Auzex Resources (ASX: AZX) phase one drilling program has provided a 30% boost in JORC Resources to 2.6 million ounces at 1.03 grams per tonne (g/t) gold at a 0.5g/t cut-off, following a Snowdens study at the Bullabulling Gold Project.
Importantly for the progression of the project joint venture with 50:50 partner GGG Resources (ASX: GGB; AIM: GGG), drilling at the Bacchus and Phoenix pits have converted 711,700 ounces to the higher confidence Indicated Resource.
The impact from the latest drilling at Bullabulling is that the project has now been partially drilled to a JORC standard enabling the joint venture to move to JORC Reserves from Resources.
John Lawton, managing director, said “The Bullabulling Gold project continues to demonstrate that Bullabulling is a very large and highly continuous system.
"Initial optimisation modelling based on the new resource estimate has indicated potential to achieve an initial reserve of between 1.5 million and 2.0 million ounces of gold with a minimum mine life of approximately 10 years depending on the annual rate of production selected."
Auzex said that the company expects a high conversion of resources to reserves due to the holes drilled within optimised pit shells.
The phase two 70,000 metre infill drilling program is currently underway targeting an upgrade in a substantial portion of the Inferred Resources to Indicated by the end of the year - which will allow the initial Reserve to be estimated.
Highlighting the potential of Bullabulling, preliminary project optimisation studies indicate a reserve target of 1.5 to 2.0 million gold ounces within the known resource base.
Lawton added, "Further resource upgrades can be expected from the current phase two drill program from within the Bullabulling Trend which commenced in May 2011 and will run through to November 2011."
A 20,000 metre exploration drill program is also in progress targeting Gryphon, Kraken, Minotaur and Edwards on the southern extension of Bullabulling Trend.
The 2.6 million gold ounce Resource
The Snowden Group completed the resource upgrade for the joint venture, with the resource 75,013,000 tonnes at 1.08 g/t gold for 2.61 million ounces of contained gold at a 0.5g/t gold cut off.
The estimation used assays from all the historic reverse circulation and diamond drill hole data, but excludes the rotary air blast drilling from the August 2010 resource estimate completed by CSA Global.
Bullabulling is located near Coolgardie and around 65 kilometres south-west of Kalgoorlie in Western Australia, and historically has been mined producing 371,000 gold ounces in the 1990’s.
Four optimisations scenarios were developed to check the new resource estimate and to assess the economic potential of the project.
These were carried out using a spot gold price US$1,500 and exchange rate of US$1.07, recovery of 92.5%, a discount rate of 8% and process rates of 3.5, 5.0, 7.5 and 10mtpa.
No mining dilution was applied on the basis that the MIK resource model incorporates some degree of dilution and a mining recovery of ore 95% was used.
The outcome was very positive - with all scenarios returning positive economics and all scenarios mine a main pit 3.1 kilometres long and 180 metres deep and a second pit at Bonecrusher that is 1.0 kilometre long and 120 metres deep.
The scenarios provide between 9-13 year mine life, with potential reserves in the range of 1.5 to 2.0 million ounces of gold, which equates to a resource to reserve conversion of between 55 and 80%.
The annual production range is 105,000 to 240,000 ounces of gold at an average grade of from 0.8 to 1.0 g/t gold and the strip ratio ranges from 3.4 to 2.6.
Importantly, all scenarios include a significant proportion of the new Indicated and Inferred resources, which means with infill drilling these resources will convert directly to reserves.
Better still, Auzex said consequently the confidence of meeting the new reserve targets is high.
While Auzex is still under takeover, it continues to progress the Bullabulling project.
Lowering the cut off rate to 0.5g/t gold is likely to allow Auzex to develop a bulk mining operation, with potential 5-6Mtpa processing capacity from a pit 4 kilometres in length.
Moving toward a maiden reserve will further increase the confidence levels as the project moves closer to production.
The Auzex share price has fallen back to EV/Resource ounce levels that are just a fraction of its peer group.
There appears to be significant potential for re-rating for Auzex.