Phoenix Gold (ASX:PXG) is acquiring for just $2 million a heap leach plant in Western Australia from St Ives Gold Mining Company that provides an additional cash flow generation model for its Castle Hill project.
Proactive Investors believes the acquisition will be share price accretive, allowing the company to unlock significant value from Castle Hill.
The 2.3 million tonne per annum St Ives heap leach processing facility is well maintained and located just 100 kilometre to the south of Phoenix's projects.
An initial engineering study has been completed and a detailed relocation, refurbishment and recommissioning engineering study is underway.
Castle Hill has Ore Reserves of over 280,000 ounces of heap leach gold in addition to 878,180 ounces of mill feed ore.
"Heap leaching has always been a key part of our production strategy and to have secured a fit for purpose stand-alone processing plant of this quality at this price is a fantastic result for the business," managing director Jon Price said.
"I know this plant very well having worked at St Ives for many years and it has been maintained in very good condition and is only 100 kilometres from our projects.
"With the preliminary engineering study completed, the next step is to complete the detailed relocation and refurbishment engineering study and update the heap leach feasibility study which will complement the staged development plan and JV opportunities with Norton Gold Fields.
"We now look forward to unlocking the potential of the lower grade ore mined within the Castle Hill project area."
A formal sale agreement is expected in the September Quarter of 2014 subject to further due diligence by Phoenix any government and regulatory approvals that may be required.
The updated heap leach feasibility study is expected to be completed by the end of the December 2014 quarter.
Phoenix Gold has already paid St Ives Gold a $200,000 deposit for the plant, which consists of a 3 stage crushing plant, agglomeration drum, overland conveyors and stacking equipment, full gold recovery circuit and all associated infrastructure and spare parts.
It will make a $1.3 million payment on removal of the dry circuit before the end of the March 2015 quarter and $500,000 on commencing removal of the wet plant before the end of the June Quarter 2015.
The plant will enable treatment of stockpiled lower grade ore mined from Castle Hill. The current heap leach feed Reserve stands at 15 million tonnes at 0.6 grams per tonne for 280,000 ounces of gold.
This processing pathway will complement the milling of higher grade material and provide an additional source of cash flow generation for Phoenix.
The dry circuit, currently on care and maintenance, comprises a 3 stage crushing circuit with primary jaw, secondary cone and twin tertiary cone crushers designed to deliver a -12mm product, an agglomeration drum purchased new in 2006, 1.2 kilometre overland conveyor, 10 grasshopper conveyors and radial stacker.
The wet plant comprises a six stage carbon in column gold recovery circuit (NYSE:CIC), elution circuit and carbon regeneration kiln that is still in operation.
A preliminary engineering valuation study on the plant was completed by Como Engineers in June 2014.
This included site visits to inspect the equipment, interview operating and maintenance personnel, collate all equipment list and drawings and inspect the carbon recovery circuit that is still in operation.
A valuation and replacement cost review was then provided in addition to a condition report and a first pass estimate to relocate and refurbish the plant. Operating and maintenance data were also reviewed.
The wholly-owned Castle Hill gold project, located in an infrastructure rich region near Kalgoorlie in Western Australia, has the potential to become a multi-million ounce gold mine.
Phoenix's staged development strategy involves the use of spare milling capacity in the region to enable early net cash flow generation.
This also allows it to start production at a more modest capital cost while growing its mining inventory and delivering cash flow to grow the business over time.
Under this strategy, mining will commence in the September 2014 quarter and deliver 600,000 - 800,000 tonnes of ore annually for haulage and treatment at FMR Investments' Greenfields processing plant in Coolgardie.
Initial production of 40,000 to 50,000 ounces of gold per annum is expected to start in the December quarter.
The acquisition of the heap leaching plant will add significant value.
For its Definitive Feasibility Study, the company carried out extensive metallurgical testwork on the lower grade material that yielded recoveries ranging 72-88% from 3 stage crushing to -12mm and agglomeration with excellent percolation rates from this brittle material.
This will complement the high grade ore being mined and treated at the Greenfields Mill and potentially at the Paddington mill for Castle Hill stage 1 should Norton take up the license to mine option in the next month.
It had previously noted that heap leaching could produce between 25,000 to 30,000 ounce of gold per annum.
Capital costs were then estimated at $25 million with Opex at $11.50 per tonne.
In addition, Norton Gold Fields (ASX: NGF) is expected to decide in mid-August on a potential joint venture to mine and mill Castle Hill Stage 1.
However, the company noted the project's development will proceed regardless of Norton's decision.
Phoenix has also completed infill and extension drilling at Kintore (Castle Hill Stage 2) that returned results including:
- 8 metres at 18.7g/t gold from 72 metres;
- 3 metres at 40.2g/t gold from 16 metres;
- 2 metres at 55.8g/t gold from 76 metres; and
- 3 metres at 26.5g/t gold from 74 metres.
A grade control model has been completed and independently audited with the mine design updated and the financial model complete.
The company added the Kintore West open cut is advanced for development and that the updated model demonstrates that heap leaching of lower grade ore mined adds significant value.
Phoenix Gold's acquisition of the heap leach plant from St Ives Gold will provide additional cashflow by giving the company a development pathway for lower grade ore from the Castle Hill project.
This will complement the milling of higher grade material announced back in mid-April after it concluded a long-term milling agreement with FMR Investments that could produce 40,000 to 50,000 ounces of gold per annum.
Castle Hill Stage 1 is expected to generate $18 million in cash for the company over 18 months at A$1,400 per ounce gold price.
Share price milestones ahead include:
- Norton Gold Field's decision in mid-August to participate in Castle Hill Stage 1;
- Start of mining in the September 2014 quarter;
- Gold production in the December 2014 quarter; and
- Completing the acquisition of the heap leach gold plant.
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