Pacific Niugini (ASX:PNR) will soon begin an initial 10 hole diamond drilling program at the Nicolsons Gold Mine near Halls Creek, Western Australia, to expand and validate the proposed mining methodology.
Nicolsons has a Resource of 260,000 ounces grading 5.6 grams per tonne gold and offers near term production potential through an existing 120,000 tonne per annum processing plant.
The plant is ready for refurbishment and re-commissioning, which along with the start of mining, offers it a clear, low cost path into the ranks of gold producers.
Since assuming management of the Halls Creek Gold Project in May 2014, the company has been completing work to bring the project back into production as quickly as cost effectively as possible.
Technical reviews completed by the company have shown that there is significant potential for immediate extensions to known ore resources and that previous reverse circulation drilling may have diluted the ore grades and extended ore true thickness.
Pacific Niugini, led by chairman Peter Cook and managing director Paul Cmrlec - who had steered Metals X(ASX:MLX) through its growth phase, has lodged documents with the Department of Mining and Petroleum for approvals and permitting to recommence the operations.
It has significantly advanced budgets and works schedules for the recommencement of the operations and is contemplating an operation producing 100,000 to 150,000 tonnes per annum at a grade of 6g/t to 8g/t for production of 20,000 to 30,000 ounces per annum.
"We are pleased with our progress in planning for the recommencement of operations at the Nicolsons Mine since acquiring and taking management control of the project in May this year," Cmrlec said.
"Our technical reviews have presented us an exciting opportunity for resource upgrade potential in the down-plunge zone of the orebody.
"We may only be playing on the fringes of a larger and more coherent high-grade ore system, which has yet to be tested by drilling down plunge.
"Our new drilling program is a prudent validation opportunity in the pre-development phase of the mine. Meanwhile, our project team are working to establish a commonsense mine plan which minimises initial capital requirements, enabling positive cash flow as soon as practicable after commencement".
The company has committed to an initial 10 hole, 2,500 metre diamond drilling program with drill crews currently mobilising to site with drilling to commence in the coming days.
This has three primary objectives:
- Resource expansion in the highly prospective northern resource area;
- Confirmation of resource grades and widths in immediate mining focus areas, twinning existing RC hole results; and
- Provision of additional mining information for re-commencement planning and cost evaluation.
The drill program is expected to be completed over an approximate 6-week period, and drilling results will be conveyed to the market as they become available.
Approvals and Permitting
The company submitted a Mining Proposal to the Western Australia Department for Mines and Petroleum for re-commencement of the operations during the first week of August 2014 and is awaiting feedback from the department.
The mining and development proposal includes refurbishment of the existing processing plant at nameplate capacity of 120,000 tonnes per annum and mining of the Nicolsons ore body, which hosts 214,000 ounces at 5.9g/t gold, by underground methods.
An alternative small open pit cutback is also being considered ahead of the underground development as an alternative strategy to accelerate early positive cashflow and de-risk ground conditions in initial decline development.
Historic Nicolsons open pit mining produced 93,000 tonnes at 7.7g/t gold.
Works Scheduling and Costing
In parallel with the permitting processes, work is underway on the development of detailed budgets and works schedules for:
- Commencement of mining;
- Refurbishment of the processing plant;
- Construction of a tailings facility; and
- Installation of site services and infrastructure.
Key consultants and project staff are well advanced in their planning and assessments, and a detailed budget and works schedule will be finalized in the ensuing months.
Nicolsons Gold Mine
The Nicolsons gold mine is located 35 kilometres southwest of Halls Creek and the Golden Crown Project in the Kimberly Region of Western Australia.
Pacific Niugini is currently increasing its ownership in Nicolsons and the Golden Crown projects to 80% from 49%.
In addition to the resource of 260,000 ounces of gold, the existing processing plant offers the potential for near-term gold production.
The area has been sporadically explored over the years with minimal drill testing of targets outside of the existing resources despite prospecting highlighting its potential.
