Ovoca Gold: Stakhanovsky could be a low-cost open pit starter mine

Ovoca Gold’s (LON:OVG) Stakhanovsky property can potentially become a low-cost open pit starter mine, according to research by Irish brokers Davy.

Job Langbroek, metals and mining analyst at Davy, reckons the junior gold firm could establish a 30,000 to 50,000 ounce a year mining operation by 2013.

This morning Ovoca reported the project’s maiden JORC resource with 350,000 ounces of contained gold, estimated in the inferred resource category. 

The company acquired the Stakhanovsky project in the Magadan Region of Russia a little over twelve months ago and since then it has been working to re-classify the property's Russian 1.2 million ounce P1 gold resource into JORC standards. 

The resource statement was prepared by SRK Consulting. It is an inferred resource of 9.1 million tonnes grading 1.2 grams per tonne gold, which gives 350,000 ounces of gold. It is based on around 10,000 metres of drilling data - comprising 3,000 metres of historic data and 7,000 metres drilled by Ovoca in 2010.

Ovoca shares posted a modest gain on London’s AIM market. By 11:00 am the shares were up by a penny, 3.4 percent, changing hands at 30.75 pence each.  At current prices Ovoca’s market worth is about of 27 million which is a considerable discount to the value of its cash and investments – which stood at US$55.4 million (c.£34 million) in early December.

“This is the first JORC status gold resource in an area that is just one-quarter the area that is prospective for economic levels of gold mineralisation,” Langbroek said in a note to clients. 

Crucially SRK believes the project has good exploration potential and there are a number of areas adjacent to the current model where Ovoca could increase the resource with further exploration work.

Ovoca will continue exploring Stakhanovsky with 20,000 tonnes of bulk sampling and 4,000 metres of drilling planned for 2011. Primarily this is intended to confirm that Stakhanovsky’s gold veins extend at depth, to about 100 to 200 metres below the surface.  

Langbroek adds: “The gold tends to manifest itself by way of large grains and is not always evenly distributed. Consequently, statistical prediction of contained gold is more difficult.” 

“This explains the inferred resource status of the gold mineralisation for now and also the need to conduct a bulk sampling programme in the current year. By processing larger quantities of material, a more representative statistical interpretation of the grade can be made and hence confidence levels improved.”

Ovoca intends to register a gold resource and press ahead with feasibility work, once this intensive exploration programme has been carried out, so it can prepare to start mining.

"The JORC maiden resource for Stakhanovsky is an important step in advancing the asset,” chief executive Tim McCutcheon said.

McCutcheon adds: “Our work in 2010 combined with historical work, has positioned Ovoca to aggressively prove up and expand our resource base at the site, which we are excited to begin with our bulk sampling program in 2011. Also this year we have already started detailed metallurgical testing, geotechnical studies, and other work (that will be) necessary to complete a feasibility study of the project"

Langbroek highlighted a number of positives for the mine development process including the project’s favourable metallurgy - with earlier work suggesting up to 60 percent recovery using very basic methods - as well as favourable infrastructure.

“With good infrastructure by way of road and power readily available, the Stakhanovsky property has the potential to convert into a low-cost open pit starter mining project for Ovoca with production output of 30,000 to 50,000 ounces per annum. 

“Such development could commence as early s 2012 with exploitation in 2013.”

“Work in the current year will focus on improving the resource status to measured and indicated to facilitate the commercialisation of the project.”