MMG Dugald River: On the upside

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 07 Feb 2017   Posted by admin

MMG Dugald River mine portal entrance. Image: MMG.

By Elizabeth Fabri

MINERALS & Metals Group’s (MMG) zinc powerhouse Dugald River couldn’t enter production at a more convenient time. With a little over a year left on the clock, the project was now more than 40 per cent complete and on track to achieve first production early 2018 amid a global zinc deficit.

Located in Queensland, 85km northeast of Mount Isa and 65km northwest of Cloncurry, Dugald River sits on one of the world’s largest undeveloped zinc-lead-silver deposits.

The $1.4 billion project had been on the drawing board for some time, but wasn’t progressed until July 2015 when an updated development plan was approved.

Not wasting any time, MMG began construction in August 2015, and has since been pushing towards its first goal of production in 2018.

In April 2016, the State government granted Dugald River prescribed project status; a red tape reduction that would streamline administrative decisions and accelerate development.

The good news continued in July when MMG entered an amended facility agreement of up to $US550million.

The anticipated remaining cost of the project to first shipment of concentrate was reduced by up to $US150 million, from $US750 million to between $US600 million and $US620 million, plus interest.

Dugald River general manager of project delivery Pierre Malan said the cost reduction was a necessity after MMG had sunk a large amount of cash into the project prior to the reapproved plan in 2015.

Mr Malan said the company assed a number of areas for improvement, including lifting plant capacity to 1.75mtpa.

“We also did work to optimise the underground mine plan, looking at increasing production from underground to match the plant capacity we were going to have,” Mr Malan said

“We also looked at the current market conditions and tried to use the competitive market environment to provide us with the best contractors at the best and most competitive rate. “That certainly contributed a fair bit, both for the underground as well as the surface construction work, allowing us to come in with a more realistic and affordable overall cost of completing the project compared to 2012.”

The company’s optimised mine plan supported a 1.7mtpa operation with estimated annual production of 170,000 tonnes of zinc in zinc concentrate, plus by-products including 18,000t of lead and 981,000 ounces of silver in concentrate per annum.

“This confirms Dugald River’s position within the world’s top ten zinc mines when operational,” MMG stated.

“The mine will operate over an estimated 25 years while the ore body remains open at depth.”

Construction on track

At the end of December 2016, Dugald River was more than 40 per cent complete; a significant accomplishment given the project was 28 per cent complete at the end of September.

“We are on schedule with our construction activities as per the plan that we developed at the beginning of 2016,” Mr Malan said.

“We are on track and are more than 50 per cent complete on the construction effort on surface.

“We have practically completed the expansion of our accommodation village on site and now have the ability to accommodate an additional 300 rooms with all the facilities that go with that.

“It was quite important because without that we wouldn’t have been able to bring on additional people required for the construction effort that really started ramping up a few months ago.”

MMG has also completed most of the bulk earth and civil works across the site, including the establishment of various dams, ponds, roads, and subsequent concrete works, and run of mine retaining walls which enable the team to complete the mechanical construction of the primary crusher.

“We’ve also started with our structural steel installation and that’s been progressing quite well to the extent that we’ve now placed both our primary bore and SAG mills in their final position and also completed our regrind circuit,” he said.

“We’ve done the structural installation work of our thickeners; we’ve got a tailings thickener, a zinc thickener and a lead thickener and those have all been placed and construction of those was almost practically complete.

“We’ve also progressed our mine development ground and we’ve completed three large surface raise bore shafts.”

These are 4.5 metre diameter circular shafts that connect the underground workings with the surface, and are used to ventilate the mine through exhaust fans that are placed on top.

MMG has installed and commissioned three primary surface vent fans on the three raise bore shafts.

“All of those are now in operation which will provide ventilation for the whole mine expansion through the rest of the mine life,” he said.

“We’ve completed in total about 30 per cent of the underground development milestones that we want to achieve or need to achieve in order to progress to commercial production.”

2017 developments

The 2017 year will be busy for MMG as it works towards completing the remaining infrastructure needed for first concentrate production.

“We need to complete the construction of the concentrator plant; that’s both the mechanical installation and electrical, and then progress with commissioning of the plant,” Mr Malan said.

“We also need to continue with our underground development and start stoping so we will be looking at establishing an ore stockpile on the surface that we can use for testing and commissioning in the second half of 2017.

“It will provide, towards the end of 2017, the initial ore that we will be processing through the process plant in order to start producing concentrate.”

Mr Malan said the team will finish its two switch yards and energise the HV transmission line in April to get the site onto grid power, and later complete the remaining 20 per cent of work on its tailings storage facility.

“We will be recruiting for plant operators in 2017 and also for maintainers to look after our fixed plant infrastructure,” he said.

“At this stage we have got a five-year agreement or contract in place with a mining contractor to do the underground development and therefore we won’t be recruiting for underground mining operators but only for operators or staff to man up the plant and to maintain that.

“Once we are in full operation in early 2018 we’re expecting to have around 350 to 400 total people employed on the mine, and of that about 100 would probably be through the current mining contractor.”


Project prospects

Dugald River production will come at a time when global zinc production is in tight supply.

The shrink in global production was forecast in the wake of numerous of mine closures, including MMG’s very own Century zinc mine in August 2015.

The zinc shortage, however, was set to be in MMG’s favour for its first few years of its operating life.

“Obviously any operation when it starts would like to have higher prices rather than lower metal prices,” Mr Malan said.

“We know the metal market is a cyclical market that goes up [and down]; you get to full market capacity or you get to a surplus and then it turns around and your high cost operations drop out again.

“We’ve always expected to see a cyclical price movement in something like the zinc market, and we’re certainly at this stage hoping and anticipating that we will be on one of the upside cycles as result of the deficit that’s anticipated.”

Mr Malan said he hoped the zinc shortfall would drive a better price than long term expected prices,  and allow the company to get a good return on the initial concentrate with the view on paying back some of its capital earlier rather than later.

“This is a very positive for the value of the project,” he said.

Once operational, at peak production Dugald River would be 170,000t of zinc a year.

The project would also deliver more than 30 years of economic benefits to the surrounding communities through employment, training and revenue contributions.

“Obviously it is early days for this project and our focus has been on the construction effort, and as a result we’ve had to use a combination of both local and interstate contractors to do the work in a financially viable [way],” he said.

“We’ve been able to make use of some local contractors for parts of the work and those benefits would have flown directly back to those contractors, either very locally based in Cloncurry or some in Mount Isa, and some a bit wider in Queensland, including Townsville.

“We are expecting to see continued local procurement and continued use of local services and businesses for the life of the operation and if we can be successful and viable and we can make profits there will be significant tax benefits that will be flowing through to the QLD government.”