Northwest Resources (ASX: NWR) has completed studies that confirms the Camel Creek Joint Venture's ability to deliver significant cash flows to Northwest with minimal pre-development expenditure and no capital expenditure.
The scoping study has calculated that the company's 50% stake in the Western Australian project has NPV10 of $13.9 million and an IRR of 1,152% with 24,680 ounces of gold recovered.
This is based on a gold price of US$1,600 per ounce, joint venture costs of US$912 per ounce and a 32 month mining period.
Importantly, further upside exists as the scoping study evaluated only three of the four joint venture deposits and did not take into account potential extensions and new discoveries through exploration.
Northwest said the catalyst for the scoping study was the start of commercial gold production at partner Millennium Minerals' (ASX: MOY) Nullagine treatment plant in February 2013 following the first gold pour in October 2012.
Since commissioning, Millennium's mining, milling and recovery rates have been consistently above its feasibility forecasts.
It added that a small amount of work was still needed to complete maiden Ore Reserve estimates which will confirm the economic development case for the JV deposits evaluated in the scoping study. These include:
- A planned 5,000 metre reverse circulation infill drilling program to convert the small portion of Inferred Mineral Resources (20%) to Measured & Indicated at the three largest JV deposits and to test the potential to significantly expand the fourth deposit - Round Hill;
- Preparation of an upgraded Mineral Resource estimate by CSA Global; and
- A mining study and pit optimisations by Auralia Mining Consultants to prepare Ore Reserve estimates for the Little Wonder, Roscoe's Reward and Junction JV deposits. Auralia previously prepared Millennium's mining studies and Ore Reserve estimates for its project.
Northwest is evaluating strategic options with respect to its Camel Creek Joint Venture interest to enable this valuable asset to contribute significantly to the financing requirements for its flagship high-grade Blue Spec Shear Gold-Antimony Project.
Camel Creek consists of four ear surface, low grade, free milling gold deposits defined with a current total JORC compliant Mineral Resource of 2.67 million tonnes at 1.23 grams per tonne gold for 105,000 ounces of contained gold.
Under the terms of the Camel Creek Joint Venture with Millennium, Northwest contributes the four gold deposits in its project and Millennium contributes its management, mining capability and processing plant located in the Nullagine Goldfield.
Each company is entitled to 50% of the physical gold production from the JV and will share equally the mining, processing and rehabilitation costs.
Northwest is not required to contribute any capital expenditure to Millennium or the JV.
Camel Creek is also a natural fit with Millennium's Nullagine Gold Project as they share the same geology and mineralisation style as Millennium's satellite deposits.
Roscoe's Reward and Junction will be developed as individual open pits while Little Wonder will be combined and mined as one pit with Millennium's contiguous and similarly named Little Wonder deposit.
The Round Hill deposit requires further drilling to assess its potential for development.
Millennium will manage the JV and undertake the mining, treatment and rehabilitation of the JV deposits. It will also provide the use of all its mining fleet to develop the deposits and JV ore will be processed though Millennium's Nullagine treatment plant.
JV ore will be blended with ore from Millennium's Golden Eagle deposit during processing.
Northwest and Millennium havealso identified a number of prospects on Northwest's Camel Creek tenements which are not part of the JV. Further deposits can be added to the JV by agreement and the parties believe that further exploration will deliver additional ounces to the JV.
Timing of cash flows from Camel Creek
Northwest and Millennium have fixed the order of the mining of the Joint Venture deposits relative to Millennium's own satellite deposits rather than attempting to fix a specific time for mining of the Joint Venture deposits to commence.
The JV deposits will be mined after Millennium's Golden Gate satellite deposit (the first Millennium satellite to be mined) but before any of Millennium's other satellite deposits.
While mining and processing of the JV deposits was originally expected to start in January 2015 when the two companies had first formed the JV, the this could be brought due to Millennium operating at a higher reported processing rate of 1.7 Mtpa (and with a target of up to 2.0 Mtpa) at Nullagine.
The scoping study and preliminary economic assessment highlights the Camel Creek Joint Venture's ability to generate high margin early cash flows for Northwest. The study and outcomes have served to significantly de-risk development of Camel Creek for Northwest.
Even at lower assumed gold prices, the JV "all in costs per ounce" would allow a significant profit margin for the JV partners.
The IRR calculation is based on Northwest's estimate of pre-production JV expenditure of approximately $800,000 (Northwest's share $400,000) relating to drilling, mining studies and approvals. Northwest is not required to contribute any capital to the JV or Millennium.
As noted by Northwest, returns from Camel Creek would provide financing support for development of its high-grade Blue Spec Shear Gold-Antimony Project, which has already received strong offtake interest from some of China's largest antimony producers.
In all, the Camel Creek scoping study offers Northwest a road-map to cash flows and early profits from a project that was not considered the "main game". However, JV partner, Millennium Mineral's successful commissioning of the Nullagine mine and treatment plant has added a new profit dimension for Northwest.
Northwest held around A$2.4 million in cash at the end of December 2012.
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