Fred Earnest – CEO
Seth Foreman – VP, Corporate Development
Frank Fenne – VP, Exploration
John Rozelle – SVP and CFO
Vista Gold Corporation (VGZ) Analyst Day Call October 23, 2012 8:30 AM ET
Good morning everybody. Welcome to Vista Gold Corp’s Mount Todd Analyst Day in Toronto. For those of you joining us by webcast, it’s a lovely rainy day here in Toronto. My name is Fred Earnest I’m the President and CEO of Vista Gold Corp.
Joining me today here in Toronto is John Rozelle, John, if you could just raise your hand or stand up. John is Senior Vice President of Vista Gold Corp. Also joining us is Frank Fenne, our Vice President of Exploration and Seth Foreman, our Vice President of Corporate Development.
I appreciate the fact that you’ve taken the time to join us today. The Mount Todd Project is a project that we have worked for a long time to get to the point that we’re at today. I would encourage you to feel free to ask questions, I know that sometimes in groups like this people are hesitant to ask a question because you don’t want to reveal your train of thought. But I want you to know that the team that’s here today is prepared to drill down and look at the Mount Todd Project at whatever level of detail you would like to explore that. This is a project that has a bit of a checkered past.
Everybody knows what happened at Mount Todd. I think that there are some very positive things that have come out of that experience. And we will certainly be happy to go through that and answer your questions. I think that you’ll see that as Vista Gold has been working on this project for the last six years that we have a very thorough understanding of what happened, what went wrong, why it went wrong and what needs to be done differently as we move forward with the Mount Todd Project.
Moving to the first slide, the customary forward looking statements, the team will be making some forward-looking statements, I’d encourage you to become familiar with specifically with those terms. It might relate to measured and indicated and inferred resources and prudent and probably reserves.
Today we will be talking about, I will spend a little bit of time at the start of the day here, just to give you a little bit of introduction to Vista Gold Corp, some of our other projects and give an overview of Mount Todd. Seth Foreman will talk about the financing strategy and valuation just to kind of put that out at the start of the day. And then John and Frank will take most of the presentation time this morning to talk about the technical aspects of the project.
So, Vista Gold Corp is a team, a company with a proven track-record of value creation. We’re the company that created, spun out Allied Nevada Gold Corp, using all of our Nevada resources or assets. We used our Yellow Pine deposit to help consolidate the Stibnite-Yellow Pine District and help create Midas Gold Corp. We have since 2008 focused on two projects namely the Mount Todd Gold Project and also a project in Mexico.
Starting last year, we with the completion of a transaction or the advancement of a transaction to allow a Mexican partner to earn into our project in Baja, California shore, what was the Concordia Project and it’s now been re-branded by our partner as the Los Cardones Project, we began to focus on the Guadalupe de los Reyes Project in Sinaloa.
Important things to understand about Mount Todd. The last technical study that we published was the January 2011 pre-feasibility study. We have had two resource estimate published since then, the first in September of 2011, the second in September of this year. Since the completion of pre-feasibility study in January 2011, we’ve added 1.9 million ounces of measured and indicated resource. The M&I resource is now over 7 million ounces. It’s growing. We still have drills turning and we will probably continue drilling until the middle of next month.
We made an announcement yesterday which I hope that all of you have seen and the essence of the announcement is that after months and months of evaluating what’s the appropriate size for the Mount Todd Project, you’ll recall that in June we announced that we were going to as a result of the growth in the resource that we were going to be looking at a project that was 40,000 to 50,000 tons per day.
Yesterday we announced that we would be completing our – analyzing and evaluating the development of the Mount Todd Project based on initially a 30,000-ton per day plant, which would be increased in size to 45,000 tons per day once the initial capital had been paid back, we think that can happen somewhere in the first three or so years. We also have decided that we will raise the cutoff grade for the first initial period from 0.4 grams per ton which has been our cutoff grade that we have used since our first resource assessment was announced. And we’ll be using a 0.5 gram per ton cutoff we’ll be stock-piling in the low grade material. And that is strictly an effort to enable us to be able to shorten the payback period and assure ourselves that we can get this project off the ground.
So, about Vista Gold Corp, I know that all of you here in the room with us today look at the same kind of charts compared to our peers we have outperformed many of our peers in the development space, where on a year-to-date basis equal with the price of gold being up 10%. We at the end of the first half had $21.5 million in the bank, the value of our – the Midas Gold shares that we own is about $97 million, many of you know that our top shareholder is Sun Valley Gold followed by Sprott Asset Management, Vanac Associates, Black Rock funded by Vista Gold Corp.
We had 77.2 million shares outstanding. Most of our volume is created on the American Exchange. About 10% trades here in Canada, we would like to see it change and that’s part of the reason why we decided to have an Investor Day here in Toronto, just to bring the Canadian Institution and market up to date on what’s going on with Mount Todd.
Vista Gold’s management team is a team of seasoned mining professionals. People have been in the business for a long time. There are no and no disrespected intended here but there are no promoters, lawyers or others on – in the management team or on the board of directors. Our management is a team of people who have been involved in the mining industry for a long time, we have been involved in the discovery, the evaluation, the design and construction, the operation and then a few instances, the closure of mining projects throughout the world.
Our board of directors is a seasoned board of directors, people with great deal of experience in the industry, some are based here in Canada, others are based in the United States and I’m sure that you’ll recognize many of the names as you see them on the slide.
I want to take a few minutes and just walk through some of the other projects to get that out of the way and then we’ll focus on Mount Todd. The first project is the Guadalupe de los Reyes Project and this is an exploration project in Sinaloa. You see on the screen in front of you that this project is located just about due east of our project in Baja California shore. It’s located near the border of Durango and Sinaloa.
This is a project that had historic production, historic production started in the 1770s continued through the mid 1900s. It is a district that had underground mining, some very interesting things about this district that are very intriguing to us, one is the historic production, the Yellow Pine has been mined, one gram per ton rock, the mine material that had substantially higher grade than this.
The second is that is in the midst of the database, which is predominantly very shallow holes 100 meters to 120 meters, that there are a couple of deep holes with intersect some vein intercepts with very high grade, not just gold, gold grades being in the 12 to 20 gram per ton range but silver grades in the 40 to 400 gram per ton grades.
Our drilling that was completed last May focused on confirming the resource, confirming the interpretation of the geologies so that we could move forward with the preliminary economic assessment. We did drill a couple of deep holes in the system, the first two were not as deep as what we thought we needed to be, the third hole was sufficiently deep enough with intersected the 5 meter intercept of 12 grams to 12 grams per ton gold and 738 grams per ton silver. 5 meters is not a true thickness, the true thickness is probably more on the other meter and half, 2 meters.
Nonetheless, we’re excited that there is a very high grade underground minable core below the low-sulfidation epithermal vein system that we see on the surface. I expect that we’ll be able to announce later this quarter the results of a preliminary economic assessment for this project.
The Los Cardones project is formally the – formally called the Concordia Project. You’ll recall that in February of this year we announced that we had entered into an agreement, whereby we were, we have allowed a group out of Mexico called the Invecture Group. The owners of Frontera Copper, part of the family of companies of one of the five large Mexican industrialists to earn a 62.5% interest in this project by completing the permitting making certain cash payments to us and managing all of the day to day operations of the project through the completion of their earning.
I’m pleased to report that they have submitted the environmental impact study for review and approval. They have submitted the application for the change of forced land-use permit. Both of these permit applications are in the process of review, we’re hopeful that the environmental permits will be issued late this year and that we will see the change of forced land-use permits sometime in the latter part of the first quarter of next year. I think that this will bear out our strategy that bringing in a Mexican partner to work on a Mexican project was very a wise decision at the end of the day.
Other projects, everybody knows that we’re a very significant holder of Midas gold shares we have. We have approximately 27.8% of the outstanding shares the company has 31.8 million shares. We’re very pleased with what Midas is doing in the development of the golden and metals deposit in Northern Central Idaho and continue to be a very supportive shareholder.
At the Awak Mas Project in Indonesia, on the island of Sulawesi, we have a joint venture agreement in place with a company called One-Asia, One-Asia is earning an 80% interest in the project by completing the environmental permitting, by completing a feasibility study, investing in drilling and making certain payments in cash and shares to us.
We have a project in California called the Long Valley project which is an open pit-able low-grade Heap Leach deposit which quite honestly we have not done anything with primarily because one, it’s in California, second of all, because we have other projects that are much larger and much more interesting to us.
Last of all, we have a royalty interest in a project that we used to own in Bolivia called the Amayapampa Project. And we’re hopeful that our partners there are – or the new owners I shouldn’t say partners, the new owners of that project will make a decision to move forward and place that project in production. Should that be the case, we have a loan which will entitled to receive $3 million in cash and we also have a 3.5% NSR royalty on the first 720,000 ounces of gold produced.
So, let’s talk about Mount Todd, that’s really the reason that we’re here. Just to give you a little bit of history about Mount Todd, this deposit was discovered in the late 1980s. It progressed from a discovery to the point of heap leach production starting in 1993. Many people believe that the heap leach production focused on the oxide portion of the deposit. I think that John and Frank would probably be happy to explain to you in pretty thorough geologic terms that there really was no oxide part of this deposit, maybe a very thin half a meter or a meter layer at the very top.
But the heap leach contained somewhere in the order of 16 million to 18 million tons, it ran reasonably efficiently. It didn’t produce the number of ounces that they had expected to produce, which actually has created an opportunity for us and John is going to talk about that opportunity as the morning goes on.
In 1996, I’m sorry, 1995, Pegasus bought, first of all they bought an interest and then bought out Zapopan and acquired the Mount Todd project and made the decision to build a mill. This was supposed to have been a floatation circuit with a CIL finish. The idea was to produce approximately 250 ounces a year over an eight-year period. During the period of time that Pegasus was building this facility, the price of gold continued its fall. The plant was commissioned in November of 1996 and closed November the following year and we’re going to talk about the reasons why it closed in more detail.
In 1999, a company called General Gold came in with a large strong contract or partner named Multiplex. They operated the project for approximately a year, used up the loss straight forward and then abandoned the project in the year 2000. The project stands idle for the next six years. In the first four years of that period of time, absolutely nothing was done, in 2003, 2004, the local community became disenchanted with the natural processes that were happening on site, the ways it drop-down turned acetic. And it was generating acid rock drainage.
And the people in the community especially one of the large, special interest groups in the area called the Amateur Fishermen’s Association of the Northern Territory began to put pressure on government that something needed to be done about the site. Government stepped in and became the owner and operator of the site. And in 2005, 2006, this began discussions with the northern territory government to allow us to be able to take on this project.
The way the Australian environmental laws work is, that the owner of the mining license is responsible for the environmental liability of the site. Business management, specifically Mike Richings, was of the opinion that this was not a reasonable, a reasonable undertaking, given the circumstances. And Mr. Mike Richings, was able to negotiate an arrangement with the northern territory whereby they agreed to retain the environmental liability for the Mount Todd site up until the point and time that Vista had applied for and received the environmental permits and made the decision to move forward with the project.
