EnviroGold (ASX: EVG) achieved a milestone today with the commencement of construction of the Las Lagunas Gold processing project in the Dominican Republic.
Investors liked the news, pushing the shares 3.7% higher today.
A review of fixed-price bids received for civil works, structural steel, tankwork, piping and mechanical equipment, together with estimates for outstanding electrical work, has confirmed construction costs for the Albion and Carbon-in-Leach (“CIL”) process plants and associated oxygen plant, will be around US$3.0 million under the current construction budget.
Brian Johnson executive chairman of EnviroGold said that this saving would be partly offset by the Company’s decision to increase the level of expatriate supervision during the construction phase through the recruitment of three highly experienced Canadian engineers with the responsibility for Construction Management, Project Administration, and Electrical Engineering.
EnviroGold’s procurement manager and mechanical supervisor will transfer from Australia to the Dominican Republic early next year.
Brian Johnson said that after two years of frustrating delays, it was gratifying to see the project finally underway and he was confident construction would be completed as planned in December 2010, with the first gold pour scheduled for January/February 2011.
The company will forward-sell 50% of its gold production for the first four years of operation to underpin future profits.
The project, which involves gold and silver extraction from a JORC Inferred Resource of 5.1mt tonnes of high grade mine tailings (3.8g/t Au) is expected to produce 434,000 oz Au and 3,966,000 oz Ag over its 6.7 year project life, at an operating cost of around US$325 per
oz Au.
EnviroGold expects to make an average after-tax profit of around $20 million per year at a US$900 per oz Au gold price and an exchange rate of A$1.00 = US$0.75, increasing to approximately $30 million per year at a US$1,000 per oz Au gold price.
This was after deducting Government royalties and profit share.
Brian Johnson said that shareholders and potential investors who were understandably wary of the reliability of production and profit forecasts relating to the reprocessing of mine tailings from previous operations, should appreciate the following factors in relation to the Las Lagunas tailings:
- The tailings resulted from inefficient gold recovery when the major Pueblo Viejo mine attempted to process refractory ore without changing its installed technology, which was suitable only for previously mined oxide ore;
- The tailings were deposited in a purpose-built dam between 1992 and 1999 for later processing with appropriate technology;
- The tailings deposit is a 5.1mt JORC Inferred Resource of tailings grading 3.8g/t Au and 38.6g/t Ag;
- The dam contains 621,000 oz Au and 6,378,000 oz Ag;
- The Inferred Resource reconciles with the mine’s metallurgical records and
- Testwork at Xstrata’s Albion pilot plant in Brisbane demonstrated expected recovery of 434,000 oz Au and 3,966,000 oz Ag over a 6.7 year project life.
Engineering design for the Las Lagunas Gold Tailings Project continued by Lycopodium Minerals in Brisbane continued during the September quarter. The Structural Steel & Platework design package was completed and put out to tender, with bids currently being evaluated. The remaining design packages will be completed in the first half of the next quarter.
Site infrastructure in the form of administration offices, ablutions, laboratory, entry guardhouse and workshop commenced during the quarter and all outstanding drainage control works for the plant site were completed.
The civil concrete contract has been signed with a local contractor IRISA, who will mobilise to site at the beginning of November 2009, commence excavation and formwork ahead of the first concrete pour at the beginning of December 2009.
Structural steel and tankage bids have been received from both overseas and local contractors post the reporting period and are currently being evaluated.
The ball mill, currently housed in Western Australia, is being packaged for transportation and is scheduled to arrive on site early February 2010.
During the quarter and in the month following, EnviroGold raised an additional $4 million of capital through share issues which will be applied to the Group’s commitment to a US$30 million equity contribution to the project.
The company now intends to accept an offer to purchase a 3% gold royalty for US$7.5 million, eliminating the need to sell down a 25% interest in the project. EnviroGold will now have an effective 92.5% interest in the project.
Project funding will be through a US$35 million facility to be provided by Macquarie Bank Limited, a short term US$5 million loan from a Dominican Bank, and the US$7.5 million advance on the gold royalty.
Jean Pierre (JP) Leblanc has been appointed as Construction Manager for the project, and will commence in November 2009. Mr Leblanc is a mechanical engineer with significant international experience, and was the Construction Manager for the Cerro de Maimon copper gold project in the Dominican Republic, located within 10km of the Las Lagunas Project.
Mr Leblanc has been involved with the review of contracts and implementation plans for the Las Lagunas Project on a consulting basis ahead of his commencement.