The right opportunity

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 03 Jun 2016   Posted by admin


Newmarket Gold’s Fosterville mine produced more than 30,000oz of gold for the March 2016 quarter.

By Samantha James

CANADIAN-based Newmarket Gold is reaping the cash benefits of a 2015 merger with Australian miner Crocodile Gold.

Until last year, Toronto-listed Newmarket had been focused on its Canadian base metal exploration assets. Its move into Australian gold was, according to the company, a long time coming – part of the search for “the right production opportunity”.

A share structure consolidation and C$25 million capital raising, completed in July 2015, was the platform for Newmarket’s entry into the Australian market, which included the acquisition of three mines and several development and exploration projects.

Since completion of the Crocodile transaction, Newmarket has invested more than US$15 million on growth projects to increase and improve production at the Cosmo gold mine in the Northern Territory and the Fosterville and Stawell gold mines in Victoria – which collectively produce more than 220,000 ounces per annum of gold.

A portfolio of development opportunities at Stawell’s nearby Big Hill project and the Maud Creek deposit in the Northern Territory are being advanced by the company in 2016. For fiscal 2015 the newly-reincorporated company reported record operating cash flow of US$76.5 million; up 3.2 per cent from 2014 despite a 9 per cent lower average realised gold price.

Record gold production of 222,671oz exceeded the top end of Newmarket’s 2015 production guidance range of between 205,000oz and 220,000oz. This momentum has not been lost in 2016, with Fosterville performing particularly well during the March 2016 quarter to produce more than 30,000oz of gold.

Newmarket also reduced its debt to less than US$2 million by converting and redeeming C$34.5 million convertible debentures to eliminate more than C$2 million in interest payments per year.

Australian focus

Newmarket’s justification for its exit from Canada was lower operating costs in Australia. The company solely operates and sells gold in Australia but its financial statements are filed in US dollars – meaning the weaker Australian dollar assists on costs.

As a favoured investment country backed by a supportive mining jurisdiction it was a safe gamble, according to Newmarket. Newmarket president and chief executive officer Douglas Forster said that operating in Australia brought challenges but also significant opportunities – which the company had been capitalising on via an experienced Australian-based operations team.

Newmarket Gold’s cash position was $52.1 million as at the end of March 2016 – a $15.6 million increase from year-end.

Newmarket Gold’s cash position was $52.1 million as at the end of March 2016 – a $15.6 million increase from year-end.

“Newmarket particularly liked the jurisdiction in that it was the second largest gold producing nation in the world with a safe and stable political environment and a long history of permitting and operating gold mines,” he said. “Operating in [a] different time zone does present its challenges; however, most importantly our chief operating officer Darren Hall is based in Australia so all of our senior operations team is in the same time zone.

“Darren was [employed for] 29 years at Newmont before coming to Newmarket Gold; he oversaw hundreds of employees and multi-million ounce gold operations. We have excellent communications between our executive team at our head office in Vancouver and our operations. Additionally each operation has very strong general managers in place with many years’ experience with each operation.”

Mr Hall prioritised production improvement at Cosmo, which had hit some snags in the latter half of 2015 due to ground conditions, equipment availability and reconciled grades.

Modifying the milling strategy – including a reduction in daily throughput to improve dissolved oxygen levels – led to increased stockpiles in March, resulting in stronger recovery performance of 93.3 per cent. The improvements continued into the first quarter of 2016 with a strong stoping performance as a result of the production sequence moving towards the higher-confidence core of Mining Block 8 and a focus on ore quality.

Increasing cash

Newmarket entered the June quarter with a strong balance sheet, reporting cash of US$52.1 million – a US$15.6 million increase from year-end – and US$38.6 million working capital at quarter-end, with reduced debt to US$1.6 million. This was due to record production at Fosterville (33,133oz), record low consolidated all-in-sustaining costs (AISC) of US$908/oz and consolidated operating costs of US$701/oz.

Newmarket attributed the lower operating costs to the Australian dollar and the increase in grade both at Cosmo and Fosterville during the quarter. Fosterville production was credited to an “incredible grade increase” beginning in the second half of 2015 due to the high grade visible gold zone called the Eagle Fault and East Dipper zones.