The company's objective is to increase the near mine resources at the Nicolsons Project while developing and extending the current resource base immediately beneath and down plunge of the existing open pit.
A high grade shoot within the resource has consistently showing higher grades than average resource grade.
Main resources lie on granted Mining Leases while additional exploration leases provide substantial project upside with excellent opportunity for delineation of additional resources.
An independent geological review has estimated an Exploration Target of 4 million to 7 million tonnes at between 5.2g/t to 5.4g/t gold.
Multiple exploration targets have been identified with high grade mineralisation identified in rock chip sampling and in drilling. Results quoted by Bulletin include:
- Nicolsons North - 12 metres at 13.6 g/t from 55 metres, including 1 metre at 74.3g/t gold;
- Hyena Prospect (1.5 kilometres along strike from Nicolsons Pit) - Rock Chip Samples including 22.4g/t and 32.6g/t gold; and
- Shifty's Reef - 700 metre long quartz vein with best results to date 2 metres at 8.3g/t gold.
Additional prospects include Paddock Well and Springvale.
There are also numerous third party projects for assessment as the acquired plant is the only processing option in the region.
Pacific Niugini is planning to develop Nicolsons by targeting known high grade mineralisation from the current pit floor to 150 metres below.
This will be achieved through underground access from the existing Nicolsons open pit to hit mine grades of more than 8g/t gold.
Additional resource delineation at depth and along strike will be completed concurrently with mining.
The company currently plans to lease the mining fleet with mining and processing crews to be employed directly by the company to maximise margins.
Processing plant re-commissioning will be undertaken using minimalist approach to maximise early cash flow.
In addition, small high grade open pit opportunities will be assessed to determine their suitability to be developed to supplement early plant feed.
These could potentially be developed with total costs of less than $700 per ounce.
Taken together, this could result in a project processing 120,000 tonnes of ore grading 8g/t gold to produce 30,000 ounces of gold per annum.
This will have an initial mine life of three years with resource growth expected as the mine develops.
Process capacity can be easily increased to 200,000 tonnes per annum if resource development warrants an increased production.
Pacific Niugini can increase its interest to 80% from 49% as follows:
- A mandatory requirement for Pacific Niugini to earn an additional 16% (to a total of 65% ownership) by sole funding expenditure of $1.2 million in the first 12 months of the Joint Venture;
- An option for Pacific Niugini to earn an additional 15% (to a total of 80% ownership) by sole funding expenditure of $2.4 million (inclusive of the initial $1.2 million) in the first 24 months of the Joint Venture.
The company is required to maintain the tenements in good standing until a minimum of $4 million has been spent, or four years has elapsed from commencement of the agreement, whichever comes first.
Following the initial $4 million expenditure, the vendor is required to elect whether it will contribute its 20% interest.
If the vendor does not elect to maintain its interest, Pacific Niugini will acquire the remaining 20% by either paying $2million in cash or shares, or by granting the vendor a 1% Net Smelter Royalty to a maximum value of $4 million.
The start of diamond drilling at the Nicolsons Mine will allow Pacific Niugini to validate its proposed mining methodology of targeting high grade gold through an underground access.
It also will move it that much closer to joining the producer ranks from this high-grade gold acquisition.
The drilling will seek to expand the size of the resource in the down-plunge zone of the orebody with managing director Paul Cmrlec noting that the project may represent the fringes of a larger and more coherent high-grade ore system.
With an existing 120,000tpa processing plant on site, the project offers a low-cost path to production and generating early cash flows that could see it mining small high grade open pit ore at total costs of less than $700 per ounce.
This could result in a project processing 120,000 tonnes of ore high grading 8g/t gold and building to produce 30,000 ounces of gold per annum.
For a potential near term producer with a market cap of circa $20.4 million with $2.59 million in cash as of 30 June 2014 this appears to significantly undervalue the stock.
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