Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Kentor Gold To Increase Production While Reducing Costs At Murchison

Kentor Gold (ASX: KGL) has mapped out a five year plan which will ramp up gold production from the Murchison Gold operation in Western Australia - while also reducing the cash costs per once.

Helping to achieve the targets is the results from a Scoping Study also announced today on the NOA 7/8 deposit, which delivered:

- Updated Mineral Resource at NOA 7/8 of 130,500oz gold at a cut-off grade of 0.5g/t
gold;
- Probable Ore Reserve of 310,487t at 4.36g/t gold for 43,560oz gold;
- NOA 7/8 mine design completed; and
- Resource remains open down dip and along strike. Additional drilling planned.

Simon Milroy, managing director, commented: "The scoping study confirms the potential of the high grade NOA7/8 resource to further underpin the profitability and growth of the Murchison Gold Project.

"Further drilling is planned as Kentor continues to build on the resource base and extend the operating mine life."

Additional geotechnical and resource drilling is planned later this year at NOA 7/8 to locate extensions to the mineralisation down dip to the west and down plunge to the north, while also converting resources to Indicated.

Another plus for Kentor is that metallurgical test work to examine the possible effect of graphitic shale within the stratigraphy on recovery of gold in the plant has been completed.

The test work has confirmed the ore from NOA 7 and 8 is suitable for processing in the existing CIL plant and that recovery is unlikely to be affected.

Kentor's Five Year Plan

The new five year plan includes an increase in forecast average annual gold production to 30,700 ounces from 24,000 ounces per year and a reduction in average cash costs of production to $1,075 per ounce from $1,223 per ounce.

Milroy added: "The revised five year plan has considerably strengthened the technical and financial aspects of the Murchison operation. At the same time, cost pressures for equipment, contractors and consultants in mining appear to be starting to reduce.

"This bodes well for improving performance as the Murchison operation continues to ramp up to full capacity."

The forecast performance improvements at Murchison follow completion of pit optimisation and design work and the revised mining schedule, with the key change the incorporation of the high grade primary ore identified at NOA7 & 8 which will be sourced from underground and the incorporation of open pit mining at the Alliance pit.

The underground mine at NOA7 & 8 will provide a longer term source of high grade ore thereby lowering cash costs.

Further drilling is being planned at Authaal and New Alliance pits to target an increase in the low grade oxide resources that testwork has demonstrated are suitable for heap leaching - with the addition of a heap leaching circuit and an expansion of the CIL circuit remain as expansion options to the plan.

Permitting for construction of the heap leach pad has commenced.

Kentor will then use a drilling program forecast to finish in the March quarter of 2013 to upgrade the resources suitable for heap leaching.

Analysis

The significance of the projected ramp-up in gold production at the Murchison project at a lower cash cost has a very positive impact on Kentor's revenue generation - which is supported by the historically very high gold price of around A$1700 an ounce.

Based on the current gold price and the production increase to 30,700 ounces annually, Kentor would be generating over $52 million in gross revenue annually.

The 'kicker' for Kentor is the proposed reduction in cash costs to A$1,075 per ounce.

This would make the Murchison project a much more profitable operation with a margin of over A$600 an ounce after taking cash costs from the current spot price.

Murchison project full-comment from Kentor

Mining costs in the initial phase of the Lewis and Reward pits have been higher than forecast, principally due to the earlier than planned interception of primary rock, resulting in higher drill and blast costs.

Delays in the availability and supply of explosives suitable for wet blasting also led to reduced mining rates and higher fixed costs. An explosives storage facility has now been established on-site and a longer term explosives supply contract is being negotiated.

The current mining contractor finishes at site at the end of October and a new mining contractor will commence at site on the 1st of November. The new contract is structured with 100% variable rates which will result in a lower cost of mining.

Production and net cash flow from the operation to date has been lower than planned in the initial months as a result of lower grades from historical stockpiles and higher initial mining costs. The open pit mining to date has been slower than planned resulting in the need to feed ore from low grade stockpiles to the plant.

This will improve going forward as the majority of the waste from the Lewis pit has been mined and the stripping ratio reduces. As anticipated the grade is improving with depth and mining will be moving into the best grade ore in the next few weeks.

Murchison's working capital requirements have been funded by the recent equity issue and necessary adjustments to expenditure (refer to section 1.3 of the rights offer booklet for further detail).

Any further expenditure requirements are currently expected to be met by production cash flow, expenditure adjustments or additional corporate working capital facilities.

Dewatering of the NOA2 underground mine, a significant source of high grade ore planned for 2013 and 2014, is proceeding well with the mine portal now exposed and the water in the underground workings pumped down to approximately fifty metres below the level of the portal.

Inspections have confirmed that ground support in the decline is in good condition. Access to the first ore level is anticipated to be in the next two weeks with underground mining planned to commence in November.