What that did essentially was that it made the northern territory government our partners. It put them in a position where they are as interested in our success as we are because today if we were to decide for some reason not to proceed with the project, the northern territory government would be stuck with something on the order of a $50 million to $70 reclamation bill to go in and take care of the site.
Now for us, that obligation is not near that magnitude. For the simple reason that the existing facility and infrastructure becomes part of the new project, the waste rock dump will become the new waste rock dump. And as John talks you’ll get to see pictures and you’ll appreciate this, the Tailings La Palma facility become the Tailings La Palma facility for the project.
Many things about the project that the government, have to spend money on become either assets or parts of ongoing infrastructure for s. In 2006, in addition to the contract with the government that allowed us to get involved in the project without taking on the environmental liability of the project, we executed agreements with the deed administrators to acquire the mining leases. We also executed an agreement with the job on people to be able to use the surface line in the project area as they are the free hold owners of surface land.
We have completed now six years worth of analysis. Most of this has been focused on the geology, the metallurgy and other technical evaluations of the project. By year’s end we estimate that we will have spent $60 million on Mount Todd.
As indicated previously we published in January 2011, a pre-feasibility study and reported 4.1 million ounces of prudent and probably reserves, that was 149.9 million tons at a grade of 0.85 grams gold per ton.
We have undertaken several successful drilling programs and Frank is going to walk you through this. And as he does so, I hope that you’ll appreciate that the exploration model that we use at Vista Gold Corp is one of expanding our understanding.
We take what we’ve already learned and then we apply it to the next layer if you will. And after we drill that, we step back and we take a look, we’re not the kind of company that’s had drills running for the last six years. We’ve drilled normally on a period of seven to eight months and then we’ve stopped, we’ve regrouped, we’ve analyzed data and we’ve decided how to go forward. And as a result, we have almost tripled the total resource in Mount Todd since our acquisition in 2006.
We have, as I indicated, announced yesterday that we have optimized development strategy to involve a two-stage development approach. We will be announcing the results of a preliminary feasibility study very early next year. The reason that we have decided to announce the results for pre-feasibility study using the strategy is one, we have a lot of confidence in the numbers that we’ve generated on the project over the last – the last year. We’ve spent a lot of time in the last 18 months looking at the project, evaluating it.
In the last several months, we’ve looked at several different development strategies ranging in size from 30,000 tons per day up to 55,000 tons per day. We feel that we can get results out to the market much quicker by completing a preliminary feasibility study that has some advantages for you to be able to understand the impacts of the strategy that we’ve selected. It also allows us to move forward with the permitting progress more quickly.
In Australia and environmental impact study by law must include the economic benefit, i.e. the financial results of the feasibility study and it must include the reserves both of which we can’t report unless we’ve announced results of the study. So, by completing a preliminary feasibility study, we’ll be able to move forward with the environmental permitting, much more quickly than if we were to wait for the results of the feasibility study sometime in the second quarter of next year.
Let’s talk about why Mount Todd failed, I mean, there has been an awful lot of work done on this. We’ve completed comprehensive review before we acquired the project we’ve done a lot of work since then. I think that the forensic analysis, investigation that was completed before and subsequent to our purchase of Mount Todd, indicates several things.
Most importantly there are three primary reasons why the Mount Todd Project failed. One is, obviously the low gold price. Mount Todd was built at a period of time when the price of gold was falling. The price of gold fell almost $100 from the time the board of Pegasus Gold made the decision to build the mill to the time that they are able to finish construction and commission it. That was at a period of time when gold was in the sub-$400 or near $400 an ounce range, when it was commissioned it was down close to the $300. Many of you will remember those days. In essence, the drop in gold price erased any margin that Pegasus might have had. Second and third, of the primary issues or issues that were actually within the control of the company.
Mount Todd deposit is hard-ore body. It’s among the top 5% of hard-ore bodies in the world. And simply stated Mount – the Mount Todd processing facility, the combination circuit was not designed to be able to handle the hardness of the ore that it was – that it was meant to process. And as a result they didn’t achieve the throughput grades that were intended.
The third point is the mineralogy and the metallurgy. Simply stated, Pegasus didn’t achieve the recovery grades that they had – that they needed to achieve. And the reason for that really comes back to the geology. It was more of a geology problem and understanding that before designing metallurgy circuit.
The hard-ore at Mount Todd, just to put things in perspective are, John’s going to have some slides and he’ll show you what the distribution of bond work index and exchange throughout the industry. For those of you who may not be familiar with the bond work index are going to hear it over and over. It’s nothing more than, that the amount of energy that it takes to crush and grind a ton of rock to a specific size and the standard is 100 mesh.
It allows us to compare the hardness of an ore body across the spectrum of the industry and across various different types of mines, simply by giving us a number. And the more energy it takes to crush and grind the rock, the harder the rock is. Most mines are somewhere in the 12 to 14 range, the bond work index at Mount Todd is 26. It’s not the hardest ore body in the world but it is – but it’s one of the top 5%.
Regrettably or maybe not from the Vista perspective, if a vendor done right, we wouldn’t be having this meeting today and there wouldn’t be this incredible investment opportunity. But the Pegasus combination circuit was designed to press and grind work that had a bond work index of 17.
So the crushing circuit was severely undersized, the equipment was inappropriately selected. And the result was that Pegasus did not achieve the throughput grades that they needed and they also paid an extremely high price on a per-ton basis for the rock that they were able to crush.
So, not only did they have low gold price but now they have a crush and grinding circuit that they can’t get the number of tons through that they need to and what they do get through comes at a higher unit cost. Added to that, the metallurgy and the mineralogy side of the equation. As indicated, this circuit was recently designed as a floatation circuit powered by – with a CIL finish. Pegasus did not construct a cyanide detach circuit.
The result of that decision was that they were anticipating that the cyanide would degrade naturally in the Tailings La Palma facility, which it does do but not in a matter of hours, it happens over a period of months. And so, as water was reclaimed from the Tailings La Palma, water was brought back into the plant as the process make up water. This water had free cyanide in it and it’s a very commonly understood fact that cyanide suppresses the floatation of sulphides.
We use cyanide in some circuits throughout the world because we want to differentially float one mineral and not another. The result was that the floatation circuit operated only a period of a month or two and then it was shut down because the recoveries in the floatation circuit were far below what was expected.
As Pegasus shut down the floatation circuit and moved to use only the CIL, the carbon and leach circuit, they realized something that actually deserved and merited much more investigation prior to this. They realized that in the ore body, there are copper minerals that are cyanide consumers. The two minerals in question are Bornite and Calclacite. And these minerals as John will explain to you in more detail are found in the upper part of the deposit but not in the bulk of the deposit.
Had Pegasus completed the work that they should have if they had – if they had perhaps completed the investigations that we’ve completed today they would have realized that this was going to be a challenge for them. The result was – I’m sorry, it is right down the bottom of the page, it says calclacite right there.
The result of not understanding the mineralogy was, as they took this finally ground ore and they sent it to the CIL circuit, the reagent cost went up because to cut these copper minerals became cyanide consumers. Because they were consuming massive amounts of cyanide, the cyanide was not available to leach the gold. And so the recovery was low and so not only do they have a low gold price, not only they have low throughput, now they have low recovery and on top of it all, they have a high cost in the leach circuit and they have high cost in the combination circuit. The bottom line of this was that the banks became impatient, called the loan and forced Pegasus into bankruptcy.
So, what are the solutions to this? John and Frank are going to go into a lot more detail but just to paint a high level picture. The key to this, the solution is that we know that the ore is hard. It’s not the hardest ore in the world. We know how to handle hard ore in this industry we just have to pick the right equipment and we have to design for it from the start.
So, the key to crushing and grinding hard-ore is to design and build a now capable processing hard-ore, it means that we’re going to spend a little bit more money on planned equipment than we would if we had a bond work index of 14. It means that we’re going to have higher operating cost because we’re going to have to put more energy into this and we need to be able to have the equipment that we’ll be able to deliver the energy to the rock to be able to crush and grind it.
To do that, we have looked at and have selected off the shelf technology. Technology and equipment that’s in use someplace else in the world, there somebody else has already put thousands of hours of work into and we understand how it works and what are the challenges of operating that piece of equipment. We are not going to be experimenters, we’re not going to be next generation, we’re not going to be new technology types in that product. We’re going to be a used technology that’s already been established, proven and demonstrated to be capable of processing this kind of ore.
With regards to the mineralogy and metallurgy, there has been an immense amount of work that’s already been done that has changed our understanding of the deposit, just to put things in perspective. When Pegasus started and commissioned the plant there were less than 100 copper assays in the database. We’re not sure if the geologist didn’t recognize it and I don’t believe that that was the case. Knowing a little bit about Pegasus, they had the Zortman and Landusky Operation in Montana, they had copper in that ore body. I think that the metallurgical staff probably said, don’t worry about it, we’ve got copper at Zortman and Landusky, it won’t cause any problems.
But for whatever the reason they didn’t analyze for it until after they commissioned the mill and these two minerals began to consume all of the cyanide. At that point in time, we see copper assays for on the registration work, our blast-full samples. Knowing that this was a problem, this that has not only assayed for gold and silver and copper but we have assayed for 31 different elements on all, of our exploration assay minerals. Frank and John will go into that in more details.
But the simple fact is that, as a result of – the re-assaying of some of the Pegasus ore that we entered, all of the exploration work that we’ve completed, which has been over 46,000 meters of additional core drilling to date, we have a much better understanding of what the mineralogy of the deposit is. And we know that these two minerals that cause problems for Pegasus constitute about 4% of the – January 2011 pre-feasibility study ore reserve. 96% of it is another mineral called calcopirite or has calcopirite which does not react with cyanide and so we have another strategy for dealing with this – approximately 6 million tons of ore that we need to handle that have bornite and Calclacite.
The flow sheet of Mount Todd is simple. There is no complicated metallurgy or mineralogy. It’s a simple crushing and grinding CIL circuit. We can manage the cyanide consumption we only have 6 million tons that are going to be a problem for us and that will be blended in over a period of time. We’ve done enough work that we’ve identified a reagent. But nitrate, it affectively suppresses leaching of copper by 50% and we’ll talk about that in more detail. And obviously we’ll all understand what’s happened with the price of gold since – 1999 when the Pegasus operation failed.
So, just real quickly to talk about the rightsizing, the announcement that was made yesterday, I already said that this is going to be a two-stage step initially at 30,000 tons per day, stepping up by 15,000 tons per day to get us 245. At around year four, the initial top grade of 0.5 grams per ton. We believe that that will allow us to feed the mill with material that has a grade substantially better than 1 gram per ton for the first three years of the project.
The advantages are that it minimizes our initial capital investment it helps to achieve short payback. For those who have doubts, it will certainly demonstrate the viability of the operation and the technology has been selected. And then by allowing ourselves to go to 45,000 tons per day and back to 0.4 gram gold per ton cutoff grade maximizes the utilization of the resource.
