The Andy Well gold project north of Meekatharra, WA.
By Cameron Drummond
WITH two commissioned gold mines and its new Deflector project about to hit full production early this year, company value is expected to increase alongside production as the current financial year hits the halfway point.
Speaking at Doray Minerals’ annual general meeting in November, managing director Allan Kelly said he believed the company was currently undervalued against most ASX and TSX peers, as both of its WA gold mining operations were currently transitioning through different stages of mine life.
The company share price had fallen from the $1 mark at the end of the 2016 financial year down to 50 cents by the end of November.
Doray came into existence in 2010 after raising $4.6 million to explore and develop its then Andy Well prospect, 45km north of Meekatharra, hitting a major gold find in its first drilling program.
It took just three years to ramp up the mine to full production, which produced 76,785oz in its first 10 months of operation to the end of June 2014.
Doray’s second producing mine is the Deflector project, 160km east of Geraldton in WA’s Mid West, which was expected to reach nameplate capacity in early 2017.
84,135oz of gold was produced at the Andy Well project during FY16, delivered at the higher end of guidance of between 78,000oz and 85,000oz at 8g/t, but marginally lower than FY15 when it produced an annual record of 88,736oz.
The mine recorded all in sustaining costs (AISC) of $1229/oz, revenue of $131.1m, and a net profit of $16.5m for FY16.
Mine production costs rose markedly by the FY17 September quarter to an AISC of $1432/oz, as mining operations moved further underground with the cessation of open pit mining at the Suzie lode.
The mine’s gold haul was also down, producing 14,943oz at an AISC of $1432/oz, compared to 16,812oz at an AISC of $1548/oz in the previous quarter.
Gold revenue from Andy Well was also down $4.12m to $24.51m, compared to June quarter sales of $28.63m.
Mr Kelly noted that the mine still continued to deliver strong operational performance as higher production costs and less revenue were put down to Andy Well’s transition from an open pit to an underground mining operation.
Recent diamond drilling had successfully realised high-grade gold mineralisation adjacent to the active mining areas within its Wilber and Judy lodes.
Mr Kelly said that drilling at Wilber had been particularly successful in further delineating a zone of high grade mineralisation below the current ore reserve, and would positively impact Andy Well in the mid-term.
“We are currently mining through a more variable and narrower part of the Wilber lode orebody, which is having a negative effect on the grade and cost profile at the present,” Mr Kelly said.
“These drilling results have highlighted that, below the current mine design, the tenor and consistency of mineralisation at Wilber appears to increase back towards that which was seen higher in the mine.
“The area directly below the current mine plan has the best potential for immediate extensions to the Wilber lode and we will continue to test this higher grade zone which remains open at depth.”
Construction at the Deflector mine site, 160km east of Geraldton.
November saw Doray Minerals officially open its Deflector gold mine, which it acquired as a part of its takeover of Mutiny Gold 18 months ago.
The Deflector copper-gold mine’s three separate lodes holds reserves of 1.78 million tonnes (mt) at 5.6g/t for the production of 322,000oz of gold and 16,000t of copper concentrate.
It is expected to produce 61,000oz of gold per year across its initial six-year mine life.
It took Doray just over a year to ramp up to commercial production, marking Deflector as the company’s second producing gold mine.
Total gold bullion produced to the end of the September quarter amounted to 3624oz, with an additional 5204oz in concentrate.
“Since we completed the takeover of Mutiny Gold, we have funded, permitted and built a new 480,000 tonne per annum processing plant, a new 150-person accommodation village and all other associated mine infrastructure, and commenced open pit mining at Deflector,” Mr Kelly said.
“Not only does Deflector reduce our single?mine risk, it nearly doubles our production, comes with a starting six?year mine life and materially reduces our company?wide AISC’s partly as a result of the by?product credits from the contained copper and silver,” Mr Kelly said.
In mid-November Doray announced that mining of the West and Central lodes of the Deflector pit were about 90 per cent complete as the company progressed from open pit to underground mining.
