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THE BIG PICTURE - Metals Exploration poised for crucial few months

The next few months will be the most crucial in the development of Philippines-focused Metals Exploration as construction of its 100,000-ounce-a-year Runruno gold mine is completed and production begins.
THE BIG PICTURE - Metals Exploration poised for crucial few months

The next few months will be the most crucial in the development of Philippines-focused Metals Exploration (LON:MTL) as construction of its 100,000-ounce-a-year Runruno gold mine is completed and production begins.

So it was encouraging to learn that with 46% of the work now complete, the project remains on track and on budget to begin processing the ore in the fourth quarter. 

At the same time banking due diligence is “progressing satisfactorily” as the group looks to secure the US$70mln debt component for the US$183mln open-pit operation.

“We are in the documentation phase and this will proceed at its own pace; but we expect it will be concluded in six weeks,” chairman Ian Holzberger told Proactive Investors. 

In Tuesday’s update, it was also revealed that the cash costs of mining gold from Runruno had been tweaked  slightly higher. But at US$474 an ounce they still come at the very bottom of the cost curve.

“It is actually a good news scenario,” explained Holzberger. 

“The old cost was effectively calculated in the 2009 fourth quarter. 

The figure then was originally US$477, which included the lease for the mobile fleet.

“We had taken this out because we have bought it [the fleet] and that gave us a US$30 drop, which we have put back on.

“If you wanted to do your sums: fuel was 65c a litre it is now 90c, labour has gone up. So in real terms it is a reduction.”

Metals Exploration also said mining activity continues to ramp up with over 1.6mln of material extracted from within the pit outline with the mineralisation uncovered in the pit showing a “positive correlation” to the ore reserve block model.

“There were some zones we hoped for that weren’t in the block model we have found. One swallow doesn’t make a summer, but it is nice to have a swallow,” said Holzberger.

Work to date has defined a resource of 1.39mln ounces of gold, and 25.6mln pounds of molybdenum at Runruno, with the potential to add to this resource.

The operation is expected to produce 100,000 ounces of gold a year for the next decade.

Shares in the group, up 22% in 2014, added 9% Tuesday after the update.

Followers of the stock were encouraged by the update.

“The cost increase of seven per cent is not high given the inflation seen in operating costs at producers over that period,” said John Meyer of resources boutique SP Angel, which said it continues to see “upside” in the 

shares.

Broker Numis added: “We met management yesterday and were impressed by the progress made and the profit potential of the project. 

“The company is building a solid foundation to grow and, despite some skeletons in the past and a limited free float, this one should do well.”

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