December 22, 2008 Perseus Livens Christmas Spirits
By Our Man In Oz
If Mark Calderwood finds nothing under his Christmas tree on Thursday morning he will not be complaining. As chief executive of the Australian-based, African-focused gold exploration company, Perseus Mining, Calderwood thinks Christmas might have come early in the form of “very forgiving” ore at the Ayanfuri project in Ghana. Sounding appropriately Christian in the festive season, “forgiving” ore liberates its gold easily. So easily in the case of Ayanfuri that Calderwood and his team are spending the holiday season crunching numbers to discover exactly how much they will save in processing costs, starting with a much smaller crushing mill, less electricity, fewer consumables and the elimination of entire sections of a conventional gold plant. From a per-ounce production cost in the US$430 range the new back-of-the envelope estimate is in the low US$300 range.
In Australian slang terms, even a legendary character known as Blind Freddie (and his dog) could see that saving around US$100/ounce on production costs has a dramatic effect on financial calculations, not to mention the potential impact on a company’s share price. “We’re certainly looking at some major benefits,” Calderwood said when Minesite’s Man in Oz spoke with him a few days before Christmas. “Precisely how much we’re likely to save should be known in a few weeks, but a starting point in the exercise is that we’re likely to need a much smaller mill, and use far less electricity.”
For newcomers to Perseus it is a company which has discovered a number of very promising gold lodes in Ghana and neighbouring Ivory Coast. Ayanfuri, near the Atlantic Coast in the central Ashanti gold belt, will be the first cab off the company’s rank. After that, subject to ongoing exploration, will come the Tengrela prospect in the north of Ivory Coast, close to substantial goldmines in that country and neighboring Mali. Interesting as Tengrela is likely to be in the future the action today is at Ayanfuri where Perseus has pinpointed an initial resource of 1.9 million ounces of gold, the major part of a total west African resource of 4.7 million ounces in the assorted classification which make up gold-in-the ground estimates.
In early October, Calderwood said the first pass of a definitive feasibility study had produced a base case for a mine at Ayanfuri yielding 196,000 ounces of gold in each of the first five years of a 10 year campaign, and 162,000 ounces in each of the final five years. The estimated capital cost was US$175 million, based on a mill processing 4.5 million tonnes of ore a year, to produce gold at around US$430 an ounce. But, having produced numbers which are reasonably attractive in a financial climate where gold is selling for around $830 an ounce Perseus has been lured back to the drawing board courtesy of Ayanfuri’s forgiving ore, a development delay which appears to have annoyed some investors who have failed to spot a change for the good. They’re the bunnies who dumped Perseus at A20 cents a share late last month and missed the bounce to A36.5 cents late last week., which is still well short of the stock’s 12-month high of A$1.60 though the trend in this case could definitely be your friend given the outlook for the gold price.
“Our plans are changing because the process route has been changed,” Calderwood said. “Basically, we’re getting some major benefits in processing. Even though it’s a classic free-milling carbon-in-leach (CIL) circuit we can still improve it dramatically.” Calderwood said guidance for the market on exactly what is being achieved should be released in the next few weeks. “All we can say at this stage is that we’re dealing with massive changes in capital and operating costs,” he said.
An early guide to what Calderwood is pointing to is a benefit to be gained from the ore releasing its gold very easily. “What we found is that during a flash floatation test we got much better recovery than we expected,” he said. “What that boils down to is that we can double the grind size, get a higher recovery, and have a throw-away tails having extracted 97 per cent of the gold. That means you reduce the size of the ball mill and crushing circuit, get rid of the back end of the mill, and produce a 3 per cent concentrate which is 40 to 80 grams a tonne, and just treat that as free milling concentrate and save a fortune on power, ball milling, cyanide, and all sorts of other stuff.”
As Calderwood explains the latest events at Ayanfuri it occurs to Minesite’s Man in Oz that what he’s really talking about is the equivalent of a significant “above ground” discovery. It’s the same orebody, but it’s just got a lot more profitable, leading to this logical question: what are the likely savings in costs? “We’re still doing the numbers,” is Calderwood’s answer. But, it is substantial?, asks Minesite. “Very substantial,” he said. “We hope for some indicative numbers in a few weeks, but we’re still pushing the grind size. We’ve done flotation work at 212 and 1000 micron and we think it’s somewhere between where the action is. We’re still playing with it, but as a general rule, every time we increase the grind size it makes a huge difference.”
In case Minesite’s technical chat with Calderwood has lost less technically minded readers there is a simple explanation. Essentially, by increasing the grind size Perseus is planning to spend less time, effort and money on crushing the ore. “What we mean is that we relax the grind, it means a coarser grind. It means a small mill is likely to be required, less wear and tear, less power. Savings all round.”
Now for the Biblical bit to complete the Christmas message from Perseus. “You can say that the ore is very forgiving,” he said. It sounds like a rather Christian orebody is the tongue in cheek suggestion from Minesite. Ho Ho Ho!!!, is Calderwood’s reply, before switching back into technical mode to explain what it all means. “A forgiving orebody is one that doesn’t disappear on you when you mine it. Forgiving metallurgically means it doesn’t give you grief when you mill it.” To put all this into perspective Calderwood explains that a conventional gold mill reduces ore to a between 75 and 106 microns. “We’re looking at 212 microns, or more. It can save 30-to-40 per cent of your power bill, and cut back the use of grinding media.”
Financially, the benefits are huge. “We need to produce the exact numbers but basically we’ll go from a 26 per cent internal rate of return (IRR) double or treble that number, which is what you have to do in this market,” he said. “The game is over for sub-30 per cent IRR.” Calderwood said in the early years of the project he was hopeful of dropping costs into the low US$300/oz range.
PRU Price at posting:
37.9¢ Sentiment: LT Buy Disclosure: Held
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