Mr Kelly said the company was pleased with the progress of the mining and production ramp-up and looked forward to the production of primary sulphide ore early this year..
“As predicted, gold and copper recoveries have increased markedly as we move into the transition ore and we are also seeing some very high-grade sulphide mineralisation being exposed with our first development drives,” Mr Kelly said.
“We are also excited to have commenced our first exploration drilling campaign since acquiring Deflector, targeting historic high-grade gold mineralisation at King Solomon/New Phoenix.”
A total of 200m of ore drive development down the Western and Central lodes had been completed by mid November in preparation for stoping in early 2017.
During the September quarter, Doray moved a step closer to the potential development of the Gnaweeda exploration project near Andy Well.
Drilling at Gnaweeda’s Turberry prospect resulted in a maiden resource of 4.6mt at 1.8g/t for 266,000oz of gold.
The company said it would continue exploration drilling in the hope Gnaweeda would shape up as a potential operation using already established amenities at Andy Well.
“The maiden resource of 266,000oz at Turnberry is further proof of the exploration potential of Doray’s tenement holdings within trucking distance of Andy Well,” Mr Kelly said.
He added that the company aimed to be a position to make a decision on the project by the end of the financial year.
“We want to get to the point with Gnaweeda where we can justify increasing the size of the mill for a better throughput, giving us a better cost profile and add 30,000oz to 40,000ozpa of gold to our portfolio.”
Mr Kelly said adding Gnaweeda would increase ore throughput at Andy Well from 350,000tpa to around 750,000tpa and improve the overall efficiency of the project.
“Around March to June this year we aim to complete a mini feasibility study for adding a second ball mill, extra tanks and expansion of the tailings dam – at a ballpark cost of between $8m and $10m.”
Doray was the recipient of Mining Prospect’s 2015 Australian Mine of the Year award.
A shock resignation
On 25 November Mr Kelly announced his resignation as managing director from the company due to personal reasons. Non-executive director Leigh Junk would assume the role while the board found a suitable replacement.
On whether the timing of his resignation could have spooked investors, Mr Kelly said that there is never a “good” time to resign.
“There have been comments, but when you’re an ASX listed company you’re either there or you’re not – you can’t say you’re thinking about it – you have to basically do it,” he said.
“I started Doray and I’ve been here a long time, but the company has grown to be bigger than just one or two people – the systems in place, the team and the board are there to keep the company running.”
Mr Kelly was the founding head of Doray Minerals for seven and a half years and managed the company through its listing to the ASX in 2010, when it was recognised as the most successful Initial Public Offering (IPO) of that year in terms of share price increase.
He followed on at the helm to grab Doray a number of awards, most recently Australian Mining Journal’s Australian Mine of the Year in 2015.
Doray Minerals non-executive chairman Peter Lester said that in just over seven years Mr Kelly has taken the company from a concept as a greenfields explorer to an ASX300 gold producer.
“Allan built a company with a strong foundation for future growth and has left Doray in good hands,” Mr Lester said.
$24.9m was raised at the end of October for debt reduction, exploration and the development of additional ore sources at its Andy Well and Deflector mines.
Mr Kelly said the funds received would allow Doray to continue accelerating the Gnaweeda project towards a potential development decision in mid?2017.
“Along with providing us the security of a substantial working capital buffer during the ongoing Deflector ramp?up, this raising also provides a stronger balance sheet from which to negotiate a re?sculpting of our current debt repayment profile,” Mr Kelly said.
The company also said it would reduce debt to the tune of $35m during FY17 and had flagged $15.5m for exploration and growth.
“Our growth strategy in terms of exploration is to look for near mine projects of 100,000ozpa of production that could either come from discovery or acquisition, taking us up to a key milestone of 250,000oz of gold per year,” Mr Kelly said.
“We have been looking into projects similar in nature to Andy Well and Deflector, whether they are in Australia or offshore.
“We would like to be getting ourselves set – that once Deflector runs at nameplate capacity and Andy Well has turned a corner, we would like to be in a position to jump onto the right opportunity.”