Mount Todd is located in a jurisdiction that is incredibly supportive and favorable to the development of this project. In the Northern territory we have recently had new elections or a new government has been elected. The country’s liberal party which is the conservative party, it came into power at the end of August. And we have already seen some pretty significant changes in the way the government is approaching many different things.
Support for the project has been expressed by the Chief Minister, the new Minister of Mines, the Mayor in town council, Catherine. And perhaps one of the things it’s most noticeable about this new government is that they have taken steps, they’re in the process of establishing an environmental protection agency to grant permits and to monitor compliance, removing the bureaucratic process and the political process involving getting permits and putting it more into a much more straight forward process for obtaining permits.
As in the coming months, as you see the results of the pre-feasibility study, many of you would be tempted to apply a metric or it’s widely used in the industry to be able to compare projects and that is taking the total capital, dividing it by the plant throughput to come up with a number. And you’re going to come up with a number that’s probably you’re going to be somewhere in the range of $25,000 to $27,000 per ton per day of capacity for the Mount Todd Project.
And the first thing that you’re going to say is how can a project in Australia with such hard ore be in that range because that’s going to be very close to the industry average. And one of the things that you need to understand is that – with the purchase of the Mount Todd project for $2 million, we acquired something on the order of $130 million to $150 million worth of infrastructure including the Tailings La Palma facility. The investment in the Tailings La Palma facility will be required to get it back into operation is on the order of $4 million to $6 million.
It will hold and it will require some ongoing capital as we’ll have to raise the dam three or four times. But it will eventually hold approximately 60 million tons of ore before we have to build the second Tailings La Palma facility. There is a medium tension power line already installed in place that delivers power to the site right now and will be used to sell excess power from our onsite generating facility back into the national grid.
There is a natural gas pipeline to the site. Pegasus built this pipeline, they used natural gas to generate electricity for the project in the late 1990s, we will do the same thing. We will have our own onsite natural gas prior to that generating facility.
We have paved roads to site for about 10 kilometers from the Stewart Highway the Stewart Highway is the main north-south highway through the northern territory. We also have a raw water dam that will have to be enlarged as the project makes the step to 45,000 tons per day, but for the 30,000 ton per day facility, the freshwater storage reservoir is adequately sized.
And so, these are installations, these are – this is infrastructure that already exists that we don’t have to spend any money on. And when you put that into the equation, if you add in that $130 million to $150 million you’ll probably come up with a number that says oh yeah, that’s more what I was expecting from out plant. But as that money has already been spent, our numbers will be more favorable than perhaps what you would be expecting to see.
To wrap up my part of the presentation this morning, I just want to just hit on just a couple of key takeaways. We’ve invested significantly in Mount Todd, $60 million to date. Six years of geologic, metallurgic and technical evaluations has been completed. We expect to have an updated pre-feasibility study in January of next year and a feasibility study that would be the basis for our investment and development decision in the second quarter.
We talked about the technical issues that caused the failure of Mount Todd. I believe that we understand completely what those problems were and what impact to the Pegasus operation as I believe that they’re easily resolved.
As indicated, the ore hardness is a matter of proper design and equipment selection. Mineralogy is the key to the metallurgy and we’ve done a lot of work to understand that and obviously we have a much more favorable gold price to that. I would that the Mount Todd deposit is a world-class deposit. I don’t know of many that are almost 10 million ounce total resource deposits located in jurisdictions like the northern territory of Australia with clearly defined environmental permitting procedures with infrastructures such as paved roads, power lines and natural gas pipelines that exist in the world today. And I think that those are huge advantages set to Mount Todd project apart from many of the projects that are being developed by their companies.
With the announcement yesterday on what we believe is the optimal development strategy, Mount Todd is progressing towards the feasibility study and toward an investment decision next year. I’m not going to go through the resource table, it’s in your book for your reference, for conciseness you can refer to that at your leisure.
With that I will terminate my part of the presentation. As we go forward with the technical aspects, I would reiterate my invitation, ask questions, as you see something come up on the slide, if you don’t understand it, if you’d like further clarification, please feel free to ask questions and take time to get the understanding that you need.
That’s correct. For those of you listening in on the webcast, the question was, is there nothing left from the Pegasus mill that is still onsite? The answer to the question is that there is couple of tanks left on site. All of the crushing equipment, all of the grinding equipment, all of the conveyers were sold by the receiver when Pegasus went bankrupt. In a short time, you’re going to see as part of Seth’s presentation, you’re going to see a video four minutes, there about and you’ll see some aerial footage of the site.
And you’ll see that there is some tanks left over from the CIL leach circuit. There is a couple of buildings ones used by the geology team. I think that was the motor control center for the process plant they use it as an office. There is an old shop that was next to the power plant that our operations people use for segment management. Aside from that there is none of the original combination circuit equipment leftover so it was all sold.
So with that, I’ll introduce Seth Foreman. Seth is our – as indicated, our Vice President of Corporate Development. And Seth is going to lay out the value proposition and talk briefly about our financing strategy for Mount Todd.
Thanks Fred. Thanks everybody for coming and swinging in out in the rainy weather out there. And thanks everybody listening on the webcast. I’m going to spend about 15 minutes here talking a little bit about the value proposition that we think this offers, I think the reason why use the fund manager might be interested in earning stock or you as a advisor might be interested in telling your clients about our stock.
It’s a little bit of a joke I like to start off with by saying, who remembers Mount Todd because of course it does have a history. And we do at our office have Men in Black neurolyzer which unfortunately didn’t make the trip. But basically what we’d like you to invite you to do is just to have an open mind about our project, we’ve done a lot of work on it. And I think you’ll be impressed with the quality of that work. But a lot of people have some pre-conceived notions about the project and we’d like you to at least for the rest of the presentation delete those from your memory banks.
From my presentation here, I think there is, a couple of takeaways that I’d like you guys to take. Now, one is that Vista is an undervalued company. And I know every company in the history of the universe gets up and tells you that it’s undervalued. But I think given the size and quality of this resource and the valuation that we add to market, I think it’s a very compelling argument.
This project is large and it’s high quality and it’s in a great jurisdiction. So I think when you combine those factors, you should be able to take away that this is a very compelling story. Just one quick slide on the valuation because I don’t want to bore you guys to death with this, you can do your own work.
But this is enterprise value per ounce of measured and indicated resources. And as you might expect the mid-cap junior producers trade at a premium. Developers average about $116 per ounce. And Mount Todd here at Vista Gold averages about $23 per ounce doing our market cap of about $270 million, taking away the cash that we had on the balance sheet at the end of the second quarter, and about $100 million of our investment in Midas stocks, I’m getting an enterprise value of about $115 million, 7 million ounces of MNI resources at Mount Todd gets us to about $23 a share.
And as you can see, relative to the developer peer group, and just as another reference point the prodigy transaction just from last week or two weeks ago, you can see that Mount – that Vista Gold is about 50% of the valuation of that transaction. So, lot of value we think in the stock and we moved up.
In terms of the quality of the Mount Todd Gold Project, this is a – this is from the National Resource Holdings Research Group. This is a slide of the 250 global deposits of gold over 1 million ounces. This is quite a lot of deposits between 1 million and 4 million ounces. And there is a few projects that are 19 plus, they are really huge one that would be the Seabridge asset, Pebble. And those are I think as we’ve seen in the gold industry, the capital required to develop those is so huge that it’s going to be a very difficult but not impossible task.
In the middle there, there is really not a lot. And the average grade of this entire group is 0.66 grams per ton and that actually includes underground operations. You get a flavor here of just how low-grade development gold projects are, the average grade of our proven and probable reserves going back to our January pre-feasibility study is 0.85 grams per ton, so that’s 30% higher than the average grade of the development deposits. And Mount Todd is larger than 86% of them. So, again, I think painting a picture of a relatively compelling gold deposit here.
The other piece to this is the jurisdiction. And I’ll admit here right up front, I stole the slide from Seabridge. But I think it applies to us as well. There is a lot of – there is, a lot of countries that where gold exists that I think are – that are moving the wrong way, where we thought that they were going to become more investor friendly, more mining friendly. We’ve seen communities become less open to mining, we’ve seen governments become less open to investment and Canada, the U.S. and Australia I think really standout as large, well established AAA rated mining friendly jurisdiction.
So, to the point that there are a lot of gold deposits out there in the world, they are relatively few that are in jurisdictions that are favorable. And if you look at slide 25 here, I’ve taken again the 40 largest undeveloped gold deposits this time separated by only ones owned by independent juniors. And I assorted them by political risk. And as you can see there is a lot in Canada. But Australia rates very favorable and this is sorted by Fraser Institute ratings.
So, again, we’re combining a high quality large gold deposit in a very stable and mining friendly jurisdiction so another kind of key point. And Fred addressed this as well but the access to infrastructure is a key piece to managing what we call capital blow-outs. And fundamentally EPCM contractors know how to build a mill. They’ve done it all over the world they’re all pretty much the same unless you have some sort of exotic metallurgy or recovery techniques which we don’t that’s not where you’re going to see your capital kind of blow up. It’s on the infrastructure, it’s ports, bridges, tunnels, and we don’t have any of that.
We have the Stewart Highway, right next door to the project, which is the territory’s main highway and Fred did this already but just to reiterate. The natural gas pipeline from the Pegasus days, power line, and the town of Catherine, it’s about 30 minutes south of the project it’s the regional economic center. We expect our mining workforce to live from predominantly in that town it’s got the capacity for that.
So, relative to other Australian projects, relative to other gold projects, the existing infrastructure here is, key. And one of the things that we struggle with and I think that when people come to the Mount Todd project, they get it. They see the infrastructure, the see the gold projects. But unfortunately it’s half way around the world. So, instead of begging and pleading people to come to Mount Todd, we’re trying to bring Mount Todd to you guys.
So, and I’ll apologize here for those of you on the webcast, this video will be posted on our website later the day. But I do not believe is up right now. So, all you’ll hear is the audio. But this is a video that we prepared over the last couple of weeks that kind of is aimed to bring Mount Todd to you. So, let’s fire that up right now.
So, I think that video helps kind of bring you to Mount Todd, it shows the infrastructure that we have on the site and gives a good platform for Frank and John to continue talking about and diving into the technical side of the project.
So, just to kind of sum up here quickly, between the infrastructure, the jurisdiction and Fred talked a little bit about the unique relationship that we have with the NT-government is kind of our partner in the project. The size and relative quality of the project we think it’s a very compelling investment opportunity.
Fred also wanted me to talk briefly about our financing discussion and given that we’re in the process of completing a pre-feasibility on the project I’m going to try to keep it to a relatively high level here. But our January 2011 pre-feasibility study had a capital number of $675 million. And that is of course two-year old number and so we’ll be coming out with a refreshed number.
