Empire Resources Ltd (ASX:ERL) has made another key appointment on the road to becoming a gold producer.
Empire has entered into a mining contract and payment arrangements with NRW Civil and Mining Ltd (ASX:NWH).
NRW will undertake all open pit mining operations at the new Penny’s Find gold mine located 50 kilometres northeast of Kalgoorlie in Western Australia.
David Sargeant, managing director, commented:
"The agreement with NRW Holdings now ensures the Penny’s Find gold project has adequate working capital for initial mining of the open pit.
"With site works already underway and mining commencing next month, gold ore treatment through the contracted third party processor, Lakewood Mill at Kalgoorlie, is anticipated to start in early 2017."
Empire holds a 60% direct interest in the Penny’s Find gold project with the remaining 40% interest held by unlisted Brimstone Resources Ltd.
Details of agreement
In return for providing delayed payment arrangements for mining and as an incentive to provide best mining practice, once all outstanding considerations have been fully repaid NRW will earn a 9.5% gold royalty for the life of the open pit.
The agreement provides for:
- NRW to defer costs to Empire from the initial mine start up to a maximum of four months.
- NRW, as the mining contractor, will commence mining activities immediately on completion of the Kurnalpi - Pinjin road diversion currently being undertaken on site (the current roadway traverses the planned open pit area), and establishment of the mine infrastructure.
The Empire – NRW agreement covers only the mining operations of the open pit and is subject to final legal documentation.
Analysis
With today's deal, Empire has sufficient funds for mining activities through to the commencement of gold production.
Penny’s Find’s Bankable Feasibility Study found that just the open pit operation alone would generate in the order of $7.6 million in free cash flow in less than a year.
Adding interest - this was based on a gold price of A$1500 an ounce. Currently, Aussie Gold is trading 10% higher than this at A$1650 an ounce.
For every A$100 increase in the price of gold above A$1500, the open pit would generate an additional $2 million free cash flow.