Silver Lake Adds Copper To Its Gold Profile By Our Man in Oz
Throwing the baby out with the bathwater is such an old tradition that no-one should be surprised that the same mistake is being made on stock markets around the world today with sellers of Silver Lake Resources arguably making the biggest blooper of all. Over the past week, largely thanks to the pall of gloom enveloping European financial markets and the closely related panic-selling of gold, ASX-listed Silver Lake has retreated from an all-time high of A$3.87 on December 8 to take a peak below A$3 on December 19. Such a sharp swing, from euphoria to despair over just eight trading days, makes the point that investment funds confronting redemption demands, or investors facing margin calls, are being forced to sell the best assets in their portfolios to raise cash. They are, in effect, tossing their “babies” out with the bathwater because if they could hang on to anything Silver Lake would be it.
Strong and rising gold production, coupled with exploration success, is what attracts most investors to Silver Lake, which is as purely Australian as is possible without the company wearing a slouch hat with corks around the rim (while holding a can of Victoria Bitter). But, what’s also caught the eye of seasoned followers of events along the great geological sheer-zones that run to the north and south of Australia’s gold capital, Kalgoorlie, is a whiff of high-grade copper. In fact, it’s more than a whiff because the best drill hit reported last month from the Hollandaire prospect was an eye-popping 45 per cent copper in an admittedly thin one-metre section of core, with equally impressive gold grades of 5.5 grams a tonne, plus silver up to 256 grams per tonne.
One drill hole is not enough to shout eureka, but nine encountering mineralisation which is open in all directions is the start of something significant. That’s why Silver Lake chief executive, Les Davis, is throwing A$20 million in a dramatic expansion of the exploration campaign at Hollandaire, which lies within the Eelya complex, some 4 kilometres north of the company’s next gold-processing centre at Tuckabiana, about 100km south of the historic goldmining centre of Meekatharra. “It’s only nine holes, but to hit the stuff we hit, in all nine holes, is not a bad start.”
It’s probably better than that because copper has been putting the area to the north of Meekatharra on the map over the past two years because that’s where Sandfire Resources has made its rich Doolgunna discovery which will start production next year. No-one is drawing a connection between Sandfire’s discoveries and those in the Eelya complex, but it is a subject of speculation among old-timers in the Western Australian mineral fields. As if a dash of the non-science called near-ology isn’t enough to generate interest in Eelya and the Hollandaire copper discovery there is the prospect of any mined material being easily processed in the soon-to-be built plant which Silver Lake is installing at Tuckabiana to give the company its second goldmining centre.
Rather than Silver Lake being seen as a one-trick pony with its Mount Monger operations the sole source of cash flow, admittedly from five mines (four underground and one openpit), the company is expanding to two sources of gold, with copper to come. It is the combination of projects which will transform Silver Lake over the next three years from a modest producer of around 80,000 ounces of gold a year into a business theoretically producing close to 300,000 ounces at a cash cost somewhere between A$500-and-A$700 a year, sufficient to ensure a handsome profit margin even if the gold price retreats further during Europe’s deep financial freeze.
The investment fundamentals of Silver Lake are numbers which sit in stark contrast to the heavy selling of the past week. The two mining centres (Mt Monger and Murchison) contain a resource of 3.2 million ounces of gold (1.5 million at Mt Monger and 1.7 million at Murchison). The grade at Mt Monger is an excellent 8.9 grams per tonne spread across a number of deposits. Murchison is 2.8 grams per tonne spread across 14 potential open-pits. Both centres have an expected mine life of at least 10 years with the soon-to-be-developed Murchison project expected to achieve financial payback in less than two years at a gold price of A$1400 per ounce.
Hollandaire, the cream on the Silver Lake cake, is not likely to be a heavy lift. “It will not be an expensive exercise to add copper to our production profile,” Les said. “We’re already spending A$65 million in the Murchison establishing the gold business and that includes installing a crusher we acquired cheaply which is bigger than what’s needed to feed the gold processing circuit. The crusher can handle 500 tonnes an hour which means it will only have to work for six-to-hour hours a day to feed the gold mill. So I’ve got plenty of crushing capacity if I want to run a one million tonne a year copper show if that’s what is proved up.
“We will need other plant and equipment to add copper to the site, but Hollandaire is only 4 kilometres north of Tuckabiana, and we’re really only talking incremental capital outlays to add another grinding circuit, flotation and thickeners, and a concentrate shed,” Les said. “We’re really talking tens of millions of dollars not hundreds of millions to add copper to the Murchison operation. Another surprise from the copper drilling is that we’re getting the highest copper grades where we’re also getting the highest gold grades, so we could end up getting a bonus 10-to-15 per cent in extra gold at Tuckabiana while also adding copper to the portfolio.”
Exploration news from ongoing drilling at Silver Lake’s flagship Mt Monger operations will be another driver of interest in Silver Lake over the next few years, especially as it continues to unlock the geological secrets linking several lines of lode and associated historic workings south of Kalgoorlie. The key to what’s happening on either side of the company’s principal development at the Daisy Milano mine is what might be called an at-depth “dot joining exercise”. The most important connection so far is finding a link between the Daisy Milano orebody and the adjacent Haoma orebody, an event that occurs several hundred metres below the surface.
The next step, for avid followers of gold exploration, promises to be the most interesting yet with Les confident that his team is close to unlocking the secrets of the entire Mt Monger mineral field. “We have the best ever geological understanding of the field, with the richest gold in the western corridor of the rock units. It’s a big paddock but the current step is to drill 600 metre flat (horizontal) holes to test new areas. We’re going straight across with lateral drilling which is giving us a totally new look at the geology by drilling across it, rather than down through it.”
As a complete package, Silver Lake is it. It has ongoing gold production at Mt Monger. A new gold centre under development at Murchison. A copper “kicker” in the Eelya complex, and the prospect of blue-sky discovery news from novel drilling techniques in an historic goldfield which has seen very little work done below the 100-metre mark – which adds up to a reason to buy, not sell.
