Alkane Resources (ASX:ALK) has achieved a significant milestone in advancing its expansion plans at its Tomingley gold operation (TGO) in New South Wales with the delineation of a maiden underground reserve.
TGO underground reserves are estimated at 524,000 tonnes at 3.66 g/t gold for 61,600 ounces of gold.
This is within the total project resource of 11.25 million tonnes at 1.9 g/t gold for 687,000 ounces of gold.
The geological controls to mineralisation at TGO are well understood and it is anticipated that further drilling from underground developments will continue to expand the resource base at depth.
Open pit operations have been converting almost 100% of inferred resources to mine reserves at TGO in the Caloma pit.
The current reserve is based only on ore accesses in the project’s Wyoming One and Caloma Two deposits, where initial accesses for underground development are planned to be developed by conventional and well understood drill and blast excavation techniques.
An initial financial analysis determined that the stoping and development cut-off grades were 2.5 g/t gold and 1 g/t gold, respectively.
The mining assessment indicates that ore production would commence nine months after the start of development and continue for 33 months (2.75 years).
During this production period it is anticipated that the higher-grade underground ore would be blended with stockpiled low grade ore from the open pits and used to supplement open pit mill feed to maintain a consistent ore throughput and feed grade, thus extending the life of the operation.
TGO on a roll
Underground development progress at TGO come as the project runs at design capacity and hits some impressive operational metrics.
Production at the site notably improved by 40% during the September quarter to 19,789 ounces of gold as Caloma operated within fresh rock.
Site costs were A$1,104 per ounce and total cash operating costs were A$1,234 per ounce.
The key cost driver for the operation remains the efficiency of the mining equipment and TGO continues to work collaboratively with its dry hire equipment supplier to lift the payload, utilisation and overall efficiency of the fleet.
Also, as a result of the waste removal schedule, the third mining fleet was withdrawn late in the period, reducing total operating costs.
Gold sales totalled 21,000 ounces for revenue of A$32.9 million at an average price of A$1,565 per ounce. This generated an operating cash flow of $9.7 million.
For FY15, TGO operated in steady state, producing 69,612 ounces of gold and generating A$101.94 million in gold revenue.
A 6.5-year mine life is targeted to exceed 10 years as underground expansion ambitions unfold, with FY16 production guidance set at 60,000-70,000 ounces of gold at all-in sustaining costs of A$1,200-$1,300 per ounce.
Analysis
The new underground reserve at TGO highlights the potential of the Tomingley deposits to sustain a long-term underground mining operation.
This potential has room to be further enhanced because the estimate only accesses ore from Wyoming One and Caloma Two and drilling from underground developments could extend the overall resource base at depth.
The reserve assessment is also considered conservative since all inferred resource material included in stope designs was set to zero grade prior to undertaking the financial assessment.
Operational strides at TGO in recent weeks as well as the underground development plans have been underpinned by a resilient Australian-dollar gold price, last trading at about A$1,494 per ounce.
As of the end of September, Alkane maintained a gold hedge book of 22,500 ounces at an average forward price of A$1,596 per ounce.
Importantly, the operational success and expansion potential of TGO represents only a fraction of Alkane’s investment appeal as the company continues to focus on long-term development of its Dubbo zirconia project (DZP), also in NSW.
DZP has strong economics with anticipated product revenue of around US$17 per kilogram and costs of about US$8 per kilogram. Further, capital intensity is low at US$38 per kilogram of annual product.
Annual revenue has been estimated to be about A$580 million with operating costs of A$260 million delivering a A$320 million per annum EBITDA, a 20-year net present value of A$1.22 billion and an internal rate of return of 17.5%.
FY15 financial outcomes for Alkane were solid, with total income at A$102.5 million, cash and bullion at A$19.6 million and no debt.
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