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Kalgoorlie Mining Company becomes gold miner, earns first revenues in transformation to producer

Kalgoorlie Mining Company (ASX: KMC) has transitioned into a cash generating gold miner with the first cash flows generated from trucking and sale of ore from the Bullant Gold Mine, via a gold ore agreement with Barrick Mines' (NYSE: ABX) Australian subsidiary.

Gross revenues of around A$2.1 million have been generated from the delivery of 10,507 dry tonnes of ore to Kanowna Belle, before haulage and processing costs. Under the terms of the ore purchase Agreement, a percentage of the provisional net proceeds will be paid to the company within 14 days.

The balance will be calculated and settled upon the treatment of the gold ore through the Kanowna Belle gold processing facility - following final determinations of grade and recoveries.

The 1,241 gold ounces recovered were at an average grade of 3.95 grams per tonne (g/t), at a provisional recovery of 93%.  Grades are expected to increase with the commencement of open stope mining.

The delivery of the first gold ore and subsequent revenue generation is a pivotal moment for the company as it starts to build a significant gold business based around Bullant, which is located in the north eastern goldfields of Western Australia.

Chris Daws, managing director, told Proactive Investors today that a second phase of 12,000 tonnes of ore started the deliver process yesterday, and is forecast to be completed in around right days - at the same grade as the first delivery phase.

Adding some spice to the potential of the ore agreement, Daws said that the third run to start in late September is expected to have a grade of over 5g/t gold, providing a boost to the economics of the agreement.

The ore sales to the Australian subsidiary of Barrick are expected to continue monthly until Kalgoorlie Mining commissions its own gold treatment facility onsite in 2012.

Daws added that Kalgoorlie Mining is forecast to produce gold in the June quarter of 2012, at an annual rate of 40,000 ounces per year.


Analysis

With a current market valuation of just $25 million and likely to be earning over $1.5 million per month there is a "dis-connect" between current valuation and likely 12-18 month intrinsic value.  Add in the expected ramp up in production to 30,000-40,0000 ounces per annum in 2012 and the current "mis-pricing" is far greater.