A new study of various mining and economic scenarios relating to Terrain Minerals’ Great Western gold project near Leonora has given the ASX junior a possible fast tracked pathway to cash flow.
The study, commissioned by CSA Global shows the project could pump out up to 36,000 ounces of gold quickly and profitably from an open pit operation with processing done on site.
A potential underground operation may add even more ounces to the project economics.
Despite the plethora of back up options for toll treating ore within the Leonora region, Terrain’s new study appears to have answered the question about whether or not a small scale, on site operation would produce positive undiscounted cash flows in the short term.
The company commissioned the study after a drilling program in December produced a big lift in open pit tonnes and grade.
Average open pit grades across all mineral classifications lifted from 2.25 g/t gold to 2.65 g/t as a result of that drill program and were previously reported by management.
The CSA Global modeling has managed to increase that grade again to 2.8 g/t gold at current gold prices and up to 3 g/t when inferred resources are excluded. With a reduction in tonnes mined, CSA believe grades could lift even further to 3.1 g/t gold.
According to management, the inclusion of inferred resources only account for a minimal 10% lift in undiscounted project cash flows.
CSA Global tested a number of mining scenarios with onsite processing, all of which produced positive, undiscounted cash flows.
The various scenarios used a gold price range from AUD$1,500/oz to AUD$1,700/oz and modeled the effect on ounces produced when inferred resources were added to resources already sitting in the measured and indicated category.
The report shows the project would profitably turn out 35,600 ounces of gold with a AUD$1600 gold price when making use of all mineral categories including inferred.
If inferred resources are excluded the result would be 31,400 ounces of gold with mined grades jumping from 2.8 g/t gold to 3 g/t.
Importantly, Terrain says the project would still produce positive undiscounted cash flows at AUD$1500 an ounce, providing a significant downside buffer.
Whilst reporting rules prevent the company from providing estimated cash flows at this stage, management said last week that Great Western was likely to be a viable mine and would achieve a “reasonable return on capital”.
Terrain’s preference is for a small, low cost, on site processing plant, which would allow the company to keep control over its own cash flows and potentially further develop additional resources in the region.
A soil geochemical survey was conducted around the old mine in the June quarter which produced some encouraging gold anomalies. These will be followed up with another soil program to narrow down potential mineralisation on structures immediately east of Great Western.
Terrain are looking at all options to create value from Great Western and are currently in discussions with a number of parties about a full sale, partial sale or potential joint venture.
Regardless of where those discussion lead, Terrain is now in a considerably better negotiating position with potential toll treating partners given that the project it now appears to stand up in its own right.
By Matt Birney
