Wednesday, 8 February 2012

Aphrodite Gold receives positive Scoping Study to become cost competitive gold producer in WA

Aphrodite Gold (ASX:AQQ) commissioned a Scoping Study to determine a preferred mining and processing scenario for monetising the Aphrodite Gold deposit near Kalgoorlie, the results of which are a blueprint to develop a cost competitive gold operation.

The deposit, which is located 65 kilometres north of Kalgoorlie has a current inferred resource of 1.03 million ounces of gold.

Tetra Tech Australia Pty Ltd and Mineral Engineering Technical Services Pty Ltd (METS) were engaged to complete the Study.

Tetra Tech and METS recommend that the project should move to Pre-Feasibility Study (PFS).

Overall, headline numbers of the Study produced a Net Present Value (NPV) of $129 million with an Internal Rate of Return (IRR) of 25% at the current gold price of $1,650 per ounce.  Average cash costs were pegged at $756 per ounce of gold.

“In my opinion, the results of the Study demonstrate significant potential for growth” said Aphrodite’s technical director, Leon Reisgys.

Study highlights

- Technical and economic assessments justify proceeding with pre feasibility study (PFS)
- A combined open pit and underground mining operation over a project life of 9 years
- Gold production over life of project estimated at 550,000 oz
- 1Mtpa processing plant on site to treat all ore types to produce gold doré
- Nominal plant throughput of 750,000 tpa at an average grade of 3.8g/t gold
- Peak gold production of 84,000 oz per annum for Years 2 to 6
- Pressure oxidation method preferred for treatment of refractory ore
- Anticipated + 90% gold recoveries for all ore types
- Potential to increase gold production and project life with expansion in resources - a revised resource estimate expected end Q1 2012 incorporating all 2011 drill results with further drilling planned
- Estimated average cash cost of $756/oz gold
- Significant reduction in costs possible should the plant be run at a higher throughput
- NPV (8%DF) estimated at $129M with IRR 25% at current gold price of around $1650/oz. NPV (8%DF) estimated at $51M with IRR 15% at $1450/oz gold price
- Significant upside if gold price continues its long term upward trajectory
- Project close to key infrastructure including road, rail, power and housing
- Possibility for toll treating other local deposits

The preferred mining scenario selected by Tetra Tech is a contractor operated, selective open pit and underground mine providing feed to an onsite process plant at a nominal rate of 750,000 tonnes per annum.

The total project life is estimated at nine years, with the open pit operating from Year 0 to Year 5 and the underground operating from Year 2 to Year 8.

METS has developed a process flow sheet incorporating a pressure oxidation plant for processing the refractory component of the deposit. The proposed processing plant is designed to treat 1 million tonnes per annum of ore to producing gold doré onsite.

Mining


A number of mining scenarios were analysed to identify a preferred mining option that maximises resource recovery and project Net Present Value. Pit optimisation was performed using $1,350 an ounce gold price to determine potential open pit and underground mining inventories and select a target plant throughput. 90% process recovery was assumed for all material types during the pit optimisation process.

Tetra Tech has selected a combined open pit and underground approach as the preferred mine plan, which aims to recover near surface ore via an open pit while recovering the deeper high grade resource via an underground extension.

This option would have the following advantages:

- Reduced pre-strip and therefore initial capital cost
- Access to the underground mine via an in-pit portal, reducing decline development and sustaining capital cost
- Increased extraction of known resources resulting from lower total cash costs

Open Pit Mining

Open pit movement will be evenly distributed between two pushbacks to create two near symmetrical linked pits, on the Alpha and Phi lodes with an adjoining ‘saddle’ from which a portal will be developed to access higher grade underground ore.

Conventional, contractor operated, truck and shovel and drill and blast methods have been assumed for open pit mining.

Underground Mining

A conceptual mine design was created to illustrate access, ventilation, decline and level development requirements.

The in-pit portal, for development of the decline, would be located on the saddle between pits Alpha and Phi, approximately 75 metres below the surface. The central decline extends from the portal down to approximately 450 metres below the surface, spiralling down between the Alpha and Phi lodes.

