Hillgrove Resources Ltd (ASX:HGO) has confirmed the “excellent project potential” of the Kanmantoo Copper Project with an Underground Stage 1 economic assessment demonstrating post-tax cash flows of A$196 million from the planned recommencement of operations in 2022.
The confidence of the company has been further lifted with the assessment indicating an NPV8 of A$166 million and an internal rate of return (IRR) of 389% for the South Australian project.
“Unique opportunity”
Hillgrove CEO and managing director Lachlan Wallace said: “The study confirms the excellent project potential. Kanmantoo Underground Stage 1 presents a unique opportunity to produce copper in a Tier 1 jurisdiction at a time of record prices, generating post-tax cash flows of $196 million in the initial stage, with resource upside through depth extensions, strike extensions, and additional lodes.”
Shares were as much as 20% higher in late trading to A$0.066 and have risen from A$0.049 at market close on October 6.
Location of the Kanmantoo Copper Mine (ML6345) and exploration tenements.
Low costs, fast restart
Existing, well-maintained infrastructure allows for a fast restart of around seven months from final investment decision (FID) at industry-leading capital costs of just A$26 million and capital intensity of US$1,550/tonne.
The low costs result in a payback period of just seven months after the completion of pre-production work.
All in sustaining costs of A$6,991/tonne copper (US$2.22/pound) provide good margins at current and projected copper prices.
"The project requires only $26 million of development capital, due to the existing processing facility and tailings storage infrastructure, both of which are being maintained in a ready restart condition," Wallace said.
"The existing infrastructure and the short distance from the portal to the copper lodes, positions Kanmantoo as one of the lowest capital intensity copper development projects in Australia at US$1,550/tonne of annual copper production in the first three years, well below other development projects which average over US$16,000/tonne."
Updated resource estimate
Supporting the economic assessment is an updated mineral resource estimate (MRE) of 5.7 million tonnes at 1.1% copper and 0.3 g/t gold with further drilling underway in a bid to upgrade and boost resources.
This update covers the Kavanagh mineralised zones at Kanmantoo and includes the results of the 2021 diamond drilling program to June 30, 2021.
Plan view of Kanmantoo deposits.
The economic assessment outlines an initial three-year mine plan of 3.3 million tonnes, targeting production of 36,000 tonnes of copper and 10,000 ounces of gold.
Wallace said the Kanmantoo Underground Stage 1 economic assessment was based on the updated MRE which increased metal content by 82%, after the 17,200-metre drill program completed in 2021. The increase to the MRE was all within the Kavanagh lodes below the pit.
There is a 55% increase in the total estimated copper metal in the Kavanagh underground resources compared to the 2020 Kavanagh MRE and 72% of the MRE is now classified as indicated.
Further drilling
"A further 16,000-metre drill program is underway, focused on other lodes within the permitted mining lease, with a view to bringing these areas into the early stages of mining at Kanmantoo,” Wallace said.
"Bringing in additional work areas such as these provides an opportunity to increase annual production for modest additional capital, which would be expected to further reduce the all-in sustaining cost.
"The drilling indicates that the mineralisation extends 500 metres below the base of the main pit above Kavanagh, and over 200 metres below the Nugent pit, however the Stage 1 mine plan only extends 250 metres below the main pit and 150 metres below the Nugent pit due primarily to lack of drilling density at depth.
"Both of these areas remain open at depth and exploration drilling will continue in parallel with the Kanmantoo Stage 1 development, with a view to replace resource depletion from underground mining and to extend the mine life beyond Stage 1."
Free gold in Nugent KTDD209 at 339.7 metres depth downhole.
A drilling program completed in 2021 confirmed that many of the higher-grade zones are surrounded by lower grade haloes which presents an opportunity to increase value through a lower grade bulk mining approach that better utilises existing mill capacity.
Spare processing capacity
"The spare processing capacity enables Hillgrove to respond to changing commodity prices by flexing the cut-off grade to maximise value from the Kanmantoo Underground, without the need for additional capital expenditure,” the CEO and MD said.
"Whilst most other producers would need to consider permitting, capital costs and lengthy construction times to expand production to take advantage of changing prices, the Kanmantoo project can react quickly which may prove valuable as the world continues to decarbonise, fuelling demand for copper."
Kanmantoo Copper Mine processing plant and workshops.
Wallace said that the strong potential project economics reinforced the company's decision earlier this year to commence the underground decline development ahead of the final investment decision (FID).
Decline work
"The first 500 metres of the decline is being established under trial conditions using a continuous mining machine which has the potential to transform existing mining development processes; making them safer, faster, more cost-effective, and as a fully electrical machine, has the potential to facilitate industry’s transition towards zero-emission mining.
"The initial 500 metres of decline is funded through a $2 million grant from the South Australian Government, and deferred payment terms with Komatsu.
"Orchestrating funding in this manner enables Hillgrove to establish the decline for very little up-front capital outlay, accelerating what is already a very short time to first copper, whilst at the same time, enabling this technology to be tested for the benefit of the mining industry."
The established exploration decline portal.
“Low risk”
Kanmantoo project benefits from its location, providing access to grid electricity, mains water, a short transport route and a skilled local workforce without any fly in fly out requirements.
"The latent capacity in the processing facility, which only operates for approximately 40% of the time under the Stage 1 plan, provides an opportunity to reduce the operating costs further with additional annual throughput," he said.
Wallace said that as a fully permitted brownfield project, there was relatively low risk compared to other mining startups.
"The project extracts the same lodes that were mined and processed for almost a decade in the open pit, which materially reduces the technical risk around geology interpretation, ground support requirements, and metallurgical recovery.
"In addition, with all the infrastructure already in place and being maintained at a high standard, the risk of capital blowout on restart is considered low."
Fully funded to FID
He concluded: "Hillgrove Resources is fully funded to complete the current 16,000-metre drilling program and the initial 500 metres of decline, after which we expect to be in a position to make a final investment decision. In parallel, we have commenced discussions with potential funding partners.”