Reed Resources (ASX: RDR, OTC: RDRUY) has made the momentous decision to mine at the Meekatharra Gold Project, with the first pour expected later in 2012 with stage one targeting 95,000 gold ounces annually.
The decision is subject to equity and debt financing arrangements, with direct construction, pre-commissioning mining and owners costs forecast to be around A$35.5 million.
The Bankable Feasibility Study has been completed for the project, which has key advantages over other emerging producers in Western Australia.
This advantage is led by the existing 3 million tonne per annum (oxide) processing facilities and other infrastructure, low capital expenditure and large reserve and resource base which still has significant exploration upside.
The project is strategically located in the prolific Murchison region of Western Australia, and hosts a JORC Resource of 3.3 million gold ounces and has reserves of 751,000 gold ounces.
Christopher Reed, managing director, commented on the milestone announcement: "With strong gold prices and appropriate finance structuring, the economic viability of the project is robust.
"The BFS uses live tendered prices, providing solid confidence in cost inputs. The execution strategy and schedule have been finalised and assuming prompt completion of the required financing arrangements, we are looking forward to pouring gold before the end of the calendar year."
Importantly, Reed said that the company is well advanced in sourcing the equity and debt funding required to restart operations at Meekatharra.
The road to gold production; a three step process
Stage 1: This will commence once equity funding arrangements are in place, and will be a low-risk start-up which the company anticipates will become a considerably larger project in future years.
The focus will be on production of 2.0 million tonnes at 2.0 g/t gold for 134,000 ounces over 19 months from the Bluebird, Whangamata, Batavia and Surprise open pits - which importantly are all within a six kilometre radius of the mill at Yaloginda.
Stage 2: Is forecast to start in early 2014 and to include production from eight existing and identified reserves at Yaloginda and Paddy's Flat (6 million tonnes at 1.7 g/t gold for 328,000 ounces).
Geotechnical, hydrological, metallurgical, and environmental studies are in progress and are planned to be completed before the end of the 2012 September quarter.
A Bankable Feasibility Study level evaluation is anticipated to be completed before the end of the 2013 March quarter.
Stage 3: Is still under continuing evaluation, and is anticipated to supplement the stage 2 open pits with ore from the Paddy's Flat Underground reserve (2 million tonnes at 3.6g/t gold for 225,000 ounces).
A Bankable Feasibility Study level evaluation is anticipated to be completed by the 2013 June quarter.
With a 3.3 million ounce resource base and 750,000 ounces in reserves, Reed has indeed achieved a milestone not matched by many gold companies in Western Australia.
On an EV/Resource ounce basis of around $11 an ounce relative to its peer average of $90 an ounce, Reed looks significantly undervalued to its peers at its current valuation of $85 million and share price of $0.33.
With A$11.7 million in cash (December 2011) and no debt, Reed has an enterprise value of around $73 million.