But just a couple of data points to put out there and Fred did mentioned earlier kind of the dollars per ton that he was, that we’re kind of looking at. But we did have it as part of that number a one-to-one Australian dollar to U.S. dollar exchange rate. So in terms of what you’re looking to see coming out of the update, you won’t see a huge delta from the currency valuation, when we did that it was about $0.85 per Australian dollar per US Dollar. So, we went ahead and assumed it was one-to-one.
So, you can kind of make your own assumption about what you think the capital cost of the project is going to be. But from a financing strategy standpoint, we’ve retained a group called Endeavour Financial as debt advisors to our project. Their background, they have been doing this for a number of years on the advisory side. But two of their larger mandates that they’ve been recently been working on are completed. They’ve been retained by the Augusta team to help finance the Rosemont Project down in Arizona. And they recently or did complete the Boleo Project for Baja Mining.
And I regret a little bit to talk about Baja, because it’s a bit of a difficult story but I think fundamentally it’s – from the financing perspective, it was a small cap company that got a big project on. And so, I think it is helpful.
But from a sources perspective on the debt side, we’re kind of looking at what the Endeavor guys referred to as a Salami approach, where there is a little bit of everything. But I just spent a couple of days down in Sydney meeting with a number of financial institutions and I can tell you that there is a lot of interest in financing mobile mine fleets and guys like Cap Financial or really anybody else would be happy to lend money against that. And that’s a big chunk of capital.
There is also a lot of interest in financing I guess infrastructure as we call it. And the power plant that Mount Todd will require is kind of lumped in under general infrastructure. And so we talked to a number of groups such as GE Capital for instance or even private equity firms that are interested in financing that piece of it.
The main sources of the debt were focused very much on ECA, access to export credit agency financing. And a lot of the work that we’ve done particularly on the high-pressured grinding rules side has been done with Plesius which is (inaudible) company. And so there is part of the mill that we’re looking at that has kind of a distinctly German flavor and Germany has of course excellent export credit agency group. And we are going to be building export credit agency financing into our procurement process. So as we progress through the pre-fees and through the fees, I think we’re going to be in a position to pin down a good amount of credit on that front.
And the kind of the last big bucket if you will is commercial bank lending. And we’re of course going to be talking to a number of the Canadian institutions. But fundamentally, we’re also looking to the Australian banks. And they are from what we can tell very keen to finance Australian projects and there is not a lot of them being financed right now on the mining side down there. The banks overall I think are in better shape than the U.S. banks certainly and probably the Canadian European banks as well in terms of they emerged relatively un-scaled from the global financial crisis.
And so, those guys I think are keen to lend and have the capacity that we’re looking for. So, I think between those kinds of four sources if you will, our goal is to target about 65% leverage on the project. As Fred mentioned, we’re working, the average grade of the first four years of the project from the pre-fees was 0.96 grams per ton. And now we’ve raised the cutoff 25%. So, as Fred indicated we’re clearly targeting having grades of – higher grades plus 1 gram through the first several years. And so the project is going to be generating significant cash flow during that time. So, we think that that leverage ratio is bankable.
From the equity side and just want to make two comments. One, is we do have that Midas stock, it’s worth about $100 million. And Fred said many times that that’s part of the financing solution for Mount Todd. We’re very excited about the Midas story and are very supportive shareholders of that stock. But we anticipate, we do not anticipate being holders when they enter production. So, we think that’s part of one of the cards that we hold.
The other thing and John will talk a little bit more about this is, the – and this is preliminary so cautionary statement please, the heap leach that we’re looking to restart. If that’s successful that will recover I think for us a substantial amount of gold during the construction period and at extremely low cost. So, that’s another potential source of basically equity funding for the project.
So I think if you kind of do the math on where we’re looking in the leverage ratio we anticipate achieving you’re going to see a financing plan that’s pretty achievable and doesn’t require us to access the de-equity markets or the convertible markets for instance with really significant size.
So, I want to kind of leave it there. And I think that the company can have a more robust discussion of financing strategy once we have the pre-feasibility study done and kind of have a better sense of the capital numbers.
But I’d be happy to take any questions or turn it over to Frank, Frank Fenne, our Vice President of Exploration.
Good morning. I’ll give you a brief description of the geology of the Mount Todd deposit, you’ll see a number of cross-sections through this discussion, we’ll get into those a little bit develop and understanding of the geometry and the setting of the deposit itself.
The post rocks at Mount Todd are basically paleoproterozoic age, grey whacky and soap stones. These are deep water marine deposits, very monogamous section of rock. Bedding is very consistent, strikes slightly northwest dips 40 degrees to 60 degrees to the southwest. We have a granited body located across south, located to the west of the deposit that was assumed to be a heap source for the mineralization recent deep drilling in the Batman deposit itself has encountered this deposit this granited depth.
It’s located on the north I’ll back up a little bit. It’s located on the west limb of a south plunging anticline, and mineralization is in up dilate and shear zone, basically a wide solicified zone. This solicification is what’s the cause of the hardness of the ore, mineralization occurs in what we have defined as a core zone, which is used in our geologic modeling, the gold district for distribution basically set of some parallel core staining. It’s defined by the amount of core staining. Higher grade or shoots plunged to the south, parallel to the fold access and are re-plucked in the stratigraphic control of the deposit itself.
Here we see blast-hold data from the Pegasus days, that’s plotted in both plan view and rotated so that we’re looking down bedding. So, as we look at this slide, you see the North-South main control of the core zone, higher grades are shown in reds and yellows. When you rotate the blast-hold data, so that you’re looking down the bedding and you see the bedding orientation with these faint lines, you’ll see that some of the grade is also controlled by the stratigraphy, very straight forward mineralization.
Core pyrite veins predominated shallow depth, this is where we see the bornite and Calclacite that have caused problems in the past. As we get deeper in the deposit, we go predominantly core pyrite type. We have a set of late stage carbonate veins that carry base metals, copper, lead, zinc.
For the September 2012 update, we completed a resource drill program, totaled 18 holes up 13,000 meters that were incorporated in this new model. We saw that in the technical report that was published in September. Based on these results we had a second phase of drilling was approved by the board, be another 4,000 meters. In addition there is some drilling that was not – we didn’t have assays back in time to include in that model update. So those results will be published at year-end and incorporated in the first quarter pre-feasibility.
The red or the black drill holes you see in this plan are the drill holes that were incorporated in the September update. The red holes will be incorporated in this update that will be, we’ll start in early December, late November, early December.
Takeaway on this, the upside of the Batman resource and we’ve seen this year after year after year as we’ve completed the drill program is the extent of our model is limited by the extent of drilling, it’s a drill limited model. The deeper we drill, the more mineralization we encounter.
We have identified in 2008, significant hanging wall mineralization to the west of the core zone. And we’ve been able to drill these in enough detail now to include them in measured and indicated resource. Previously they were classified as waste, as inferred resource or waste with a drill density that we’re obtaining now, they’re converting into measured and indicated, they will convert to proven and probable with the pre-feasibility. And convert waste rock to ore, thus reducing stripping ratio.
And what we see a faint increase in grade with depth, not really what we would like to see, we’d like to have some high-grade shallow. But the grade is increasing at depth, in general, in detail we’re seeing higher grade intercepts at depth that may represent our future underground opportunity where we’re heading multi-gram 10-gram to 30-gram intercepts in 1 meter to 4-meter inter-holes that with additional drill definition we might be able to tie together as an underground for underground development.
Batman model, this is a 3D view of it. The blue is the core zone, the two golden or the gold and the tan zones are hanging wall zones that have been recently defined. And the grey is the granite contact as you see that you’ll see in the short animation, if we look at it. Let me see if I can bring this up. Okay. I’ll need some technical assistance here, there we go.
This is a brief animation to give you a feel for the geometry of the ore body, looking down on the deposit, coming around, showing the core zone in this, it’s in red in this, the hanging wall zones are in the golden colors. Drilling is the – Vista drilling about 50,000 meters currently, to give you a feel for it. Coming around, you see the granite coming down, diving sub-parallel to the core zone. So far it doesn’t – we haven’t drilled deep enough to see it cut off the core zone. Certainly it plays a role in controlling the mineralization.
Do you have it, if we take a look at all the drilling or the historical drilling, if I can wake up the mouse? I need your magic touch Tom. This is not me. There it is, cool.
One thing I want to get across on this is, this deposit was originally developed by Pegasus and Zapopan at very shallow depths. And you’ll see the extent of the drilling, generally on the order of 120 meter deep holes in comparison to the Vista drilling where we’re currently drilling 400 meter to 600 meter holes a few deeper. They did drill a few deeper holes into the core zone none of their drilling intersected the granite. You’ll see this again in some cross-sections where we compare the Pegasus drilling, previous historic drilling to what we’ve done.
Comparing, a quick comparison of the model update that we completed in September between the September 2011 and the September 2012 models, you see in long sections across the pit, these are northeast, nearly north-south cross-sections. You see the differences between the two models and you can see the original model, the inferred is in the fainter smaller box sizes and the measured and indicated are in the more clearly defined box sizes, larger size.
So you can see in this section the pre-feasibility pit, and it’s based on M&I and then a little cone that was based on measured, indicated, inferred. This is what guided us, guided us in the drilling, planning to get intercepts that would impact the pitching. You can see the changes with the new model. And one thing you see is we’re picking higher grade mineralization that was previously, we just had hints of it in the previous model.
Moving to the west, through the main part of the core zone, you can see a marked change in mineralization, higher grade zones are obviously in the blues and reds. You can see what the pit will drive on in a future pit evaluation, that’s forward-looking statements but I think it’s pretty clear that that’s what’s going to control the pit shape.
And finally stepping to the west side of the core zone, again a good expansion and higher grade mineralization in the interval between the M&I pit design and a measured indicated in for a pit design, exactly what we’re looking for.
Finally, core section, we’re seeing some high grade appearing in the new model confirming what was based on a few drilled holes. And we’ll talk later in the discussion about the drilling that’s going on right now.
With that I’ll turn it over to John.
I guess two things, any questions for Frank? You might want to know about – about the geology. For those who don’t know, there was about 90,000 meters drilled by Pegasus, not a lot of core, mostly the reverse circulation repercussions right. So, that’s one difference, we’re strictly core in what we’re drilling and HQ for that.
And as Frank said, it really came out of Fred referenced Zortman and Landusky, if you looked at the drilling pattern, you saw the very definite fences and you saw them all as Frank said about 120 meter average depth that was that mid to late 80s mentality in oxide gold where we just drilled a lot of drill holes and not necessarily do a lot of geology. And that drilled the hole thought process for Pegasus when they’re looking at oxide part of this deposit. Does anyone need a short break before we continue here, these are good to go.
Okay. Well, I’m John Rozelle, I’m Senior Vice President with Vista Gold. And I’ve been working on the Mount Todd Gold Project since June of ‘05 either as a consultant of Vista and now working for Vista. So, it’s like a quite a long history, we’re going to look at a little bit about what we’ve done in a little more depth to answer the questions with regard to the known historic problems at Mount Todd.