Newmarket Gold is developing Maud Creek in the Northern Territory and Big Hill in Victoria.

Newmarket Gold is developing Maud Creek in the Northern Territory and Big Hill in Victoria.

These new zones were discovered right in underground infrastructure and helped increase the Fosterville grade in the first quarter of 2016 to a record 7.34 grams per tonne of gold. Reserves increased 34 per cent to 244,000oz of gold as a result of the Eagle Fault zone discovery.  Stawell produced 8,579oz of gold from remnant underground mining and campaign mining lower grade stockpiles, which saved on development costs.

Cosmo produced 16,340oz of gold – a 27 per cent increase compared to the fourth quarter of 2014 as a result of higher grades, reflecting a combination of mine sequencing and improved grade control, and improved mill recoveries.  Operating cash flow of US$18.3 million was based on revenue of US$66.1 million from 57,796oz sold.

Mr Forster said the company’s strong performance reflected solid consolidated gold production, low operating cash costs and a rally in the gold price.

“We have seen an increased gold price since January and it is holding above US$1200,” he said. “It is hard to say what will happen with the price of gold, however we try to remain focused on our costs to ensure we can perform well regardless of where the price of gold is trending.

“We do believe that the gold price will remain buoyant but volatile due to the negative interest rates in some countries, the global deflationary environment and the quantitative easing (QE) programs around the world; however, most of that is out of our control.”

Mr Forster said costs would continue to reflect “our improving consolidated grade and recovery profile” driven by record grades at Fosterville and cost containment initiatives.

“With the full conversion and redemption of our convertible debentures, which eliminates interest payments of C$2.8 million per year, we ended the quarter essentially debt-free with only US$1.6 million in long term debt on the balance sheet.”

Mr Forster said the company was “well positioned” to achieve 2016 production and cost guidance and would “continue to deliver positive operating results and generate significant cash flows this year”. Newmarket would also continue to invest in near term exploration programs to support organic growth, with the aim of adding quality ounces to extending mine life across its operations.

Development

In May Newmarket released a Preliminary Economic Assessment (PEA) for its Maud Creek gold project in the Northern Territory,  outlining the viability of developing a conventional open pit and underground mine using the existing Union Reefs processing facility. A mine operating for 9.5 years would produce an average 52,000ozpa, with peak annual gold production of about 70,000oz.

The company’s move to focus on Australian gold was completed in 2015.

The company’s move to focus on Australian gold was completed in 2015.

“[The results confirmed] excellent low capital since the study was based on utilising our currently operating and permitted Union Reef mill, which helped tremendously on the project economic outcome,” Mr Forster said.  “We are now reviewing the results of the PEA and determining the next best steps for the project.

“The Union Reef mill processes about 800,000 tonnes per annum from Cosmo and has 1.2 million tonnes of excess capacity. This would be a great organic growth opportunity for the company.”

Mr Forster said the benefits of utilising Union Reef included the ability to realise value from the oxide gold mineralisation mined through open pit mining and the fresh sulphide mineralisation from underground mining methods. Pre-production capital costs were estimated at $42 million (US$32 million) with life-of-mine (LOM) operating cost estimates of $1101/oz (US$847/oz) and LOM capital cost of $113/oz.

Newmarket was also advancing the Big Hill gold project at Stawell in Victoria – a shallow low cost open pit development stage project which would process feed through the Stawell mill.  Permitting approvals were pending at the project in late May.

Exploration

Newmarket spent US$3.8 million on a massive step out drilling program at Fosterville during the first quarter of 2016, focused on expanding 2015 resources underground and from surface. Positive results, released in May, confirmed the potential to expand Fosterville’s resources and reserves up and down plunge of existing areas.

Exploration was continuing into June on the Phoenix, Lower Phoenix, Lower Phoenix Footwall, East Dipping, Kestrel and Eagle Faults, with six active drill rigs operating underground and two drilling step-out extensions.

In addition, Newmarket was planning to drill a new discovery on the East side of the Stawell underground mine – a zone called Aurora B.

Mr Forster said all planned drilling programs would be “gold price dependant and success contingent; we will be prudent on our growth capital allocations”.