Saracen is in the midst of doubling its output at Karari from about 60,000oz per annum to about 120,000oz. All images: Saracen Mineral Holdings.
By Elizabeth Fabri
SARACEN Mineral Holdings is no longer labelled ‘the new kid on the block’. After earning mid-tier status and an ASX-200 position in 2016, the company has become a miner to watch as it advances exploration, nears its 300,000 ounces per annum production rate, and awaits the results of a newly formed partnership with AngloGold.
Following a successful December quarter, Saracen Mineral Holdings is not slowing down. One month into 2017, and it’s safe to say this will be one of its most significant years to date, with a number of key milestones pencilled in across the miner’s Carosue Dam and Thunderbox operations.
The most notable of these achievements, will be meeting its long-awaited production target of 300,000oz of gold per annum in June. And after producing a record 66,222oz in the December quarter and a total of 127,692oz in the first half of FY17, there is no doubt Saracen can step up to the task.
“We’re likely to [increase] production again in the March quarter, and higher production again in the June quarter,” Saracen managing director Raleigh Finlayson said. “It’s a progressive step up to 300,000 ounces as we continue to ramp up our Thunderbox operation, which we brought online early last year.”
Mr Finlayson said the company was also looking forward to seeing results from its multi-million exploration spend come to fruition.
“This year we’re on track to spend $42 million on exploration, which is more than double what we spent in the previous two years combined, so there is a real ramp up with exploration across a number of our key assets, mainly Karari and Thunderbox underground,” he said.
The spend was Saracen’s highest exploration commitment in its 10 year history, and overshadows its $14.3m spend in FY16.
“Drilling has been highly successful to date and we will probably have some more good results to put out to the market, most likely next [this] month,” he said.
Furthermore, the company’s free cash flow would be boosted in coming quarters by increased production and decreased all-in sustaining costs.
“Saracen’s strategy to double production and undertake aggressive exploration using internal cash flow is now paying strong dividends, cementing the company’s status as Australian mid-tier gold producer,” he said.
Saracen’s decision to purchase the mothballed Carosue Dam operation from St Barbara in 2006 was without doubt a wise one.
The large-scale project, located in the South Laverton gold field of WA, comprises the Karari, Whirling Dervish, Red October and Deep South open pits, with significant potential for future development.
While the operation was reopened in 2010, Saracen began development on the Deep South underground mine in October 2015, and in the September quarter last year achieved commercial production.
The last six months had also seen drilling ramp up at the project following Saracen’s announcement it was tripling its exploration spend in FY17.
Mr Finlayson said drilling at Karari in particular was going strong with continued appreciation in the grade as the company drilled deeper.
“Every hole we’re drilling there is getting us more and more confident about the longevity of that project,” he said.
“All of the drilling in the last six months has been the conversion of resource into reserves and now we’re really starting to step out below that and probe out that seven years plus mine life so that’s a really exciting phase there.”
Over the next few months, Saracen will also focus on Karari’s sister deposit, Whirling Dervish.
“What we’re looking at doing there is pushing those drill drives, and then starting an exploration program there from the June quarter for about 12 months,” he said.
“That’s really about trying to replicate Karari’s success at Whirling Dervish.”
As it stands, Whirling Dervish underground was not scheduled to begin production until FY20, so by progressing drilling now, there was a strong likelihood this could be brought forward.
“That’s really a short term focus for us and one that we see has dual benefits,” he said.
“One is to potentially increase annual production in excess of what we articulated in the 300,000oz per annum, and also to obviously continue to lower our costs.”
Developed ahead of schedule and under budget, Saracen’s latest project Thunderbox also presented multiple growth opportunities for the company.
Located in the WA Goldfields, 45km south of Leinster, the mine was acquired from Russian miner Norilsk in January 2014 for a combination of cash and royalties totalling $31.6 million.
Saracen has since poured $63m into the redevelopment; a $2m cut from its original budget.
First gold pour was achieved in February 2016, and by April the project was cash flow positive.
“I suppose a refurbishment of an existing plant and getting it into production is really our bread and butter, which we did very successfully in 2010 when we brought on Carosue Dam,” Mr Finlayson said.
“A lot of the guys that brought that project into production were part of the Thunderbox team; we’ve done it before so we were very comfortable with the ramp up with very minimal disruptions.
