Phoenix Gold (ASX: PXG) is well-funded with over $20 million in cash at the end of March 2013, with the company now entering a deal to boost near term cash flows with the monetisation of the non-core Blue Funnel Gold Mine asset in Western Australia.
Stage 1 of Blue Funnel provides some positive metrics such as delivering near term total net cash flow of over A$3 million, based on a gold price of A$1,350/oz.
Compellingly, the project would require little by way of start up capital expenditure.
Providing a potential boost to the economics at Blue Funnel, the recent fall in the Australian dollar is currently pricing gold at A$1,465/oz.
Stage 1 delivers 86,000 tonnes at 3.5g/t gold at a total cash cost of A$980 per ounce, with toll milling at FMR's Greenfield's Mill to produce 9,000 ounces at a 93% recovery.
Phoenix will commence mining in July with ore processing scheduled for August, with Blue Funnel to be the next cash flow generating asset within the company's portfolio.
The ore will be hauled south-west along the existing road network to FMR Investment's Greenfield's toll treatment facility near Coolgardie for milling over a 6-8 week period.
Jon Price, managing director for Phoenix, said that the development of Blue Funnel and other small scale mining projects to generate cash flow for the business has always been a core part of Phoenix's strategy.
"It now delivers an even greater benefit given the tough financial markets currently facing the junior resources and gold sectors.
"The cost of doing business in the Goldfields is improving and we are evaluating a number of our smaller projects for development in addition to completing our larger scale projects as part of the Definitive Feasibility Study, due in December this year."
The current Blue Funnel Resource sits below the existing shallow pit which produced 48,000 ounces at 4.5g/t gold between 1985 and 1993, with recent grade control drilling and feasibility work has demonstrated the potential to mine the remaining ore in the pit and complete a small cut back to the south.
Blue Funnel mining decision
Phoenix said that the decision to proceed with the Blue Funnel development follows the completion of close spaced grade control drilling and an updated grade control model.
The mine optimisation / design study was completed by Goldfields Mining Services and demonstrated that Stage 1 met Phoenix's internal cost and margin targets for small scale mining projects.
Key metrics from the study included:
- Ore Mined bcm 36,977
- Waste Mined bcm 193,056
- Stripping Ratio w/o 5.2
- Mine life months 3
- Ore Milled dt 85,800
- Mill feed grade g/t Au 3.52
- Metallurgical recovery % 93
- Ounces recovered oz 9,030
Financials (based on 100% ownership, Phoenix owns 95% of the Blue Funnel project).
- Revenue at A$1,350/oz gold price A$M 12.2
- Capital costs A$M (0.23)
- Total operating costs A$M (7.80)
- Royalties A$M (0.83)
- Total cash cost A$/oz 981
- Cash surplus (before tax) A$M 3.3
Plan for the mining pit
A local mining contractor has been engaged by Phoenix to mine Stage 1 of the project, with the equipment comprised of a 65t excavator and 3 caterpillar D400E trucks mining over a 3 month period).
Statutory approvals are in place and mining is planned to commence in July. Grade control drilling has been completed on a 10m X 5m pattern and an updated grade control model completed in preparation for the drill and blast and mining cycles.
Phoenix has a strong mix of generating cash from non-core gold assets, while continuing an aggressive $19.5 million (217,000 metre) accelerated drilling program targeting 4 million ounces by the end of 2013. The company currently has around 2.5 million in gold ounce JORC Resources.
Blue Funnel joins Catherwood as the first two small scale mines to be developed by Phoenix to generate cash flow, with Blue Funnel delivering some compelling metrics.
The net cash flow of over A$3 million to be derived from Blue Funnel is based on a gold price of A$1,350/oz, yet the economics have vastly improved with the fall in the Australian dollar which now has an ounce of gold in the local currency at A$1,465/oz.
Importantly for investors - if Phoenix can continue to develop non-core gold assets then the company remains as a self-funded explorer, and therefore doesn't need to raise capital or dilute through placements or rights issues.
Phoenix had over $20 million in cash at the end of March 2013 and with a market cap. of $36 million, has an Enterprise Value of $16 million, or around $6.50 an ounce.
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