Fred alluded to this in brief, and what we have on the slides are the Pegasus crushing and grinding circuit. And the vision crushing and grinding circuit as we know that it will be. I caution everyone we’re showing two secondary’s to two tertiary in the HP jars and four Ball-mills. It could be the single trajectory with two-cones or three, at the 45,000 ton per day stage. So this is kind of laid out for the 30,000, and it could be 3-ball-mills or four, we’re sizing that part of it right now.
But you’ll see that it’s a much simplified circuit. In particular we don’t have any of the vertical shaft impacts, the twin cone crushers which created the real problem for Pegasus. And of course the other part is down here as we talked about. We are not running away from the fact, we have outdoor we know that the average work index is 26. And we are designing for 27.4 which is about 5% conservancy on that.
So, we’ll be looking at a single derogatory, in all likelihood twin cone crushers, twin-HPGRs and feeding as I said either three or four, bubbles, so a very, excuse a very simplified circuit as compared to the past and designed for the right hardness.
Mineralogy is the next big piece of this. And you’ll see the section on your right is the Pegasus, and from their drilling the section on the left here is what we’re working off. Several things come to mind. Where the old or the existing Batman pits, there was a small hill, it’s not actually Batman hill, Batman is a different hill. But there was a small hill. And if you think about it, the oxidation or in transition zone, that does exist as a deposit it’s kind of like a saucer it was deepest under the hill and then it rises to the north into the south, and we know that from the work we’ve been doing.
And as Fred talked about in brief, we have about 4% of our total resource that is potentially oxide, I’ll put that in quotes, we’ll talk about that in a second and transition. And then we go into primary mineralization. And this is the key, if you look at where Pegasus started the mill, they started the mill in this part of the pit. And it’s almost the worst place they could have started with regard to their heart of the secondary zone and without having a copper information, it created great problems for them.
So, the other part of this to take into account, we look at what Pegasus assayed for as Fred indicated. We’ve run from day one, 31 element CIP analyses. And we have built the ones that are shown here, we have actually built 3D models of all of these. And so, we are not just modeling gold or silver, we’re modeling copper, lead, zinc, sulphur, arsenic, iron, nickel and vanadium because those are of importance from an environmental standpoint. And those are reviews for the rescheduling that occurs. So there is a significant amount of work that’s involved in the waste scheduling that these play a role in.
So they not only tell us what’s happening from the mill side, and we’ll report how much of these go to the mill at our mill schedules. But they’re also very key to us not having the problem in the future that Pegasus had.
Cyanide consumption was the next one of the big issues that that was the double whammy in the sense that the consumption was high, so the costs were high. And because of the high consumption they got low recovery because they were considered, picking up copper. And one of the key differences for us of course is that we’re 96% primary so we have less of the Calclacite and Bornite that we’re going to deal with. And what we actually have done in each of the previous studies and we will do going forward as we stock pile the material that’s listed as oxide in transition.
And then we feed it back into the mill at about the same roughly 3.5% to 4% schedule so that we never let the mills see more than what the deposit average is to make sure we control that from a reagent consumption standpoint. And then we coupled with that the fact that we have the cyanide destruct circuit. And so any free cyanide is gotten rid of and we drop whatever copper is left in the Tailings facility so that our makeup water is not loaded with free cyanide and/or return copper.
We suffer a little bit higher cost on the cyanide consumption. We’re still acceptable at 0.77 kilograms per ton. And if you look here, when they finished they were at 3.8 kilograms per ton so not bad. And line consumption is about 0.91 kilograms per ton, so not excessive on that side either. But a very straight forward, very simplified circuit that has been verified through our feasibility level, metallurgy access work that we’ll get to here in just a moment, so very different again.
Here is what the entire flow sheet would look like. We have the primary, single primary, meaning, twin-cone crushers for the 30,000 ton per day case to twin HPGRs as we’ve talked about likely three or four ball-mills, the secondary the leach tanks and on to electro winding and cyanide destruction so, very clean, very simple footprint for the mill.
Process water, Fred has already talked about we have a freshwater late that is existing reservoir that contains all the fresh water that we need for the 30,000 ton per day case. We will have to do a two-meter raise is all to do the higher production grade.
This is self-explanatory so I won’t spend a lot of time but it just gives the history of the gold price versus each of the studies and just as involvement of the course of the problems that Pegasus had with falling gold price in the benefit that we have.
So, let’s look at what’s happened. This has been alluded to already. From Vista standpoint, it’s a very systematic and methodical approach. It has started out with the acquisition, and as I said, I was there from June of 2006 on first thing was when the property was acquired. It was recognized that one, there wasn’t enough resource at that point to look at reopening because of the hardness and the other materials.
And two, that we did have a harder ore, and we had mineralogic problems, so two-part program was started. And the first part was drilling, to increase the resource and confirm from what was there. And the second part was the beginning of the metallurgical and the other studies. So, for the first, about two and half three years, it was heavy on drilling. And the resource reached the point that in March of ‘08 Vista was able to produce preliminary economic assessment that suggested that Mount Todd would make it, that it had the size now, that and the opportunity to come back to life.
And so, while the drilling continued and the emphasis was switched a little heavier on to the metallurgical and mineralogic and other work to work on those tactical problems which brings us all the way through to today. We’re talking about the redevelopment.
To give a feel, this was alluded to. It’s a little more detail you get to look at but this has the June, the June ‘06 original, the January 2011, September 2011 and now the September 2012 changes in resource at a constant 0.4 a cutoff so these were all at 0.4. And this gives you the feel for the reserve growth but I think the next slide, slide 51 is the one that pictorially tells two things that are very important to us.
One, you’re going to take a look at this and see that actually the inferred ounces stay relatively constant. And there is actually a reason for that. It was alluded to and what both Frank and Fred talked about and how we’ve approached the project by drilling, evaluating, drilling and evaluating and we have a fairly constant approach that keeps this part fairly level.
And what it has allowed us to do is rapidly grow the quality ounces if you will, the measured and the indicated ounces. So, it’s been a significant change. And this 4.1 is from the pre-feasibility, the 2012 model for reserve ounce is obviously forward-looking statements that likely be different just the reserve is significantly different. But it gives you a feel for the fact that we’re not just growing ounces, we’re growing quality ounces, the ounces that matter from a development standpoint.
Then, to give you a feel for what has happened and what has changed with this last model update. We are pretty enthused about this. We’ve given you the measured and indicated resources and inferred resources in the table at our 0.4 or 0.5 and 0.6 cutoff. And what I would key on is that if we look at measured and indicated, you know at 0.4, we’re just over 7 million ounces where we’re sitting. We’re talking about raising the cutoff to 0.5 early on.
With that you’ll see a 0.5 we still have a substantial number of measured and indicated ounces. And we see quite a nice changing grade. And in fact at 0.6 we are within about 90% of the previous models, ounces of 0.4 but now at a 0.6 cut off and significantly higher grades. So, not only has the quality ounces increases, not only have we set the stage for a little higher cutoff but actually the – we’ve set the stage to be able to raise the cutoff pretty substantially in the early years.
This one is for reference only it’s on the pre-feasibility study. It is coming upon two years old, one of the reasons why we want to redo it. But it does give you a feel from that study it’s the last economic data that was out. And this is the column that Seth referenced with the $675 million capital cost estimate at that time it was based on one-to-one big foreign exchange factor. So, this is the one that is important from that standpoint.
Metallurgy, testing and evaluation. Over the course of April 2011 through well currently actually but through the summer at least from the feasibility study, some of the other testing going on right now is to do heap leach, we’ll come back to that. A complete re-evaluation of every part of the metallurgical cycle was done for the feasibility study that was suspended but will be part of the next feasibility study.
Complete, redoing of all the grade opposition tests, redoing of HPGR, cyanide, everything has been redone at feasibility level by ALS AMTECH at first, a very expensive program. And that included once we set the parameters for the flow sheet then the optimization part of it in Walk-Cycle Test for determining the final part of the flow sheet.
And key, because of the HPGR was, they processed the two metric ton sample in Germany that was sent to them. They processed then it was returned because that was used as part of the Walk-Cycle test so that we had actual material that – from the third stage crushing, my apologies to those on the webinar. We use this as part of the Walk-Cycle test for the final round in order to look at if we were getting any additional impacts from the HPGR.
So, we should be in the very near future, publishing all of the metallurgical test work on our website there is a summary chapter being written write now that just summarizes the I don’t know 1,000 pages that are the actual data. And we’re going to be publishing that in the next two or three weeks is our intention as soon as that chapter is finished. So, you’ll be able to see all of the data in its raw form and look at it yourself.
To give a feel, and I apologize that this is so dark. But what this slide is, it gives you a feel 3-dimensionally and you’re going to see this in a little bit different format in the next slide. But 3-dimensionally a feel for the metallurgical samples that went in through the test program because everybody asked are you representative of what you’ve done. So they have been selected 3-dimensionally, north, south, east, west and vertically for incorporation into the test work.
And then, early on we realized in the drilling what was happening, the next slide, slide 57, you’ll see looking a little different, now you get a good view of those med samples that we are looking down on. We quickly went back and added a number of samples that are below what was the then feasibility pit. And inside of that MII pit, that Frank showed on those sections because we knew the pit was going to grow. So, we added additional samples in order to make sure that there was no change with depth in what we’re looking at.
And then 3-dimensionally, and a cross-section, this gives you a feel, we’re also running copper. We don’t run it as an after-thought. We run it as the first thought. And what you have is on the right hand side of the drilled holes, the histogram is the total copper, and the left hand side is the soluble copper. And what you see is that once we leave the upper zone, the soluble copper goes away very quickly. So we are checking copper also, it’s a key component. Even though we know mineralogically we have changed, we’re still doing the check work.
The ore hardness that we talked about here we sit about 26. And as Fred indicated, the averages are more in the kind of 12 to 14 or 16 range. We are a hard ore. I would – I was going to show there are two additional things that you need to keep in mind. We’re actually brittle. And so that’s important. And we’re brittle because we have a ruminant structure of the bedding plains that Frank talked about from the grey whacky, soap stones and shales.
You can actually see the ruminant bedding even though it’s been solicified in the core zone, the ruminant bedding is there. And as you’re going to see here in a moment that’s really what the HPGR takes advantage, that’s prime for the technology in this case, where we’re trying to apply the correct technology. And to their credit, in 1995, Pegasus evaluated the possibility of HPGR. However in 1995 it was new technology and that of the shelf technology. So to their credit they were thinking about that.
I’m trying to think of the name, the Indonesian operation there was an Indonesian gold operation that’s actually harder than Mount Todd using the HPGR right now, that I have to do like, see if like my brain will think about it. But there is one running at again in the area. It’s – as Fred said, we’re in the top 5%, we aren’t the hardest.
Abrasiveness, this goes back to what I talked about. Actually, once we reach the right particle size, we are moderate on the abrasion scale. We will be planning if you see the ore, you see it’s hard from the equipment used in the pit, in the primary crusher, even though we’re model on abrasion side, we will be planning for those – that equipment selection to have a little higher cost on where and what not handling the bulk of your pieces.
