Cleveland Mining (ASX: CDG) has revised mine plans for the Metago and Pit 3 gold open pits at its Premier Joint Venture Project in Brazil that provide further confidence towards achieving stable operations.
It has also set a medium-term target of 7,000 gold ounces per quarter from the Metago pit.
This builds on the ongoing delivery and installation of key equipment as it transitions towards an owner-operator business model to production and reduce costs.
The revised mine plans produced by AMC Consultants demonstrate that production can be lifted to match the planned processing plant capacity and used to underwrite the required servicing of proposed project debt financing for longer-term operations.
Under the plan, the two pits would produce about 19,000 ounces of gold over 20 months through processing of 30,000 tonnes of ore per month, generating an estimated margin of A$12.6 million. This will provide healthy debt servicing cash flow and also finance resource expansion.
Premier's processing capacity currently supports a base case of 15,00tpm.
Additional capital expenditure on refurbishing and installing second ball mill already owned by Cleveland will facilitate a step up to 30,000tpm.
While the company's medium-term target of 7,000 gold ounces per quarter will take 15,000tpm from the Metago pit and draw the remaining 15,000tpm from other higher grade sources, AMC's 30,000 tpm Upgraded Case provides confidence that Metago alone can provide 30,000 tpm until the other sources can come online to produce the targeted gold output.
Metago and Pit 3
Metago and Pit 3 were chosen as a focus for detailed planning as they have the highest density of drilling and a recently updated Resource model, providing potential project debt providers with the greatest level of confidence when compared to some of the other proposed mining areas.
AMC analyses two plans, a 15,000tpm base case and the management target of 30,000tpm.
These plans form part of a larger strategy that includes the fast-tracked start of mining at the Company's O Capitão project though the upgraded case provides material to meet the plant capacity even if delays are encountered in starting mining at O Capitão.
The base case is a conservative position designed to reflect a moderate ramp up of operations and provides a 29 month mine-life under the known Resources that is well within the current plant capacity.
Key variables are:
- The estimated gross margin was based on an assumed gold price of A$1,375 per ounce and assumed production cash costs of A$817 per ounce;
- Gold recovery is determined in line with current business plan of gravity-only processing until the end March 2014 and then addition of ILR circuit thereafter to lift the recovery rate to 75%;
- Head Grade is assessed at 1.97 grams per tonne and there is an assumed 15% mining dilution factor; and
- All operations based on owner-operator model consistent with the business model of acquiring the mining and processing fleet rather than under the contractor model as originally structured.
This represents a production rate that would fully utilise the installed capacity of Premier's plant subject to a planned expansion of the ball mill capacity, increasing processing capacity to 30,000tpm.
The gold price and the pit shell design used in the Upgraded Case model are the same as the Base Case. The operating cost assumption reduces to A$778 per ounce on the expectation that certain economies of scale would be achieved with higher throughput.
Cleveland maintains its medium-term target C1 cash costs of circa A$400 per ounce once higher-grade material from other sources, including O Capitão, is mined and processed with the ultimate proposed process circuit at a rate of 30,000 tpm.
Cleveland has also updated the Resource model focusing on the areas of proposed open pit mining, increasing a proportion of the ore-body to an Indicated level of confidence.
The revised Resource is 950,000 tonnes at 1.52g/t gold, or 46,400 ounces of gold comprising 18,900 ounces at 2.14 g/t of Indicated Resource and 27,500 ounces at 1.29 g/t of Inferred Resource.
The volume reduction from the maiden 2011 Inferred Resource of 1.95 million at 1.42g/t gold for 89,000 ounces is due to:
- The deposit area under review was narrowed to include only those areas covered by the mine plan;
- A higher cut-off grade of 0.5 g/t was used for the new estimate compared to 0.3 g/t used previously; and
- Mining depletion has occurred since the commencement of operations in late 2012.
Infill and exploration drilling on the down-dip and lateral extension of the mineralization will be conducted during the first stage mining operation, aimed at expanding the open cut mining area resource through the continued conversion of Inferred to Indicated resources, plus the inclusion of new resource tonnages.
The previously identified potential resources best suited for underground mining will be a secondary focus and delayed for future exploration programs.
The company taken a more conservative view of the ramp up profile from its previous guidance of about 7,000 ounces per quarter from 2014 due to the further investment in a flotation circuit required to increase the estimated gold recovery rate from the forecast 75% under the gravity + ILR circuit, up to the targeted 90%.
It noted that while the economics for this investment appear sound, the decision to add the flotation circuit is best made after alterations to the gravity circuit are bedded down and optimised, enabling a better understanding of the scope and scale of the flotation circuit required.
Cleveland intends to recommence processing at 15,000tpm from Premier and expand the rate to 30,000tpm once the additional ball mill is installed.
Under the AMC mine plan, an average quarterly production rate of around 2,870 ounces would be forecast.
Over the medium term additional tonnes outside of Metago and Pit 3 mine area are expected to be introduced into the mining operation, including higher head grade sources from O Capitão.
This includes the Lavra pit within O Capitão, which appears to have a head grade well above that of Metago, lifting the overall head grade above 3 g/t.
The upgraded throughput rate at the targeted head grade of 3 g/t and a recovery rate of 90% through the addition of flotation, would align with the original longer-term forecast target of 7,000 ounces per quarter.
Premier Gold Mine
Cleveland has recently purchased a new In-Line Leach Reactor and has also assembled the new jaw crusher on site and is carrying out commissioning before installing it.
Deposits have been paid to secure delivery slots on one excavator and three trucks that will form the base of its owner-operator fleet. A front end loader will also be ordered.
The revised mine plan provides greater certainty that Cleveland will achieve its medium-term production target of 7,000 ounces of gold per quarter that yield C1 cash costs of circa A$400 per ounce.
Together with the move towards an owner-operator business model, the company is laying the foundations for the company to stabilise production and establish profitability.
This can be further built on by drilling, geophysics, soil sampling and mapping to build the existing Resources.
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