Cleveland Mining edges closer to return to full scale mining at Premier
Cleveland Mining's (ASX: CDG)
shares should move higher today as it prepares for a return to full
scale mining at its Premier Gold Mine in Brazil with ongoing delivery of
key equipment that will increase production and reduce costs.
Funds
raised in August have allowed it to undertake a detailed mine planning
exercise with AMC Consultants and order a range of new equipment for the
transition to an owner-operator business model.
Production over
the last few months has been limited to tailings following the
demobilisation of the contract crusher and the undertaking of a works
program on the existing ball mill circuit in preparation for the
incorporation of the new jaw crusher and hammer mill.
The
September quarter production results will be released next week together
with the summary details of the mine plan work to provide a better
guide to near term forecasts.
In-Line Leach Reactor
The
company recently purchased a new In-Line Leach Reactor from Australian
supplier Gekko Systems that is expected to significantly increase gold
recovery from the Premier mine.
The proven Gekko ILR technology,
with over 100 units around the world including 27 in South America,
chemically extracts gold from material that previously would have been
liberated by the gravity circuit but not captured by the gravity table.
To
date Cleveland has achieved a recovery rate of around 60% through its
gravity separation plant utilising a gravity table to process the
concentrate. It is expected that the addition of the ILR will increase
overall recovery to around 75%.
The AMC plan shows that the inclusion of an ILR plant materially enhances the mine plan economics.
For
a minimal variable cost of around $3 per tonne of ore treated and with
all mining costs already incurred, the extra gold produced should pay
back the purchase price of the ILR within 3 to 4 months based on the
current gold price.
While there is some final optimisation test
work being completed by Gekko over the next few weeks, the scope and
functionality of the Gekko ILR 2000 plant looks ideally suited to
Cleveland’s needs. The ILR unit has already been fabricated and will now
undergo electrical modifications to align the unit with Brazilian power
specifications prior to shipping.
The unit is expected to be shipped by end-November for delivery to Brazil by end-2013 / early-2014.
Cleveland’s
ultimate targeted gold recovery rate of +90% will require further
optimisation of the gravity circuit and potential investment in a
floatation circuit to concentrate the tailings (overflow) from the
Falcon gravity concentrators that are part of the existing processing
system.
The final specifications and investment decision for the
floatation circuit will be made following the optimisation of the
gravity circuit, which will include the fine tuning of the new crushing
and milling operations.
This work is expected to be completed through early-2014 once the ILR is fully commissioned.
Jaw crusher and hammer mill
Cleveland has also assembled the new jaw crush on site and is carrying out commissioning before installing it.
This
replaces primary crushing carried out by contractors and is expected to
provide cost savings, operational flexibility and importantly the
ability to fine tune the crushing circuit to best suit the gold
extraction process.
An additional crushing process is being
implemented with the installation of a hammer mill. Foundations for the
mill have been completed and the unit will be delivered next week.
Commissioning
of the jaw crusher and hammer mill is expected through to mid-November
with current ROM stocks on hand to assist in the wet commissioning
process.
The hammer mill will further reduce the grind size of
ore going into the ball mill as to date the performance of the existing
ball mill has been suboptimal due to the variable ore size received from
the contract crushing operation.
A reduction to a more uniform
3.5mm – 6 mm particle size (compared with a previous 10mm – 30mm) will
reduce the time and energy required for ball mill grinding, which should
provide overall cost savings.
The smaller input size and better
regulation of material coming out of the ball mill should in turn
further enhance the gravity recovery rate.
Mining Fleet
The
company has also paid deposits to secure delivery slots on one
excavator and three trucks that will form the base of its owner-operator
fleet. A front end loader will also be ordered.
It is intended
to lease these equipment items and the units should be delivered to site
in a few weeks following finalisation of the leasing arrangements.
Mine Plan
The company expects to complete optimisation of the mine plan within a week with summary results to be released to the market.
As
part of the review with AMC, Cleveland has focused on the requirements
of the new plan and in particular the processing equipment needed to
increase production and reduce costs.
Analysis
With this, Cleveland is edging closer to resuming full scale production at Premier gold mine in 2013/14 - a net positive step toward establishing profitabilty.
While the company has currently been limited to production from
tailings, its move towards an owner-operator business model is expected
to reap substantial rewards once completed.
Projected first half
2014 production targets of 7,000 ounces per quarter from processing of
70,000 tonnes of ore with an average head grade of 3.22g/t gold and
processing recoverty of 90% are expected to yield:
- C1 cash costs of US$400 per ounce;
- Australian Head Office expense target A$125 per ounce; and
- Sustaining CapEx and exploration expense target A$100 per ounce.
The current work also lays the foundations for the company to achieve stabilised production and establish profitability in the 2014 financial year.
There is also resource upside and significant at that - with potential for multi million ounce prospectivity demonstrated through drilling, geophysics, soil sampling and mapping.
With this solid progress, we consider that Cleveland is trading at a significant discount to our estimate of intrinsic value.