But once we break through a certain point, we fall out very quickly. And those of you that follow Bonnington just because it was just mentioned, they actually are high on the abrasion scale and where they’ve had their difficulties in material handling and I don’t know where and belt wise, because of their high abrasion, so.
Testing program. We are pleased to say, going all the way back to the BEA and Ford that with one or two exceptions we’ve been very close on everything. We originally had 82% for our process recovery going back to the first round of metallurgical test work that we’re using. And based on the final Walk-Cycle Test and the blended average that 4% versus 96%, we end up at 81.7%. So, we’re pretty much on the mark.
Ore hardness, we’ve talked about. We’ve gone up by 5%, so in all of our specs that are sent out for the primary, secondary tertiary the HPGRs, everything, we’re making sure we cover ourselves there. Cyanide and lime consumption rates are very acceptable at 0.77 kilograms and 0.91 kilograms per ton respectively. We’ll be looking at three-stage crushing. One change from that earlier report to now is that, the early BFS report, we had a particle size of PAD of 125 micron. And based on the optimization – the grind optimization tests, it suggested that we should be PAD in the 90 to 100 micron range. So, we’ve selected PAD of 90 microns so not a huge change but very close.
Leach resonance time, we get our 82% recovery normal recovery in 24 hours. So, we have a very fast leach. We don’t need a lot of resonance time. We have selected CIL as we talked about. We have a cyanide de-tux as part of it in order to help control copper. And pre-cyanide and then one is not there but Fred mentioned, the use of lead nitrate we need a 100 grams per kilogram or 100 grams per ton, excuse me, of lead nitrate and it suppresses about 50% of any potential copper of recovery during that 24-leach so again a very controllable part of the process.
This is more for your benefit, this is slide 62 it just lets you know the sources of where all the work came from that you’re seeing. And it’s generated by – for the most part third party independent consultant’s laboratories or process engineering groups, you can look at that a little more at your leisure.
This is the most telling slide, this is what that hard core that you’re looking at. This is what it looks like its single pass through the HPGR from the 2-ton bolt test. And we end up with approximately 10% of the material actually being screen undersize and would report directly to the wall mill – excuse me – would directly bypass the wall mill and go straight to the leach cycle.
So, we are about 10% of our material, the test range from 8 to 12, Plesius report just that’s specified using 10%. And we so far have not taken credit for any of that. We’ve sized everything for still 100% going to the ball-mills but we get a very nice product. And what we see is this is the result of all the ruminant bedding plains, this is the shale and the grey whacky and the soap stones and when the stresses are applied in the HPGR, it just comes apart on those bedding plains, it just comes apart beautifully.
Plant layout, it was asked a little earlier about did you saw some of the buildings, the single biggest thing we get from the existing plant site is the fact that we have a level area with engineered feel sitting on it. It has power lines running to it, right now it was a water delivery line from the raw water dam running through it right now. We will the few, a few foundations that are left or what not, will all be removed and it will be a brand new process facility, even if there was equipment left from the previous operations, it’s likely we would not have been recycling much if any of it because of the changes both with regard to how we’re looking at hardness and also because of the change in the process itself.
The plant does fit nicely on the old plant site. We turn it about 45 degrees to the southwest, or southeast excuse me. But otherwise if it’s in there and within the plant layout you actually see here an example that we worked up, it’s part of what we’re doing with the primary crusher, the secondary and then coming to the twin HPGR and four ball-mills and the leach, we have room to fit the expansion in all sorts. So we have a very compact plant site that is already ready for us to go with just a little bit of demolition work and what not.
We are blessed from a geotechnical standpoint that the plant site sits nearly on bedrock the bedrock is very close to the surface. And so we’ve confirmed that with our own geotechnical work with so, prep won’t be large.
To give you a couple of ideas, conceptual drawing of what we are envisioning, the primary crusher to look like something similar to this. The twin HPGRs, and this is from another facility. And then of course the CIL plant. So, we’re nice and compact and accessible.
One of the – and I’ll stop there. Are there any questions on the conventional part of the process plant that you might have that on the CIL part before I step into kind of one or two other things? Anybody have any specific questions?
Yeah, in fact – in fact if you want to go and look at it, October of 2011, at the same conference the Semi-Antagonist Grinding Conference that was in British Columbia, there is a whole section of that conference at HPGR papers. And in particular both Freeport and Newmont presented on three of their different operations. Freeport, two different operations with regard to the HPGRs, Newmont, HPGR Bonnington and then a separate paper on how they have changed the blasting, the input blasting at Bonnington to maximize the output of the HPGR.
And so, since we know blasting is cheaper than crushing and crushing is cheaper than grinding, they have taken it that far. And I’d encourage you to look at those papers because or three things are universal in what has been presented.
In both of those company’s cases, the three sites reference, the actual throughput of the HPGRs has exceeded the designed capacity. And one of the thing that’s talked about in this and it makes sense to me is that they’re using bond mill work index and bond work index and drop weight work index to try to figure out how to size the HPGRs. And they’re starting to – there is about what – 19 or 20 running right now in the world in Hardrock applications.
They are talking about that they need an HPGR work index and the reason is because they’re finding out that the conventional bond work index and bond mill work index don’t exactly translate into how the HPGR functions with regard to applying the pressure and the stress in material coming apart but it’s excellent really.
The other thing you’re going to see is in the case, Freeport, they actually put a choke block in one of their HPGRs where they’ve taken a third of the opening with a way and getting the exact same production that was designed for that they found the machine is that oversized. So a great reference to go to is seg-2011 in British Columbia and there is a whole HPGR section, it’s a great reference to look at. And because Bonnington talked about, you learn a little bit about Bonnington which has some similarities to us.
And what excites us is, what they are doing on blasting technology that we’ll be looking at blasting technology also to help us then with regard to changing a little bit our powder factors or patterns in the pit in order to again help optimize what the HPGR is doing. So, there are some great references.
Interestingly enough you’ll see when you look at our metallurgical test data that conventional wisdom says that you’re power has to increase. We actually have a dip in our power and we decrease and then come back up. And we’ve had that replicated on multiple tests and check place on people we’re not the only place in the world to have this happen. We believe again it’s related to when we were in that kind of sort of a 120 micron plus 85 micron size in that window. We’re approaching kind of the clay particle or the silk particle size.
And so, they keep coming apart on those bedding plains. And then once you go below that, now you’re on an individual particle where we have to start grinding again. So, we really actually – in that little window, it’s about 5% decrease for that last part of it interestingly enough. But as I said, we’ve actually upped our power even though we see this happening. So, we believe it’s related to the physical properties and the bedding plains again, those bedding plains are there.
We’d suggest that we could likely see up to 10% increase in throughput without any changes in the crushing and grinding part of the circuit. We would just need to allow on the tank-age part of it and the leach part that we could see that immediately. As I said, at the moment, we haven’t really taken much credit, any credit for all the stuff we’ve done so far just to be conservative. But it suggests right away that you’re going to have less material.
Now the second part is, you could if you decided actually step back on the size on the ball-mills that’s the other part of it, or a little less energy depending whether you wanted the extra throughput or the adjustment. And part of that will be part of this final, the feasibility study and design work that’s going on right now the final decisions on that part.
One of the things we hope you walk away with this is that we aren’t pushing the, envelop if you’ll allow on the optimistic side anywhere. We’re allowing the data to speak for themselves and then we’re trying to apply reasonable amount of conservatives. We don’t want to be so far to the conservative side that we’re creating, certainly don’t want to be on the optimistic side. We want to let the data talk for itself and then honor that data but show some conservatism to be sure that we would accomplish what we’re setting out to accomplish. Anybody else.
Fred has mentioned the standalone heal leach. We, last November, we started looking at the heap leach. It has been treated to date there is nothing more than a reclamation liability. And one of the things that has come to light and we talked about it in part of the failures, Pegasus stacked nearly 600,000 ounces based on the blast hole and the production records on the heap leach and they recovered 220,000 ounces, not a very good recovery for heap leach operations by any stretch of imagination.
It’s our belief that they were logging visible oxides, and that’s how they determine that it was a core oxide deposit. And turns out the oxides are, were probably more coatings. It wasn’t oxidized thoroughly through it. And so, the heap was never really much of a heap to begin with, had it been adequately done.
The other part of it is, interestingly enough it is not accessibly high copper. The secondary zone which is very thin, and our weather zone, our oxide/transition zone, we’re only depending on where you are, 40 meters to about 65 meters of total depth, remember I said it’s a saucer under the old hill. So, it’s not a real deep zone to begin with. And the secondary zone is only about 20 meters or 25 meters of that.
The copper on the heap was not excessive either it actually nears the deposit average in the 400 to 500 ppm range very, very closely. While it’s being sitting, wonderfully sized, sub one-inch for the last plus 15 years, I mean, since ‘96, ‘97 it’s been sitting there. And we have this wonderful environment in the Northern territory where we get excessive amounts of rain for four to five months a year and then we get baking and cooking for the other seven or eight months a year. And so, we took the approach, we ought to look at the heap leaching in.
So, what we did was in December of last year Frank and his exploration crew went out and we drilled 12 holes in the heap. We took one meter assays, just like you would from anything else from those 12 holes. We did not go to the bottom of the heap, we deliberately stayed certain distance off the bottom because we didn’t want to puncher the liner or anything. We set those out for assay and for model rule test.
And when we reconciled the first 12 holes, the average head-grade versus what we believed, if you take the original grading material going to heap minus production, it said that the head grade should be about 0.6 sitting out here. And the average of those first 24 holes to 163 samples was 0.58.
And then ran a series of bottle rule tests which suggested that we could see 30% to 35% recovery. So, that was very encouraging because that meant there was 100,000 to 125,000 ounces of gold sitting here that could be recovered. So we drilled in January, Frank’s guys drilled 12 more holes. So we now have 24 holes in the heap, again one meter assays. Those were taken and with the original ones, those were assayed, compared, they were within about 7% of the other.
We built a 3D model of the heap and then we have a total of 12 column tests, we either had finished or will be finishing shortly here in December. We have seven that have finished and then there are five additional that we’re done. So, then we started column testing to find out what would happen. So this has the potential to – and this is just the words of what I just talked about that we – 24 holes, and we were in the bottle rule test, two different sets, 42 of them now. We had the average head-grade, the results so far of the first seven column suggested about 34% recovery, still on the 30% to 35% range.
And then, with these last five columns we then are running them as opposed to just straight material we’ve done a little in collaboration, we’ve done some lime addition and lime studies to see about what we have to do from that.
So, we are – we embarked upon a preliminary economic assessment of a quote standalone heap leach project because this is a project that could be brought to life and in a two to three-year period recover 100,000 ounces to 125,000 ounces of gold and still be closed the way we have planned to close it all along.
