Kalgoorlie’s silver lining for gold producer

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 24 Jan 2012   Posted by admin


LITTLE more than four years ago, WA-based Silver Lake Resources was a gold explorer with aspirations of becoming one of Australia’s most profitable gold producers. Now the company is a top ASX 300 company and it continues to grow. In mid-November, Silver Lake celebrated the fourth anniversary of its initial public offering: the company debuted on the ASX in 2007 at 30c per share, raising $30 million, and began mining less than four weeks later. “The fully-diluted market capital of  the company today is $750 million,”
Silver Lake managing director Les Davis said recently. “We have over $90 million in cash and bullion on hand, and we’re ready to go.” Silver Lake’s total resource inventory contains roughly 3.3 million ounces of gold, with its flagship Mount Monger project, 50km southeast of Kalgoorlie, contributing 1.47moz. The Mount Monger project includes the Daisy Milano mine, from which the company has been producing since late
2007.
A second project, Murchison, adds .65moz to the company’s global resource portfolio. “We built the business to date on a single ore source known as Daisy Milano and now we are fortunate enough to have four underground ore sources [at Mount Monger] with an accumulative resource of one million ounces of gold – all accessible from the same decline infrastructure,” Mr Davis said. “We currently have Daisy Milano Daisy East, Haoma and Rosemary, but itdoesn’t end there.” As well as the underground mines, the
Mount Monger project has multiple areas
of open pit potential, with emerging production from the Wombola Dam, Wombola Pit and Magic deposits. Silver Lake is drilling west of the known mineralisation, and Mr Davis said he believed there were multiple lines of mineralisation in both directions.
“I have always said the mineral field out there was very unique because it had so many historical mines on it, but it was only ever owned by prospectors,” he said. “We are now doing the work and we are being rewarded on our strategy.” During the 2011 financial year, combined production from Mount Monger’s several mines totalled 405,525t grading 5.9 grams per tonne of gold for a total 77,281oz. Average cash costs at the project for the 2011 financial year sat at about $654 per ounce. Silver Lake has reported that it expects to ramp this up to 100,000oz for the 2012 financial year. To cope with the increased mining, Silver Lake will expand its current 700,000 tonne per annum Lakewood gold processing plant, 5km southeast of Daisy Milano, to 1 million tonnes per annum by
the September quarter of 2012. Murchison project Silver Lake purchased a processing plant for its Murchison project in August 2011, and made the decision to develop Murchison in November. “We’ll be relocating [the plant] in January [2012]. It is a 1.2 million
tonne per annum plant and the capital expenditure for the Murchison project is $65 million,” Mr Davis said.
“We haven’t quite finished the DFS [definitive feasibility study] numbers yet, but the Murchison’s [cash costs] will be mid-$600s [per ounce], but our group cash costs will be about the mid-$500s – that’s what we are targeting.” Mr Davis said that Silver Lake’s
strategy for Murchison was to develop multiple mines feeding a central  processing facility to sustain a production target of 100,000ozpa.
As well as Murchison’s gold prospectivity, Silver Lake recently discovered some high-grade copper hits at its Hollandaire deposit. The discovery was just north of the intended processing plant and included intercepts grading up to 45 per cent
copper, 5.5g/t of gold and 256g/t of silver.
Mr Davis said the copper discovery inthe Murchison area had the potential to add significant economic benefits to the project’s gold production. Strategy Looking to the near-term future, Mr Davis said that Silver Lake would focus on its plans to develop multiple mines at both the Mount Monger and Murchison projects.
“[During the next 12 months] the company’s plans are to embed its Mount Monger operations – so expand the mill, and get that completed on time and on budget,” he said. We’ll continue to drill, at $18 million
per annum, right across the business. “Basically the plan going forward for Mount Monger is 100,000 ounces this year, 150,000 next year and 200,000 the year after.
“With the Murchison, during calendar 2012, we’ll [develop the project] and I’ll have a Christmas present by December 2012 – our first gold bar.”On the exploration side of  Mr Davis said Silver Lake hoped to have a global resource of 5m  mid-June 2012, and the company would target a 10moz global resource longer
term.
“To date, internal expansion projectsave been funded from positive operating cash flows,” Mr Davis said. However, in order to maintain our strong financial position and to accelerate our growth, we have recently raised $70 million through the placement of 20.6
million fully-paid ordinary shares at an issue price of $3.40.” At Silver Lake’s mid-November annual general meeting, chairman Paul Chapman gave shareholders his opinion on gold’s outlook.                                                                                                                                                                                    “Firstly, [the] gold price has increased
every year for a decade now,” he said.
“On the supply side, a number of
the world’s largest gold mines are
approaching the end of their lives and
grades are falling.
“In addition, global discovery trends
are down and average discovery costs
are rising. The total cost of production
– exploration, development and mining –
is estimated to be US$900 [per] ounce.”
Mr Chapman said investors and
central banks had become a larger
representation of the gold buyer segment
during the last 10 years, compared to
previous decades.
“People are now choosing to hold
gold as an alternative to holding paper
currencies with falling purchasing
power,” he said.
“The outlook for [the] gold price
remains fundamentally strong even
though the industry itself is stagnant
on the supply side and we are seeing a
change in consumption on the demand
side.”

 

Lorna Seatter


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