Strong Australian dollar gold prices are fuelling a renaissance of sorts in gold production from South Australia’s outback.
The state is already a big gold producer from byproduct gold output from BHP Billiton’s Olympic Dam and OZ Mineral’s Prominent Hill copper operations.
But it is currently absent a producing goldmine. That changes in the months ahead with first production due from Havilah’s Portia development, and the resumption of production at the Challenger mine by its new owner, WPG Resources.
Both owe their 2016 production start to the strength of the Australian dollar gold price which last traded at $1620 an ounce.
Thanks to amplifying effect the fall in the exchange rate has had on the US dollar price, the local price is within 11 per cent of its all- time high (2011) of $1822 an ounce.
Novel joint venture structures have also been employed to get Portia to the start line, and to revive production at Challenger. Both have mining contractors as 50:50 partners. In the case of Havilah, it is Consolidated Mining & Civil (CMC), owned by Broken Hill’s Radford family, while WPG has Pybar, the mining services group based in Orange, NSW.
Havilah and CMC have just accessed their first gold ore at Portia, about a six-hour drive from Adelaide or 1½ hours from Broken Hill.
The ore is now sitting on the surface ready to be processed at a processing plant due to be commissioned in mid-April, with the first gold pour expected by the end of the month.
Unlike a traditional joint venture, the Portia partners have entered into a revenue sharing partnership, with CMC responsible for mining and Havilah responsible for building and operating the processing plant. The revenue from that is to be split 50:50.
Havilah acquired the 1998 Portia discovery from the receivers of base metals group Pasminco in 2003.
“People often ask why did it take so long for Portia to be developed,’’ Havilah’s managing director Chris Giles told The Australian. “And it is a fair question too,’’ Dr Giles said.
“We actually applied for a mining licence back in 2007, just before the global financial crisis. And then the Mines Department asked for more geotechnical work because the orebody is covered by overburden material no one else had mined through in the state previously.’
“Come October 2014 we finally got the mining lease and all other approvals to start the mine. Our shares were at a record low and the banks did not want to know us. So we were stuck. That’s when I had a chat to Steve Radford from CMC about some sort of partnership arrangement. He was prepared to take the punt and, come March 2015, we turned the first sod of dirt.
“In the meantime, Lady Luck has really smiled on us and the local gold price has done nothing else but go up. And the diesel price has about halved, so we couldn’t have been much luckier,’’ Dr Giles said.
On the strength of the CMC partnership, Havilah was able to secure a $6 million loan from Investec to fund the processing plant. It is not the biggest gold mine around, with the initial open pit development taking in 53,600 ounces of gold.
But based on a (lower) $1500 gold price, the mine will nevertheless generate about $40m of free cash to Havilah which last traded at 40c for a market capitalisation of $67m.
The funds are set to give Havilah the horsepower to begin advancing the much larger Kalkaroo copper/gold deposit, 20km south of Portia. It is a much bigger deposit (620,000 tonnes of copper and 2 million ounces of gold) but would require more than $350m to develop.
Across at Challenger, WPG and Pybar plan to resume production at an annual rate of 50,000 ounces before the end of June.
HAV Price at posting:
40.0¢ Sentiment: Hold Disclosure: Held
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