Sandstone, approximately 600km northeast of Perth between the mining towns of Mt Magnet and Leinster in the East Murchison Mineral Field of Western Australia.

The project is an attractive package, comprising 100 per cent interest in two granted Mining Leases and a JORC 2004 Mineral Resource of approximately 11 million tonnes at 1.4 grams per tonne gold for total contained gold of around 480,000 ounces of gold.

With this comes a 600,000 tonnes per annum CIP processing plant – which has been on care and maintenance since 2010 – a power plant, workshops and offices, licenced tailings facility, bore field, three fully equipped camps on freehold title in the nearby settlement of Sandstone and a substantially inventory of equipment and spares.

Sandstone is a proven gold producer with historic production in excess of one million ounces of gold from surface, underground and open pit operations since the 1890s.

The area has also been productive in more recent times under the watch of previous owners, including Herald Resources in the 1990’s and Troy Resources (ASX TRY), which operated the mine from 1999 to 2010.

Troy upgraded the plant to 600,000 tonnes per annum capacity in 1999 then extracted and processed a combined total of approximately 4.4 million tonnes of ore at an average grade of 3.6g/t gold producing 508,000 ounces of gold before placing the operation on care and maintenance in September 2010.

“The plant is in good condition and we anticipate spending five to eight million dollars to refurbish it and bring it back on line,” Middle Island Resources managing director Rick Yeates told The Resources Roadhouse.

After acquiring Sandstone from Troy in December 2012, Southern Cross Gold (SXG) never produced any gold, instead its objective was relocating the processing plant to its Marda project, which also never occurred.

SXG merged with Poly Metals to form Black Oak Minerals with the new entity more focused on assets in New South Wales, only to be placed into administration in 2015 and subsequently liquidation in early 2016.

Middle Island was able to pick up the Sandstone project for a highly-competitive price of $2.5 million due to its unloved status, completing the acquisition in July, which involved the original payment of a $250,000 deposit and $1.25 million at completion of the deal.

A further $500,000 is due at 18 months following completion (or $400,000, if paid by 11 October 2016), plus $500,000 on re-commencement of gold production from any source.

The tenements come with a legacy 2 per cent NSR royalty payable to Troy, along with a royalty of $1 per tonne of ore mined and processed from M57/129 to Herald and National Resources Exploration.

The transaction value of $2.5 million equates to approximately US$4 per resource ounce.