This is a curve that you have that you can look at or a series of curves from the bottle rule test, from the highs and the lows. And then the next slide is the more important one, this is the main curves from the first seven columns that were completed. So, we’re quite encouraged. Cyanide consumption was not excessive, lime consumption was not excessive. We got a very fast recovery curve off of it.
So we are, with this we started down the path of as I said the PEA and then we’re investigating what it would take to bring the heap back to life. There are some things we would have to do to the heap itself to look at some percolation studies and some other stuff. We know it drains because it rains water over a year but we don’t know how it drains internally so we’re going to, those 24 holes, the bulk of them are standing open we’re getting ready to embark on running some dye test and some other tests inside the heap, a feel for what’s happening.
But the idea would be to create a standalone heap leach project that would have a portable plant that can sit there and either in conjunction with the actual mine or ahead of doing construction, potentially recover gold off the heap leach and then go into closure.
The advantages for us, we’ve already said, we have power sitting on the site. We have water sitting on the site. So, we don’t have to do a lot to bring the heap leach back to life. There is some liner work on the hold and some other stuff but in the course some pounding to be worked on whether it’s – bear in the indoor storm water management but a fairly straight forward, fairly simple project we believe that may or may not have merit. We have gone all the way. To date, as I said it’s only been treated as a liability that we reclaim are closed. Anything on the heap that you’d want to know?
What we, what we know is that we have some degradation of winder on the edge of the molt where it’s been in the sun. The limited work that we’ve done kind of looked, picking up material and looking at it where it’s covered it doesn’t appear to be degraded. But this is one of the reasons we have existing monitor wells around the heap and we’re going to run a dye test both on the molt side and then the heap side and we’re going to pump on the down grade monitor wells to create a head, to try to find out what the condition of the winder is. That’s a big question to us there is no doubt about that.
Well the PEA, excuse me, our target for that is the end of this month or it could likely be very early in the November for where we sit with that. And then we’re trying to line up the pumping part of the test now and get those done as quickly as we can. I mean, people onsite working on trying to set up the dye part of the test right now.
So, what we’d like to do is under ideal circumstances let’s assume that the winder is intact and we only have to repair the molt and let’s assume for the moment that the PEA says that this makes sense, it’s a standalone project then we would jump into actually from the PEA of feasibility level of study, immediately and within two to three months we believe we can have a feasibility done for the heap leach is one of our goals.
We – Fred has had discussions with the NT-government with regard to how liability is on the site. Remember they hold the liability not us. But they have indicated that they will be willing to if the heap leach makes sense, call it about part of the liability and not transferring the entire liability of the site, we just transfer liability associated with the heap leach and it’s direct facilities. If it makes sense and there is a benefit to both of us to bring it back to life and then close it properly going forward. Yeah.
None of the old permits exist we would have to have a new permit. As far as permitting goes though, we’re going to head that way with environmental permitting so it’s not a great segue. I can tell you you’re coming from North America, one part of permitting Australia, it’s a breath of fresh air. We create a single EIA permit document and that document goes to the environmental regulatory agency, it goes to the mining regulatory agency, both of which are in the NT, were regulated in the NT by the NT.
And the only federal, federal permit I believe I’m aware of is that same document goes to a group called SEWPAC that is the federal agency for cultural and archeological issues, other than that all the permits come out of the NT and it’s a single document. Because the heap leach sits in the center of the site, we’ve done all the EIS work associated with the larger project already.
So we have everything we need in the big EIS to create the EIS or the EA whichever worked out to be, for the heap leach already. It doesn’t require new data, it doesn’t require new studies. So the permitting would be expedited in the case of the heap leach because it’s in the center of the site. And it would directly come out of all the work already done.
We were well on the way with the EIS before that the study was terminated last May, I mean, most of the work was done with the exception of two chapters. Fred mentioned that the way it is in Australia BIS has economic data and it requires you to put your economic analysis and it required you to put your production schedule, some other stuff. And so we weren’t able to submit it because we couldn’t release that data because we didn’t have a study that matched it and if we released it, then we have select to disclosure so that’s an issue too. So the document is more or less done. It’s just the matter of adding couple of chapters.
No, they – Fred very aptly said, I mean, one, they are partner, two, I think that they are fully onboard from what has been said that they understand the best way to fix the problems at Mount Todd is actually bring it back to volume and run it the way it should have been run and close it the way it should have been closed. So I think they are very much pro us bring it back to life, so we meet all the economic rules. Confirming, perfect entrance, anybody else, please?
This is just the summary. Those are territories or partners. Fred talked about the change in government that occurred after the election and the Northern territory is in the process of creating their equivalent of an EPA. We actually think that’s a good thing with what they are doing and we talked to the gentleman who is going to be potentially in charge of that. And it’s a very favorable permitting environment. It’s actually much shorter than here in North America and we are well down that road with what we have done already in the past. All of our flora and fauna studies are done. All of our water studies are done.
Our carbon studies are done as far as our carbon footprint, the socio-economic and cultural parts done. The documents 90% written at this point in time from 30,000 ton per day operation. Just missing one or two items. And we’ve had reviewed it along the way, we’ve been reviewing it as we go. The way that permitting works is that – this slide it would go, be submitted to the government and they have a 45-day period for their review and comes back. Then as fast as we turn around the corrections then there is 30- day public exhibition period.
And then the final edits or revisions are return to the government. And it’s – you can do a permit in six months if you have the EIS done in Australia and that’s what we are looking at. Turning in May from larger project and being done in any permits by December of next year.
The Heap Leach will be the same way. If the feasibility we are done for the Heap Leach as I said that this document could be taken apart, create the EIS for the Heap Leach and it would be the same kind of timeframe. If not a little quicker, they may decide the Heap Leach is actually an EA instead of EIS because it’s inside of the already disturbed footprint. So those are discussions that have been going on.
Just a timeline. This is the forward-looking statement what we hope will be development schedule from Mount Todd with the PFS being completed mid-December to mid-January; it’s the timeframe right in there. The same time that the updated PFS is going on, we are progressing the feasibility study and targeting no later than May, end of May, 2013 for the feasibility study that we’ve done. And that would allow us to turn in at the end of May, the first week of June, the EIS document because that could be completed in start toward permitting regard to that.
During this time, step hasn’t there; we will begin the financing portion of it. We would begin detailed engineering and look at potentially Heap construction if it so workout. Heap production which started very quickly, we don’t see a long construction period. We see a modular plant and bringing Heap back to WhiteFord haven’t very quickly. As I said, we expect that we would recover than 100, 125,000 ounces in with construction and recover the ounces more than about two to three year period and then construction and commissioning starting early in 2014.
So and again we have about two year construction period. One of the advantages we have, we have been kind of on this soft box but the infrastructure. We have existing electricity, it’s like we can start construction right away because we have overhead power line coming to site. We don’t have to bring power in. We are not remote or 20 minutes off the highway or 20 minutes from railroad where power on site, water on site. So to put in the construction camp, to start actual construction and have all the infrastructure we have what we need. So it gives us about 24 month construction period and part of the reason for the 24 month is actually the couple of the long lead time items. It’s not the actual construction. Yeah?
I believe that it’s about $6 million or $7 million. It might be six to eight I think. I believe I am right in six to eight range. It’s not a large number. Yeah.
Well, commissioning would be starting the end of 2015 and the first part of 2016. I mean, that’s the target.
We are looking at a (inaudible) two month threshold. So if we were able to start construction first part of Q1, 2014, construction should be finished by August, September and then we been looking at two or three months of commissioning, buildup, and that we would be – we would expect to be at or very near to our design production rate by start of 2016.
Well, we are quite confident because it’s a defined period in Australia. And as I said, two things, one the documents virtually done because we finished as part of the 30,000 study that wasn’t continued because of the change. What we did do was we had the government and the permitting consultant, PHP in Australia go back and they looked at the bigger footprint that the larger operation would have and determine the two places they needed to collect additional data. Those were collected this fall and that’s finished now. And so that’s all finished, there was very little additional data needed. We had the two meter change in the height of the raw water data, so there was a rind around the raw water dam that needed some work.
And then there was a little more data with regard to the footprint of the dump in the TSF to new tailings storage facility. But that’s done, so and the second part is that one that’s sitting there, those chapters they were written have been if you will pre-reviewed by the appropriate agencies in the government. So we are really confident that we are not missing any big thing or something is going to jump up if you will that hasn’t been covered. It works little differently and it’s a plus, it really is.
Yes, the two key elements are the mine plan and the economics and then basically the (inaudible). And so if we turn it in the 1st of June, then the six months would put us in December. If for some reason, it was the 1st of July, it would begin but six months is the period. That’s kind of the set period as part of the review and the public exhibition and turning it around. So really when we get it back is depended on how quickly we can turn it in.
One of the important things and when I was last in Australia two or three weeks ago, I met with a gentlemen who be the Chief Executive of the newly formed environmental protection agency. And when we talked about permitting timing, strategy, review of the document, our concerned that if we had to wait, can we had this economic data and the reserves. And we were told submit the document as soon as you have it available. Flag areas where data has pending, get it to us, we will start to review when we get to the point that we can’t take it any further because we are waiting for data from you, we will set it down the shell the clock will stop.
So there is a disposition manifest on the part of government to move this forward and to not make us wait until we have the complete package to submit it which is actually a very refreshing change in the attitude that we are seeing come out of the Northern territory.
Yeah, it’s interesting because those of us in North America are used to all the opposition and all the funds, it works different there and it’s an interesting difference. Institute water treatment, one of the big issues for us. It is a fact that we have us talked about in the overview, the movie that you saw a large volume of existing acid bind drainage water that’s been stored on site. And we have spent more than a year working on, coming up with an institute treatment method that will let us for a reasonable cost bulk treat. The 11-giga liters there about water that are in the Batman pit and begin discharging at over two wet season period.
This is a map that you saw. It’s a photo from Google Earth. It’s part of what you saw in the overview. It shows the primary areas where we have water. Obviously, we need to empty the Batman pit because we can’t get back in there. The tailings facility we don’t have to totally empty but we have to change the water chemistry because what’s happened is this is what referred to as RP1, here is the waste dump, it’s just a waste dump. This is the main collector of all the bad water and then the water pumps back to here and then back into the pit.
So we have to change the water chemistry and the tailing facility back from a static to basic. We have to empty this because part of our construction period requires to change the design of this slightly for redevelopment so we have to empty the pit to reactive mining. Well, we have started after four rounds of testing. We are going to be treating the 11-giga liters of water with a combination of finally ground calcium carbonate and quicklime.
We have high purity calcium carbonate that’s ground to 150 microns and it is dry injected with the water in the pit through venturi nozzle and disperse. And we ran up 30 million liter test this past May to prove this to the government that it works. This is a curve tells you what’s happening along the way. We used to the calcium carbonate to take us from the PH 3334 up into the PH 662 range. It has a significant impact on the metals that are present. We switched the quicklime and take it from there up into the 7274 range.
