Exco Resources nears mining at Vertigo, JV partner Polymetals Mining to take greater stake

Exco Resources (ASX:EXS) and joint venture partner Polymetals Mining (ASX:PLY) have agreed to proceed with the development of the Vertigo gold project in the Drew Hill area of South Australia under revised joint venture conditions which will see Polymetals take a greater stake in the project.

Exco is currently a 75% partner in both the White Dam Gold Production Joint Venture and the Drew Hill Exploration Joint Venture with Polymetals owning 25% and operating both joint ventures.

Under arrangements negotiated for proceeding with the Vertigo project, Polymetals will increase its interest in the exploration joint ventures to 50% by spending A$1.3 million on exploration on the Drew Hill tenements, comprising 728 square kilometres, before 30 June 2012.

New Exco managing director Geoff Laing told Proactive Investors today allowing Polymetals Mining to become a 50% partner in the Vertigo gold project will allow Exco to continue aggressive exploration in Queensland but not at the detriment to the White Dam region in South Australia.

“Polymetals have been the operators of the mine site and so by allowing them to earn a greater interest it really does incentivise them to keep pushing, make sure that we do get every last viable ounce out,” he said. 

Production from the currently producing Hannaford Pit will continue to be split 25:75 while production from Vertigo and any other deposits developed will be split 50:50.

Mining at Vertigo is due to begin in January 2012 and will extend production operations at Drew Hill to June 2012. Processing of Vertigo ore will mainly use the existing White Dam infrastructure.


White Dam

Polymetals will also increase its interest in the White Dam infrastructure, including plant and camp facilities, from 25% to 50% for a cash consideration based on an agreed independent valuation and a commitment to take on an extra 25% of the future closure costs.

The White Dam project contains a depleted resource inventory of 6 million tonnes at 0.98 grams per tonne for 188,700 ounces of contained gold.

Since pouring first gold in April 2010, production rates and margins from White Dam have been well above expectations.

Gold adsorption recovery has consistently exceeded 98% since start up and up to October 2011 a total of 114,924 ounces of gold had been poured from the project.

The project was bought at low gold prices and has made a profit after tax to date of $68 million and a Return on Equity of a very tidy 850%.

Debt financing was paid off in November 2010, some nine months ahead of schedule and after only seven months of operation. The project continues to provide substantial cash flow.

Exco is now focused on extending the life of the operation at White Dam with near-mine exploration and resource development activities.

New Managing Director's Action Plan

Laing’s forward plan for the company is to focus on exploration in Queensland and consider potential acquisitions to maintain Exco’s self-sustaining position.

“For me the focus is very much on exploration in Queensland,” he said. For the first time the company will really be able to do a significant exploration program and that’s not to say we haven’t already started it. Over the last six months we have been gearing up.

“We’ll certainly be looking to replace the cash flows that White Dam has brought in for the last 18 months by potentially acquiring a reasonably advanced project that we could start generating cash flow from in the not too distant future.”

Laing said Exco is in an interesting position for a junior with a significant level of cash in the bank, ongoing cash flow from White Dam and the start of the Great Australia royalty expected this year.