WPG Resources: Challenge accepted

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 02 Feb 2018   Posted by admin


All images: WPG Resources.

 

BY ELIZABETH FABRI

 

THE trials are far from over for WPG Resources, but with development finally moving ahead at Challenger Deeps, a planned mill expansion nearing completion, and on site contract issues easing, 2018 is set to be a turnaround year for the company.

 

The 2017 year was tough for WPG Resources— perhaps its most disappointing to date.

After acquiring full ownership of the Challenger Gold Operations in August 2016, all signs were pointing towards 2017 as a year of profit.

But come 30 June 2017, the company’s balance sheet was in trouble.

“Although we reported an EBITDA of a positive $0.8 million, our statutory loss of $9.1 million and total production of 50,882 ounces of gold which failed to meet guidance of 52,000 to 56,000 ounces were absolutely unacceptable,” WPG chairman Bob Duffin said at the time.

“The company’s performance in the year under review has been disappointing.”

WPG attributed the loss to a number of contributing factors, including the alleged underperformance of its now-replaced head contractor.

The shortfall meant higher grade virgin stopes that were originally scheduled to be accessed were not, leaving the Challenger team with no choice but to extract ore from the older and shallower parts of the mine; in turn stifling its profit.

 

“We expected by 30 June 2017 we would have had the best part of $20 million profit, not a $10 million loss,” WPG chief executive Wayne Rossiter told The Australian Mining Review.

 

“It’s been pretty difficult because obviously the engine room for any mining company is production and when you’re not getting the grade you should be getting as the result of the performance of a contractor; it’s a pretty frustrating position.”

“We’re not a big company; we’re a small market cap company so the situation you find yourself in is you don’t have the financial buy power to do very much about it, and you just implement all the management tools you can on site to get the performance (development metres and drill metres) and when they don’t eventuate the situation goes from bad to worse.”

The mine-plan unravelling began in mid-2016 when minor performance issues were encountered, and in December 2016 it came to a head when the Challenger mine was squeezed down to one stope.

“At that point in time PYBAR provided an additional jumbo at their cost with the view to remedy that situation,” Mr Rossiter said.

“That jumbo came on board mid-January 2017 and we were starting to hit development targets or get close to them, so we thought things were starting to improve.

“But what happened was we now had three jumbos and the fundamental problem was the lack of skilled fitters to maintain equipment.”

Disappointment after disappointment ensued, and the company’s share price dropped with it.

“It wasn’t until we raised capital in the middle of the year when we were in a position where we could afford to change our contractors and that’s what we did,” Mr Rossiter said.

“That was done on relatively short notice and the new contractor that has come in [Byrnecut] have been doing a very good job.”

“The changeover has been far from seamless –it never is—[but] if that hadn’t happened I don’t think we would be here.”

 

 

 

PYBAR dispute

 

On 3 October, WPG announced it was aware of proceedings commenced against it in the South Australian Supreme Court over the termination of PYBAR’s contract in August 2017.

In early December, WPG filed a defence claim against PYBAR for alleged losses and damages exceeding $9 million for “costs overruns, damage to property, losses caused by improper mining practices, and for recovery of overcharges”.

Mr Rossiter said the dispute between WPG and PYBAR began during unsuccessful negotiation attempts.

“What happened was we were in a position where the underperformance of the mine was resulting in a loss of revenue and PYBAR moved onto extended payment terms and on the back of promises to improve their performance which didn’t eventuate,” he said.

“We started negotiating different payment terms and those sorts of things.

“PYBAR were not willing to negotiate anything reasonable…so we wouldn’t agree to any of that, [which] ultimately led to the dispute.

“It’s been our desire and continues to be our desire to come to an amicable settlement.

 “We have a very strong case, and we’ve now filed that with the Supreme Court in South Australia, and that is the status of that right now.”

 

A turnaround strategy

 

Mr Rossiter said the last year had been hard but the team was now beginning to see the light at the end of the tunnel through its two-pronged ‘turnaround strategy’ which involved accessing the Deeps as quickly as possible, and expanding mill throughput.

“We’ve just hit our first ore drive [at the Deeps] and we’re starting to see some good development grades in that area, but that’s just the start,” he said.

The staged expansion of the Challenger treatment plant to 800,000 tonnes per annum was also progressing despite a recent hiccup.

“We had a mill motor failure in December and we’re deploying our insurance there at the moment,” Mr Rossiter said.

“A 900kw motor failed and we have a 750kw motor on there at the moment which has slowed us down a little bit in terms of our ability to mill.

“But we’re in the process of getting a brand new motor and another spare, so we’ve got to wait for them to be ready.”

On 29 December, WPG announced the maintenance issues encountered at the mill coupled with under-performing stopes at the mine, resulted in lower production for the December quarter than its previously released guidance.

Production for the December quarter was now expected to be about 11,000oz.

However, Mr Rossiter said the short term pain would lead to “longer term gain”.

 

“This short term reduction in gold production, coupled with an increased focus on developing additional stopes in the Challenger Deeps area, will provide greater flexibility in production opportunities going forward,” he said.

 

“Accessing the Deeps area was a key objective when WPG bought the mine almost two years ago, and at last this objective is within sight.”

To help make this happen, WPG has secured a $20 million loan facility from the Byrnecut Group to put towards development.

“The first stoping isn’t scheduled until the end of February, and come April we will be started getting to get a reasonable proportion of our production from the Deeps,” Mr Rossiter said.

The company was also currently in the process of recruiting more staff onto site.

“In our engineering area we have a couple of vacancies that we need to fill so we’re working on that, and from a drilling perspective, right now we have got three drill rigs active on the ground and we’re evaluating bringing a fourth on now so we’ll need the additional support for this.”

Meanwhile, at WPG’s satellite mine Tarcoola (which processes ore at Challenger), the team were starting to get more consistent and higher ore deliveries.

Mr Rossiter said overall the March quarter was a “transitionary quarter” with green shoots beginning to emerge.

“It’s not imminent, it’s not next week, or next month, but we’re in the process of doing that right now.”