Phoenix Gold (ASX: PXG) will continue to generate early cash flow from milling agreements at its operations near Kalgoorlie in Western Australia under a staged development plan, and has now locked in a two year agreement with FMR Investments.
The ore will be treated on a batch basis, so no blending of the ore is required, with the payment on an open book cost plus basis.
Phoenix is familiar with the mill, having used it to treat ore before, and therefore its team know the cost structure very well.
Mining and milling of these smaller scale projected is expected to deliver a 25-30% operating margin over a 2 year period at $1350/oz gold price.
Importantly - FMR's Greenfields mill is in close proximity to Phoenix projects, which help to keep transportation costs at a minimum.
Phoenix has also placed itself in a strategically significant position to potentially acquire the mill.
Under the terms of the agreement:
- 600,000 - 800,000 tonnes per annum will be treated at FMR's Greenfields processing plant in Coolgardie;
- Phoenix ore will be processed in campaigns with no third party blending, payment will be on an open book, cost plus basis;
- Mill to be operated under technical direction of Phoenix; and
- Ore treatment planned to commence in September Quarter.
Jon Price, managing director, commented: "The signing of a long term agreement with FMR is a great result for both parties and secures a milling pathway for ore mined under the base case development plan.
"Phoenix has treated ore at the Greenfields mill with great success on a number of occasions over the past few years and this next stage will be on a larger scale and longer term basis.
"With the successful completion of the Placement, we are executing on the development plan with grade control and mine extension drilling commenced.
"The results of this grade control drilling and subsequent modelling will further improve geological confidence and catalyse the development of our first project in the next few months."
A key benefit from this agreement is that Phoenix is familiar with the mill.
Mining and milling of these smaller scale deposits is projected to deliver a 25-30% operating margin to Phoenix over a 2 year period at A$1350/oz gold price.
The gold price for the operating margin is conservative considering the current price of A$1410/oz, a 4% premium.
This agreement is therefore value accretive for Phoenix, as the company continues to generate revenue and cash flow from non-core deposits.
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