To give you a feel for what happens, the pit lake right now averages about 11 to 12,000 parts per billion copper. And when we hit this point right here, we are sitting at about 43 to 45 parts per billion copper. So we virtually loose 99.9% of all the copper. We take it to the point where we only five bad actors left and then we have a new discharge license that has a new mixing ratio that elect us discharge during the wet what we need to discharge. So the plan is that it is a very large institute treatment of the pit with this material and then discharging based on the mixing ratio over two wet seasons into the environment and we have the permit submitted for that. It’s verbally approved already.
This is the detail on some of the chemistry that you can look at but it lets you see the impact that occurs and really from Mount Todd we have I should say three periods of water treatment. We have a water treatment with regard to the existing inventory on site. Now we have water treatment when the mine is redeveloped and is operating. And as part of that we have conventional water treatment plan that’s in our capital cost. So that’s not an issue. We will then treat conventionally and we will discharge any time during the year that we wanted.
And then for closure and reclamation, we have the water treatment plant that runs for three to four years based on the drain down the (inaudible) and then we switched to two paths of wet one and then treat in permit duty. So when you think of the project we have three periods of water treatment when you think about it. So this is significant changes. We got approval from the government and it’s going to be interesting we think and actually quite cutting edge.
This was the – this is the 30 million meter test. What we did was that there are two de-cam pumps below the tailings facility. We empty one of the de-cam pumps, we pumped water from the pit into that empty pond 30 million liters. Then we ran a six day test. This was a small set of the venturi right here. And this is the before and the after and in six days we neutralized all 30 million liters and all the water chemistry done and in fact it matches perfectly. This is the Batman pit.
This is the large scale set up. And so we have nearly 300 tons of calcium carbonate, ground calcium carbonate arriving a day from road trains. That’s dry transferred into the storage and then pneumatically pumped to here where it’s mixed with the water and then discharge the long discharge pipe across the pit that’s moved back and forth and then reacts. So that’s how we are handling and we are for the first time going to be proactive on the water management that reacted.
We – our plan is to start this December. We will have 25 days that we will in over which we will inject 10,000 tons of finding ground calcium carbonate. And then at that point we will switch over to the quicklime and then we will have 15 days when we will discharge 3,000 tons of quicklime into the pit. We are monitoring the pit. We are – the pits got about 89 meters of water in it and we will take water samples every week at 10 meter intervolves over the entire water pool, so we are watering, checking the whole thing.
Once the pit hits 7274, as the average PH, and the clarity is such which should be very quick based on our big test. The 30 million liter test. Then as soon as the rains start, (inaudible) what season starts in (inaudible), we will begin pumping the prescribed dilution rate.
At least two wet seasons and it could flow over into a third. So starting now means the pit would be 100% dry by the beginning of 2016. That’s the key. We would like it be a little sooner than that. And we have a plan that we are working onto try to help accelerate that.
Yeah. This is – we are spending about $9 million to treat 11-giga liters. That’s equipment, chemicals, everything. Yes. All the capital and the treatment are happening now and will be spend it before mid-December and then of course then we will have electric as far as pumping goes that will be into this year and then the next year. And it’s quite an integrated system, it’s from here, it’s pumped to a just approved discharge point.
Then we have three monitor stations, that won’t mean much to you but we have a monitor station at Batman Creek the way it’s going to set up a monitor station at Still Creek, monitor station at Eath River which is the river of concern. And there are all connected by telemetry. And so the water levels would be red in each one and based on the dilution ratios allowed, then the pumps will the verbal speed drive pumps and they will come up and down according to what the river says can be diluted.
Our water can be discharged, they will be all run automatically and then of course we will be sampling the river at the approved standard site, monitor site. Well, Frank talk again here a little bit.
Okay. With the completion of the drilling in September and the September update we received approval to continue on with an additional phase of drilling. This drilling, you see in red to a large extent targets potential shallow mineralization to the north and south of the current pit design. As pits gets deeper that draws in additional waste to the north and south if we can convert some of that material to ore, it will cut our strip ratio potentially bringing in some big rate mineralization that we could add in early in the mine life.
Our goal is to complete this drilling in mid-November with the resource update published in early Q1, probably waiting till Christmas to publish it. Just to give you where we are at, we had some drilling that was completed before in September that we didn’t have assays to include with that update. Drill results are continue and be very positive with the start. The first hole was holed 15; we had 148 meters or 1.3 grams per ton that you see down here. Some very nice grades.
Some pinging wall mineralization as well narrower zones of decent grade mineralization. Hole 16 came in after the published update. This one, we had a 129 meters of 1.49 grams per ton. When I talk about this higher grade mineralization at depth, this is kind of the thing we are seeing, nice runs of higher than the average grade.
Hole 17 on a spectacular but again a very nice zone of hinging wall mineralization above the main horizon. And good conversion of mineralization within the horizon confirms or upgrades blocks in those zones. This was an area of low grade mineralization to start with.
We are going at long section just showing what we are targeting currently going back to a long section view. Again this orientation, you see them the areas that we are targeting with this final phase of drilling. Areas generally inferred mineralization, they are shallow drilling (inaudible) much of it vertical, rotary drilling. So we are – anywhere we have a heft of mineralization we are targeting series of holes. If we go closer into the core zone, you will see some of the mineralization that we are targeting that’s never been properly offset. Again some trends coming out of here that we want to see what we can develop in this area. Also see some of these recent returned holes, some very nice intersects.
And I think this is the last one further to the west. Again the holes right in here and deeper in here where we see this hint of higher grade mineralization coming up dip. Talk a little bit about the exploration in the area. Per scale, our claims are shown in this screen hatechered area. We are located in the Pine Creek GSN client, the Pine Creek mining district. This hole is over 250 gold occurrences, high metal rich; areas produced 10 tungsten gold, uranium, lots of occurrences.
There has been over 20 million ounces of total resource plus tax production in the district. It’s by Nevada standards maybe not a great district but by Australian standard, it’s a very productive area, over 5 plus 1 million ounce deposits.
We will go into the geology to a large extent but we have good structure. We got good hot radiogenic intrusive rocks that seemed to be a key to defining or locating these deposits. Good structural preparation, lots of occurrences. The other thing I want to get across is this is a very underexplored district by U.S., by Australian standards. This was in Western Australia or Queensland that would be covered with drill holes. A very little exploration in this area for a number of reasons.
Spoke about this a little bit. Historic, when I started with on this project, I assumed that this would be a very mature exploration area that there had been a lot of work done, a lot of detailed work during the 1980, 1990s, when Pegasus built in, at that time it was active in the area. What we have actually found was they focused very much at Mount Todd, at Batman much as we have done.
Very little exploration on the licenses surrounding Mount Todd and we are seeing some excellent potential. We have maintained a modest program over the last five years out on the exploration licenses and we have identified a number of high quality targets. And we have done some drilling with some encouragement in the results. Just very quickly the things we are looking at, we have defined resources at Batman and (inaudible) which is located just north of Batman.
A high grade narrow sheer that was drilled by Pegasus and Appleton in the past. We put some core holes in it, the first core holes that we drilled on it and we found 40, 50 meter wide zones of veining similar to Batman. We look that as exploration plays something that will be developing in the future. Advanced projects, Golden Eye, one of the things that we have identified on the project in the last several years is that we have potential for iron, oxide copper, gold deposits similar to Tennant Creek which is located north of us.
A high grade small, they are smaller targets but they contain plus 1 million ounces of gold and 10 to 50 gram per ton average grades, small footprint, very exciting target, difficult to explore for but we are getting some encouragement from soil samplings, from airborne magnetic surveys that have been completed in the area and we are following upon that.
Snowdrop located up in here. It’s a play very similar to Batman sheeted, quartz veins with cold, arsenic, copper, zone mineralization something that we hope to be drilling early next year with the onset of the dry season. Reconnaissance, we are looking at wolf from hill, in this area it’s a gold tungsten skarn that is pretty exciting, we are getting plus one gram per ton samples of the surface in the area that skarn to the north of the intrusive.
We hit these El (inaudible) settlements. These are younger settlements in an unconformable relationship to the underlying Burl Creek formation. Some gold, normal gold values that were collected by Pegasus in the 1990s. Just to the north of about 40 kilometers to the north up in this area. We have an occurrence that Coronation hill deposit that was developed same period in the late 80s, certainly 90s, gold platinum with some uranium. So we are looking at this area in our guess. Same rocks, same structural setting, set right next to a very radiogenic intrusive, very similar to what we saw at Coronation Hill.
Other iron, oxide, copper, gold deposits, this blanchers of large surface gozen that we just identified this season. Never been sampled, never been a drilled hole anywhere near at, no prospects, kind of indication of the exploration potential that we have in this area that you can stumble on something like this with a very intelligently planned exploration program. But you can still find things like this right on the surface. Blacktail another iron oxide copper gold prospect and Fairfield which is located in this area, we have not done any significant work on it. We’re getting plus 30 gram assays off narrow core stains, we need to put something together there to see if it’s worth following up.
We’re focusing our Genitors Exploration, Reconnaissance Exploration along these two structural quarters that seem to be very productive in terms of gold occurrences. It’s a very strong structural trend that we pick up in the airborne geophysics that made – that’s certainly key to guiding exploration in the Batman Quigleys area. These continue on, very similar structural setting in here. So that’s where we’re focusing our reconnaissance. I have some maps, some detail on these exploration plays that you’re welcome to take a look at after the presentation.
And with that if there are any questions to any of us.
Yeah go ahead. I’m sorry the exploration budget for? Exploration budget this year was – okay, let me draw the line between.
For 2012, it was about $800,000. I would say that given the availability of drill rigs, we unfortunately took the rigs and didn’t let Frank put them out in the bush. The exploration or the development drilling at Mount Todd, you’ll recall from initial estimates it was post of completed at the end of first quarter of this year. We then – that was post of then, 8,500 meter program. We added another 5,800 meters to it in April, in August, I guess the end of July, our board meeting ends July, we added another 4,000 meters to that program.
And so, at the end of the day, we’re going to be close to 18,000 meters on the drilling program that started out as an 8,500 meter program. And so, we’ve taken – we took nearly all of Frank’s resource, he’s been doing soil sampling and some other workout off the bush on the exploration licenses. Next year we see a totally different story unfolding. We aren’t going to be doing any more development drilling or if we do, it’ll be a very small program at the Batman pit and it will be your end of that specific weaknesses in the model or the need to obtain core for specific tests whether it’s metallurgy or hydrogeology or pit stability.
But the majority of the drilling that we envision for 2013 will be outside of the Batman depository, it would be true exploration work. Right now, I would say that projected budget for next year will probably be something on the order of $2 million to $2.5 million for exploration.
Any other questions. If not, I would like to take this opportunity to thank those who have joined us by the webcast. Hopefully this has been very informative for you. I’d like to thank those who have taken the time out of your very busy schedule here in Toronto to come and join us for the morning. I and the rest of the team will be available for the next 45 minutes or so. So, if you’d like to ask one-on-one questions, we’ll be here and we’d be happy to address those. So thank you very much everybody.
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