Mine Scheduling

A total of 5 million tonnes will be scheduled for processing at an average grade of 3.8g/t containing 610,000 ounces of gold over a project life of 9 years.

The estimated average (diluted) gold grade of open pit and underground ore is 2.3 g/t and 5.5 g/t respectively.

Open pit and underground development will run in parallel to prioritise the extraction of high grade ore from underground.

An initial pre-strip will be required to ensure a sustainable mill feed of 750,000 tonnes per annum is achieved early in the mine life. This will be done while the processing plant is being constructed. Pre-strip will be prioritised to the Alpha pit to speed up exposure of fresh rock for development of the portal.

Underground pre-production development commences in Year 1, after the portal position is exposed. Full underground production starts in Year 2 and is maintained until Year 8, targeting an average of 365,000 tonnes per annum of high grade ore.

Gold production over life of project is estimated at 550,000 ounces with peak production of around 85,000 ounces per annum in Years 2 to 6.

Metallurgical Testwork

To provide a basis for the Scoping Study a metallurgical testwork program was undertaken immediately prior to the commencement of the Scoping Study to determine the metallurgical properties of the mineralisation.

The testwork showed that the deposit contains both free milling and refractory ore.

Significantly, the refractory material performed very well during the flotation tests where a high gold grade, sulphide concentrate was produced at a very low mass pull. Gold recoveries of 91.3% were achieved in 2.9% of the mass at a grade of 46.35 g/t gold.

As the Aphrodite deposit contains both free milling and refractory ore, a processing plant has been designed to treat both ore types to the final stage of producing gold doré on site.

The majority of feed to the mill will be primary refractory ore and therefore this processing option was the primary focus for the Study. However, consideration has also been given to the free milling circuit to treat oxide and transition ore types.

The proposed processing plant developed by METS is designed to treat 1 million tonnes of ore to producing gold dorè onsite.

Infrastructure

The Aphrodite Project is located 65 kilometres north of Kalgoorlie, placing the project conveniently close to key infrastructure and utilities.

Capital and Operating Cost Estimates

Capital and operating cost estimates have been developed by METS for the proposed process plant with a capacity of 1 million tonnes per annum with an accuracy of ±35%.

The capital cost estimate for a new processing plant is $108 million. The estimate is calculated through the addition of direct and indirect costs and a contingency allowance to cover the level of risk associated with a project of this level and scope.

Other initial capital items include infrastructure ($10M) and pre-stripping ($37M).

An additional sustaining capital cost over the life of the project is estimated at $89M,including underground development.

Significant saving in processing costs could be achieved by running the plant at a higher throughput. The processing plant is designed for 1 million tonnes per annum, however the mine plan used in the Study has a nominal mill throughput of 750,000 tonnes per annum.

Increased throughput could result from the availability of more ore as a result of exploration and/or the mining and treatment of lower grade material as a result of higher gold prices.

Opportunities to increase returns

Resource drilling completed post the March 2011 resource estimate (used in the Scoping Study) has the potential to increase the mining inventory together with the discovery of additional resources below the currently planned mine and from numerous gold prospects (such as Chameleon) located within the Aphrodite area.

An increased resource inventory has the potential of increasing plant throughput, reducing operating costs, increasing annual gold production and project life.

Analysis

The Scoping Study, for a company capitalised at just $8 million, provides a significant valuation accretion pathway.
It is a starting point for Aphrodite Gold to become a gold producer at a competitive cash cost per ounce of gold produced.  In our opinion, there is significant scope to increase the returns, particularly the IRR.

The potential for uplift in resources at Aphrodite is significant increasing the potential throughput and lowering costs. There is potential to increase gold production and project life with expansion in resources - a revised resource estimate expected end Q1 2012 incorporating all 2011 drill results.  Further drilling is also planned.

Producing a high gold grade, low mass concentrate would greatly reduce transport and processing costs of the concentrate as well as opening up a range of options for the processing or sale of concentrate.

Interestingly, Barrick Gold Corp, who own Kanowna Belle mine, which is to the south of Aphrodite Gold deposit, used to own the Aphrodite project.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/25082/aphrodite-gold-receives-positive-scoping-study-to-become-cost-competitive-gold-producer-in-wa-25082.html

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