Grade up and costs down for Avoca Kate Haycock --- MINING NEWS...

Grade up and costs down for Avoca

Kate Haycock --- MINING NEWS ---
Monday, 27 April 2009

ON the heels of its bid for Dioro Exploration, Avoca Resources says it is hitting its straps at the Trident mine in Western Australia, with cash costs set to fall as grades head towards 7 grams per tonne gold.

After lobbing in with a $A49 million all-scrip bid for fellow Australian gold producer Dioro, there were concerns among some analysts about Avoca’s cash costs and the combination of the two companies’ high-cost assets.

BGF Equities analyst Warwick Grigor, for example, said that cash costs for Avoca were $A805/oz in the December half, while Dioro’s cash costs had been running at much more than $1000/oz.

Avoca answered these concerns today by saying it had begun processing high-grade ore from the 1005 level Western Zone at its Trident deposit in the Goldfields.

As a result, head grades coming into the treatment plant have increased to 5.2gpt gold, with the estimated grade of stop material from the 1005 level coming in at around 7gpt.

With 55% of the mill feed coming from the higher-grade level, the company said it produced a record 3678 ounces of gold from 22,511t of ore processed, with recoveries at 97.8%.

Avoca said it expected production from the 1005 level – primarily the Western Zone and the Athena lodes – would become the primary mill feed for its Higginsville operations.

Avoca managing director Rohan Williams said the company was “hitting its straps” at Trident.

“We are confident that Avoca will produce 180,000oz in financial year 2009-10, at cash costs of approximately $A450 per ounce,” he said.

Overall, analysts say that if Avoca can hit its stride at Trident, then its offer for Dioro could help boost the company, with Dioro’s half-owned Frog’s Leg mine the key asset for Avoca.

Analysts from Argonaut warned, however, that investors should pay attention primarily to Trident, saying the mine needed a head grade of at least 5gpt to make money.

Goldman Sachs JBWere likewise said Dioro’s South Kal operations should not be allowed to take focus away from Avoca’s focus on firming up its Trident resource, and analysts at UBS agreed that Avoca needed to firm up resources and reserves at Trident as a priority.

Shares in Avoca were last traded at $1.565, up 3.5c today.