There’s a lot of rubbish on HC, so I wanted to share some information about MDI to help inform research about this stock.
Wherever possible I’m including links to the source information so you can DYOR. If you don’t agree with any of the below, that’s ok.
I’m not giving financial advice. I’m open to hearing alternate points of view, but try to back up your opinions with research and facts, rather than personal bias.
In terms of background, we know that that in late 2016 MDI conducted a pre-feasibility study (PFS) at a gold price of A$1,600/oz to assess the potential to recommission the Sandstone operation. The 2016 PFS concluded that the mine would be successful on an operational basis but the economics were insufficient to attract the investment capital required to recommission the mine on the basis of only the Two Mile Hill and Shillington open pit deposits (ref. www.middleisland.com.au/wp-content/uploads/2017/12/2017-Independent-Investment-Research.pdf)
The key points to note are the gold price at the time and the reliance on only two open pit deposits.Since then, the gold price has increased to more than A$2600, which is likely to be sustained for a number of reasons, including COVID-19, US/China tensions, Quantitative Easing, and unconventional monetary policy (ref. www.wsj.com/articles/why-gold-prices-high-warren-buffet-11597691966).
Since late 2019 Middle Island has completed more than 45,000m of drilling in their Phase 1 and Phase 2 programs, extending several existing Sandstone deposits, and identifying five new satellite open pit deposits. Three of the new open pit deposits (Ridge, McIntyre, McLaren) display continuity to potentially form a much larger open pit (ref. www.middleisland.com.au/wp-content/uploads/2020/07/20200729_Significant-Drill-Results-_McIntyre_ASX.pdf)
Additional drilling is now targeting the ‘Shillington Gap’ between the Shillington open pit resource and the three deposits at Ridge, McIntyre and McLaren, which is a distance of more than 1km. There is potential that this ‘gap’ could become a single large open pit resource (ref. www.thewest.com.au/business/public-companies/fifth-new-gold-find-for-middle-island-at-sandstone-c-1074612)
To support the mining decision their immediate strategy is to prove the open pit inventory and then recommission the Sandstone mill. Recommission of the mill will take $10.4M for refurbishment and not more than five months (ref. www.middleisland.com.au/wp-content/uploads/2017/11/2017-Sandstone-Mill-Capability.pdf).
The mill is no rust-bucket - it was last upgraded in 2005 when Troy Resources upgraded the milling facilities to be able to process 600,000 tonnes per annum. It was then placed on care and maintenance in 2010. It might not look shiny and new, but it is functional. Between 1998 and 2010 Troy Produced 548,436 ounces of gold at the mill, with an average annual production of just over 42,000 ounces, at an average grade of 3.18g/t. Sandstone was very profitable for Troy in the past, having been the lowest-cost gold producing mine in Australia in the early 2000s. (ref. The Australian Mines Handbook: 2003-2004 Edition, page 530). As a result the share price of Troy reached over $4 at its peak.
MDI have stated that mining will commence with the open pit resources, then mining of their open pits and U/G mine at Two Mile Hill in parallel using block cave extraction. They can use this technique because the ore body at Two Mile Hill is presented as a single mineralised ‘plug’ extending more than 700m deep (ref. www.im-mining.com/2018/07/30/two-mile-hill-underground-mine-concept-step-closer-following-ore-sorting-trials/)
Block caving is pretty interesting - it’s an underground hard rock mining method that involves undermining an ore body, allowing it to progressively collapse under its own weight. The cost of block cave mining is about 1/10 of the cost of conventional methods because drilling and blasting costs are far less, and there are no backfilling costs (ref. www.geoengineer.org/news/block-caving-a-new-mining-method-arises)
So we have a situation of record high gold prices and record high exploration activity. It took three years after the start of the previous financial crisis for gold prices to peak, so it’s possible that the gold price will continue to climb (ref. www.theaustralian.com.au/business/the-wall-street-journal/alltime-high-as-investors-take-a-shine-to-gold/news-story/bdf87f9b0c1d33835739018855d06bdb).
IMO, this makes MDI compelling because it is close to proving the resources needed to justify making the transition from explorer to producer within a very short timeframe, and it could be pouring gold as early as the second half of 2021. Rick Yeates has stated that there is almost a certainty MDI will recommission the mine (ref. www.youtube.com/watch?v=3EQLXX4FWaM quote @8:15)
Production will be 25,000 ounces initially, increasing to 40,000 ounces and then 80,000 ounces per annum (ref. www.youtube.com/watch?v=3EQLXX4FWaM quote @ 11:40)
If we assume the gold price remains at A$2600 that’s anywhere between $65M and $208M each year before costs. I haven't included the revenue MDI could generate from toll milling, which is likely to be very attractive to Alto Metals who are now proving up their own resources.
So DYOR and keep an eye out for the announcement about recommissioning Sandstone, which will be released before the end of this year.
Most other junior explorers are a LONG way off their first gold pour, but MDI could be there in late 2021.
Expand
