Outlook bleak despite new gold mines

It seems ironic that, in the midst of the current resources boom and rising gold price, there have not been more gold mine openings in the golden state recently.

Then came two in two days last week – the historic Sand Queen mine, 100 kilometres north of Kalgoorlie and the new Coyote mine in the far north Tanami region. These will add an initial 80,000 ounces a year to Western Australia’s depleted gold production, wrought from resources with only about 12 years of life left because of the dearth of recent exploration.

Piled on this irony is the time it has taken to bring these mines into production.

It was 23 years ago that Reed Resources Ltd founder, chairman and stockbroker David Reed, acquired the main Sand Queen lease.

Fellow junior Tanami Gold Ltd has spent more than $75 million in the Tanami-Arunta region straddling the WA/Northern Territory border since 1994.

Reed Resources is expected to pour its first gold this week, and Tanami later in the month.

Part of the answer lies in the escalation of construction costs and a battle with other commodity miners for skilled labour.

Coyote’s development was deferred a year ago because of cost increases, sparking a redesign that slashed development costs – and helped by a big increase in the gold price – to give the company an operating margin of about $500 an ounce.

Mr Reed said that, while he was tipping a gold price of $US1,000/ounce by Christmas, “that won’t make gold any easier to find”.

He urged Resources Minister John Bolger, who officially opened the Sand Queen, to put his weight behind further streamlining the state approvals process, implement a drilling subsidy scheme similar to that in South Australia, and adopt a tax incentive flow-through share scheme. Such as tax regime had significantly boosted exploration in Canada and led to a number of major new discoveries, he said.

Mr Bolger said these issues were under review, with the state government strongly supporting the flow-through share option federally.

He acknowledged the crucial role of the often under-capitalised junior explorers, lamenting that “in WA, we have got the very big companies and the juniors, and not much in between”.

Production at the Sand Queen will be at an initial 20,000ounces/year, with Reed’s joint venture partner, Kingsrose Mining Pty Ltd, evaluating a quick doubling of production.

Current planning is for 70,000-plus ounces over 3.5 years at an estimated low cash cost of $230/ounce. However, recent extension drilling has indicated a resource of 120,000 ounces, taking the mine life out to at least five years and plenty of potential for more.

Coyote is a bigger proposition and is expected to ramp up to an open pit 60,000ounces/year within 10 months, then going underground lifting produc-tion to around 100,000ounces/year.

Tanami is looking for multi-million ounce deposits like Newmont Mining Ltd’s Granites operation, which started in 1983 at about 25,000ounces/year and is now producing over 600,000ounces/year.