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Red Mountain Mining Study Points To Higher Batangas Production, Mine Life

Red Mountain Mining (ASX:RMX) has significantly improved the economics of the Batangas Gold Project in the Philippines with the new production schedule showing longer initial mine life and an increased production to 100,000 ounces of gold.

In its update on the progress of its Definitive Feasibility Study, the company also highlighted new metallurgy that shows increased gold recovery for the Kay Tanda West resource.

The new production schedule is based on the 30 June 2014 Indicated Resource of 1.08 million tonnes grading 3 grams per tonne gold and 10.3g/t silver.

"The initial results from the DFS are encouraging and indicate a potentially longer initial mine life and greater gold recovery compared to the Scoping Study outcomes," managing director Jon Dugdale said.

"The second stage of the DFS, including detailed process engineering and infrastructure design, will be aligned with the expected timing of final permitting by the first quarter of 2015."

New Metallurgical Testwork

Recent metallurgical testing (at ALS, managed by Como Engineers) indicates significantly increased metallurgical recovery for a composite sample from the larger Kay Tanda West (KTW) Indicated Resource at the Archangel Prospect compared to assumptions in the Scoping Study.

In particular, the recoveries for fresh (sulphide) material from KTW, at the assumed 106 micron grind size, are estimated to be 96% gold recovery based on the DFS testing program from 83% in the Scoping Study.

Oxide resource metallurgical recovery for KTW is now 97% gold recovery compared to 92% and transition recovery remains unchanged at 90%.

The increased recoveries for resources at KTW may lead to even lower production cost per ounce, a deeper pit design and increased total production from KTW.

The metallurgical recovery modelled, based on metallurgical testing of oxide-transition material from South West Breccia (SWB), is moderately lower than assumed in the Scoping Study at 90% gold recovery compared to 95%.

Testing was also completed for sulphide material from SWB, producing recoveries averaging 84% gold recovery at the assumed 45 micron grind size.

Further testing will examine the potential to increase recovery from the sulphide zone of the SWB ore body, through gravity concentration of the sulphide residues after leaching of a relatively coarse grind, then completing a very fine grind and intensive leach on the concentrated residues.

Once the flow sheet is settled, metallurgical testing will continue on a suite of variability samples representing all parts of the preliminary mining inventory at SWB and KTW.

Improved Production

The revised preliminary production schedule indicates potentially longer mine life and increased production compared to the Scoping Study production schedule.

This is based only on the new Indicated Resources of 1.08 million tonnes grading 3g/t gold and 10.3g/t silver, or 3.13g/t gold equivalent.

Using production rates assumed for the Scoping Study of 100,000 tonnes per annum (tpa) for SWB and 250,000tpa for KTW as well as the new metallurgical recovery assumptions, this would allow for an increased initial mine life to 5.5 years from 4.5 years at a production rate of 100,000 ounces of gold.

Additional mining inventory, including Kay Tanda Main (KTM) Indicated and Inferred Resources, is included in a 10 year production schedule submitted to the Mines and Geosciences Bureau (MGB) as part of Declaration of Mining Project Feasibility final permitting, currently being processed.

Geotechnical studies have also indicated that it may be possible to steepen the eastern, footwall of the planned SWB open pit, allowing for lower mining costs for the Indicated Resources of 214,000t grading 6.4g/t gold.

In addition, a residue storage options study completed by ATC Williams has concluded that thickened residues disposal will result in a lower environmental risk and lower capital cost due to decreased wall volume compared to conventional residue disposal methods.

Detailed design and costing of the thickened residues options will be completed in the second stage of the DFS.

Detailed surveying has also been completed for all potential mining and infrastructure areas.

Scoping Study

The latest highlights are encouraging given the Scoping Study released on 20 March 2014 had confirmed the potential for a strongly viable, low capital, low operating cost, initial gold mining and processing project at Batangas.

This was based entirely on open pit mining and carbon in leach processing of existing, high grade resources of which 90% of the resources to be mined were in the Indicated category.

The processing plant is intended to be located at Lobo, close to the very high grade South West Breccia (SWB) resource and local infrastructure, and 2 kilometres east of Lobo township.

Under the Scoping Study, average annualised production was estimated at 20,000oz gold (Au) and 46,000oz silver (Ag) per annum over an initial mine life of 4.5 years.

C1 cash operating costs were forecast to average A$769 per recovered gold ounce while average operating cash flow averages approximately A$12.4 million per annum for the initial mine life of 4.5 years, and returns pre-production capital of A$16.8 million within a short time frame of just 1.3 years from initial production.

The project is expected to produce total C1 operating cashflow of approximately A$56 million or A$31 million C3 cashflow after initial capital, sustaining capital, taxes, royalties and all other operating costs.

Analysis

The highlights of the Batangas DFS released to date are encouraging with higher production, increased mine life and better gold recoveries for the main Kay Tanda West Resource.

This will improve on the already convincing Scoping Study project economics, which estimated total C1 operating cashflow of $56 million over 4.5 years and capital payback within 1.3 years.

This was on low quartile average forecast C1 cash operating costs of A$769 per recovered gold oz (US$690/oz Au).

Average operating cash flow, after C1 cash costs, (adjusted for recent gold pricing averaging US$1,300 per ounce and exchange rate of A$:US$ 0.93) averages a healthy A$12.4 million per annum for the initial mine life.

Even at a lower gold price of US$1,250 an ounce, the project has attractive and compelling operating cash flows and payback period.

DFS work to date has also identified further potential to lower mining costs at the South West Breccia and lower capital costs by improving reside storage.

In addition, recent exploration - including the discovery of high grade silver at the Camo target - has the potential to increase resources.

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