Resolute Mining Ticks the Boxes For Exploration, Development And Production
Peter Sullivan has just got back to Perth after a visit to Resolute Mining’s Syama project in Mali. From his tone he was satisfied with the initial progress being made on development and this is just as well because, as he points out, Syama is Resolute’s major asset. It accounts for more than half his company’s reserves and resources, but while development is proceeding there is not a lot of news that a company can give. This is a common complaint as investors tend to think that bringing a mine into production, once finance is in place, takes weeks not months. In the case of Syama commissioning will not take place until autumn next year, but the wait should be worth it.
For a start Syama is expected to contribute 250,000 ozs of gold to the company at a cash cost of around US$370/oz. This should deliver a healthy profit and it is encouraging that the company is not looking to banks for development funding as they would inevitably demand further hedging. Towards the end of last year Resolute received A$199.5 million from the sale of its shareholdings in Valhalla Uranium, Paladin Resources and Goldbelt Resources so it is in a strong financial position. As at the end of 2006 forward sales amounted to 326,000 ozs gold at an average price of A$697/oz (US$562), but by 2009 when production should be bolstered to around 500,000 ozs thanks to Syama there will only be 172,667 ozs of forward sales still to be delivered into, so the impact will be minimal. It is also worth noting that Resolute did not have to raise money by dilutive funding as a result of these share sales. As Syama is so important to the company it is worth dwelling on it for a moment. As everyone knows the metallurgy was too difficult for either BHP or Randgold Resources to crack, but Peter Sullivan reckons it is going to be third time lucky. The ore has a high refractory and carbonaceous component that needs roasting to recover the gold. The previous operators designed the plant for whole-of-ore roasting, but the problem was that the energy content of the ore ,mainly from sulphur, was insufficient for the roaster to run auto-thermally by generating its own heat and had to be boosted by using diesel. Resolute is installing a float plant, and turning it into a concentrate roaster, and the concentrate will have sufficient energy to run auto-thermally. Simple it may seem, but as Peter Sullivan admits the problems encountered in the past helped his team to come up with this solution. Inevitably there have been some cost increases for the project since the estimate was completed just over a year ago, but nothing serious. In fact the biggest increase has been in the cost of electricals as more cable was required and the price of copper rose significantly in 2006. A revised financial model shows that the rise in costs has been matched by the increase in price of gold and the good news is that there are underground resources below the pit which , when combined with the exploration success in the Quartz Vein Hill area north of the pit, should extend the life of the mine significantly. Talking of increased mine life the Golden Pride mine in Tanzania has also confirmed that it will be in production for at least another six years and exploration of more prospective ground that has now been secured around the mine could extend its life even further, if successful. It is now focusing on a new pit design with a lower strip ratio and slightly less ounces. However, the pit also contains 110,000 ozs of inferred resources which have not been taken into account and drilling is taking place below and around the optimised pit which could be expanded to include new resources if they prove economic. The main problems at the mine, according to Peter Sullivan, are the mining contractor, whose efficiency is under review, and the age of the equipment which is now having to deal with fresh rock. The treatment plant also had some problems in the December quarter, but production is now back to normal. This leaves only the Ravenswood mine where there were also some disruptions to plant operations, but it is surprising how few plants run completely smoothly. Matters have not been helped by flooding from heavy rainfall in the Sarsfield open pit which caused a temporary halt to operations last month. Looking ahead, however, the development of the Mt Wright underground mine is on schedule and first ore production can be expected during the next quarter. Initially the contribution will be modest, but by the middle of next year it will produce a significant proportion of Ravenswood’s gold. The other aspect of Resolute’s activities which seems to receive scant comment is the success of its joint ventures around Syama and Golden Pride. Excellent drilling results have been reported from the joint venture with Etruscan Resources at Finkolo in Mali, for instance, where Resolute is earning a 60 per cent interest . Intersections of 43 metres at 4.3 g/t and 10 metres at 201.1 g/t should be enough to attract the attention of most geologists. The other point of interest is the small independents such as Glencar Mining and Great Quest Metals which are also carrying out successful exploration programmes in the vicinity of Syama. By the time Resolute is firing on all three cylinders in 2008, it could find a new role as consolidator in the area and thus boost resources and reserves even further.
RSG Price at posting:
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