Shares on issue, proved ounces in the ground you can take your pick GLN or ADU. But only GLN will be in production IMO. GLN are doing the sums at the moment. A report about GLN on
Friday, August 13, 2004 EXPLORER Gleneagle Gold Limited has fulfilled its promise to find more mineralisation on its Peak Hill tenements. The question now is: when will it start mining?
This year's Diggers and Dealers Forum marks the one year anniversary of Gleneagle Gold's listing on the Australian Stock Exchange.
It's been a hectic 12 months for the junior which raised $4.54 million through the issue of 22.7 million shares via IPO in late July 1993.
Apart from finding a place to hang the shingle, Gleneagle has been busy recruiting its exploration team, reprocessing the data sets that came with the Fortnum project from vendor Perilya Mines and mobilising drill rigs. In the 12 months since listing Gleneagle has completed some 17km of reverse circulation drilling, 0.7km of diamond drilling and 3.4km of aircore drilling.
It's this willingness to drill (and the solid results that have come from those holes) which has earned Gleneagle a loyal following among stock watchers. Their reward has been to watch the company's price rise from 20c per share at IPO to a high of 43cps. At press time that number was softer at 35.5cps but this weakness was in line with the general market malaise that normally comes with the end of the financial year.
One of the reasons punters have pricked up their ears is the speed at which Gleneagle has been able to deliver results. In the first six months of its life the company has more than doubled its resource base from 326,900 ounces to 673,300oz. The main driver of this has been the Yarlarweelor pit which sits just two kilometres south of the company's one million tonne per annum Fortnum treatment plant which is on "care and maintenance".
According to Gleneagle's managing director, Ian Prentice, when the company took over the project Perilya had identified 91,000oz in resources beneath and to the south of the Yarlarweelor pit. However, Prentice said he had been confident more gold would be found along strike.
"We've extended Yarlarweelor 200m beyond the resource limit to the south and we've chased the mineralisation down to 150m vertical which would appear to be about the limit for an openpit," Prentice said.
"We've still got high-grade intercepts at depth but for now we're taking a step back and have started a scoping study to see what sort of mineable resource numbers Yarlarweelor and the Horseshoe deposits will throw off."
Horseshoe which lies 30km by haul road to the south-east of the plant is the company's other key deposit. Dominion Mining mined Horseshoe back in the early 90s and hauled dirt to its Labouchere treatment facility which is about 4km past the Fortnum plant, producing about 84,000oz at a head grade of 2.6grams per tonne.
The plan will be to develop these two deposits at once and mix their hard and soft natured ores to form a constant feed for the Fortnum plant.
"Right now RSG is updating the Yarlarweelor resource, Resource Evaluations is updating the Horseshoe resource and we've brought in consulting engineer Frank Sibbel to run the coordination of the scoping study," Prentice said.
"Apart from the resource definition and mine planning, the study will also look at plant recommissioning. We think it will cost about $1.5 million to switch it back on, which will include modernising some parts of the process to incorporate new technology."
A former mining analyst, Prentice is acutely aware of companies which have started mining without putting enough paydirt in front of their plant.
"There is no target of X ounces or Y tonnes but we must have robust numbers before we begin," he said. "The worst thing you can do is have your geological team running around trying to find mill feed instead of exploring for the more substantial deposits.
"Initially I'm looking for about two to three years of mine life. I think Yarlarweelor and Horseshoe should provide a good base for this with a number of smaller resources to supplement these deposits."
Those smaller oxide targets include Callies North, Nathans, Durack and Regent. At Durack, RC drilling in June encountered some lovely high-grade zones. Best hits included 12m at 8.04gpt from 87m, 8m at 7.15gpt from 14m and 25m at 3.19gpt from 77m.
Interestingly, Prentice is toying with the idea of not just contract mining but contract plant operation as well.
"Our focus is on exploration," he said. "That's where our skill sets are and that's where our strength as a company is. Our shareholders are not going to get much value by us having an army of people in West Perth running a small mining operation. Our real value will come from a discovery. We're luckier than some in that we have a plant at hand to capitalise when we find something."
The discovery opportunity Prentice alludes to is something akin to the Starlight underground mine which Perilya exploited in the late 90s. While only a modest 110,000oz in size, its relatively high-grade and easy mining nature meant it gave up roughly $20 million in free cash.
The tremendous upside such a discovery could provide has not been lost on Gleneagle's directors who in May implemented a rights issue at 35c to raise $2.1 million to accelerate regional exploration. This was underwritten by ABN AMRO Morgans Corporate.
"I have to say that the Fortnum database has proved a fabulous tool for us," Prentice said.
"We've spent the past two months going back over the data and shaking out targets. There are a number of areas with RAB lines which went a couple of metres (of gold intersection) that have not been followed up."
"We're also going over the geophysics, defining anomalies that need to be tested."
A 5000m aircore drilling program was scheduled to start in July to test some of these areas.
With $3.5 million in the kitty, Gleneagle is fortunate that it doesn't have to rush its plant turn-on decision. Although it had to hand over $1.05 million as an environmental bond (which must be kept at bank) when it bought the project, a sale of surplus assets and a gold clean-up from roadways around the plant has yielded about $900,000.
Despite the plan to ensure mine life security it must be tempting for Prentice to hit the Fortnum switch now given the Australian gold price (at press time) was a healthy $550 per ounce.
Prentice acknowledges the conundrum. "In rough terms our cash costs should be sub-$400/oz," he said. "Assuming a A$550/oz gold price and we're doing 60,000oz per annum, then we would be making about $9 million per annum in free cash.
"With the expected low cost start-up this would provide us with a healthy exploration budget to enable our exploration team to accelerate efforts in the search for further significant discoveries in the Peak Hill goldfield."
Prentice says the scoping study numbers will be crunched by late July to early August enabling Gleneagle to determine the near term operating future of the project.
If the decision is made to start mining again, Gleneagle has a tremendous advantage in that all of Perilya's grade control, mill reconciliation, pit wall strength and metallurgy data are at hand. In other words Gleneagle can mine with relative confidence.
In the face of all this upside Gleneagle's transformation from explorer to miner seems assured. It's really just a question of not if but when.
ASX Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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