“Probably more importantly, we came in and developed the project inside nine months as opposed to the original 12 month schedule.”
Mr Finalyson said the project had potential for a 10 year mine life on the basis of Stage 1 of its current drill program that would be largely completed by June this year.
“We’ve basically got a five year plan articulated at the moment and that’s entirely from open pit, but a big motivation we’ve got this year and a big reasonable portion of the exploration spend of $42m that we’ve committed to this year is allocated towards the Thunderbox underground,” he said.
“We’re basically doing a bunch of pattern drilling over that resource to convert that into reserve.
“ We’ve also commissioned AMC Consultants to work on underground feasibility study there, and what we’re aiming at is around midyear putting out an inaugural underground reserve at Thunderbox with the view that we extend mine life out to potentially seven plus years and maybe get line of sight towards 10 and that’s really our ultimate goal.”
The miner was also working on pre-strip mining efforts at the Thunderbox C Zone pit, to deliver ore from the zone between FY 2018, 2019, and 2020.
In addition, mining at King of the Hill underground mine began in July last year, which would contribute an estimated 12,000oz towards FY17 production.
“What we’ve been doing down there is simply quite selective narrow vein mining, very similar to what we’re currently doing at Red October as part of our Carosue Dam package,” he said.
“We started feeding that into the plant last quarter and have seen the benefit of it coming through at the moment.
“We will continue to drill there and continue to do small-scale mining.”
Partnering with AngloGold
In October 2016, Saracen announced it had partnered with global gold giant AngloGold to further exploration at its Butcher Well and Lake Carey tenements in Carosue Dam’s north.
The deal would enable AngloGold to spend up to $25m in exploration over the next six years at the two tenements to earn a 70 per cent interest in the region which spanned 339.56sqkm.
The terms of the agreement required AngloGold to spend $15m within the first 48 months to earn a 51 per cent stake, of which at least $6m was to be spent at Lake Carey, and a further $10m within 24 months to thereafter earn 70 per cent interest.
The farm-in excluded Saracen’s Red October and Deep South mines, but would enable AngloGold manager status of Butcher Well and Lake Carey.
“We recognise that its quite difficult exploration, in the sense that its predominantly covered by Lake Carey which has got technically between 60 and 100 metres of sediment cover,” Mr Finlayson said.
“But at the same time we recognise that there’s a reasonable probability that there’s something of scale below so we thought of a farm in with AngloGold, who can obviously supply the funding.
“We’re talking about potentially $25 million being spent across those tenements which is probably realistically five times what we put into it, so that’s one of the motivations, and obviously their expertise in exploration in that region and commitment to that region.”
Mr Finlayson said while the company was potentially giving up a 70 per cent stake in this region, the company would rather have 30 per cent of something significant rather than a project that was “simply an idea” because necessary funds couldn’t be allocated.
“Particularly, this year we have got higher priority targets in our own portfolio so that’s bringing forward the potential for that discovery maybe three or four years earlier than what we would have done ourselves, so that’s the main motivation there,” he said.
AngloGold Ashanti senior vice president of greenfields exploration Rex Brommecker said the company was pleased to work together with Saracen to explore the large and “highly prospective land package” close to its existing Sunrise Dam operation.
“This package, when combined with our own package of tenements on and around Lake Carey, gives us an opportunity to build on and integrate our extensive knowledge of the geology of the district to be uniquely positioned to make the next big discovery in the area,” Mr Brommecker said.
Saracen’s primary focus for the 2017 year will be working towards meeting its highly anticipated production goal.
“I think the key catalyst would be reaching that 300,000oz production mark in June,” Mr Finlayson said.
“I suppose in our mind that really puts us into that mid tier space, as opposed to junior explorer.”
The next step was continuing its progressive exploration program, and updating both its resources and reserves figures in July.
“I’d expect quite a sizable increase in resources,” he said.
“That’s really about adding in additional drilling, particularly at Karari and Thunderbox, so we will see that step up, but probably the bigger one in percentage too is quite a large increase in reserves across the portfolio, largely driven again by Thunderbox.
“If we can get to a 10 year mine life between the open pit, underground, and a couple of satellite operations, that would be our goal over the next 18 months.”