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Australian gold beckons Harmony again
Allan Seccombe | Tue, 26 Jan 2010 15:45
[miningmx.com] -- HARMONY Gold will begin a pre-feasibility study before end-February into re-starting mining at its Mt Magnet operation in Australia, possibly creating a 100,000 oz/year gold mine, said CEO Graham Briggs, who professes to be excited by exploration data coming from the Golpu copper/gold prospect in Papua New Guinea.

Harmony has tried unsuccessfully to sell the mothballed, high-cost Mt Magnet mine and plant. It has now decided to revisit the economics of operating it as a single massive pit venture rather than a collection of smaller pits.

The feasibility study due to start within a month should deliver an answer for a decision to be taken by the middle of this year, Briggs told Miningmx.

The major cost in re-starting the mine would be stripping away the overburden and potentially putting in a tertiary mill. Early stage estimates are that Harmony may spend between A$50m and A$100m to bring the mine back to production, but the feasibility study will give more accurate numbers.

The potential is for Mt Magnet to be a 100,000 oz/year source of gold for five years, but the cash costs at this stage look to be higher than Harmony would like at US$700/oz. In assessing acquisitions, Harmony wants a cash cost of $500/oz tops. With the current gold price topping $1,000/oz, there is a healthy margin to be made at the mine though.

The Mt Magnet output is not included in Harmonys 2012 forecast of 2.2 million ounces. Harmony is restructuring its mines, having shut down four marginal shafts in three months with another that could possibly close in the next six months. This will take 100,000 oz of high-cost ounces out of its production profile, a number factored into its 2012 target. Harmony produced 1.46 million oz last year.

It [Mt Magnet] could add to our geographical diversity, reducing our exposure to South Africa, Briggs said.

Harmony has a 50/50 joint venture with Australias Newcrest Mining at the newly built Hidden Valley mine in Papua New Guinea. Hidden Valley is designed as a 255,000 oz/year gold and four million ounces/year silver mine. It will reach commercial production this quarter.

Harmony and Newcrest are also exploring a copper/gold porphyry at Wafi-Golpu in Papua New Guinea and Briggs has virtually unbridled enthusiasm about the project.

Exploration work has turned up another mineralised zone called Golpu West, which changes the economics of the project, which have so far been based on the main Golpu deposit. Harmony said the discovery has to date added between 30% and 50% to the mineable resource, which now stands at 2.9 million oz of gold and 1.76 million tonnes of copper at grades of 0.6 grams/tonnes of gold and 1.1% copper.

Briggs said the resource ounces could be doubled, meaning with the same infrastructure for a method of mining called block-cave, more gold and copper will be extracted. Two extra rigs will arrive on site in February as the partners ramp up their exploration efforts.

A 2007 pre-feasibility study shows a 1.7 million oz gold and one million tonne copper mine over a 10-year life. The cash cost would be A$300/oz gold equivalent.

That study showed it would take US$1.3bn to build a mine, with maximum cash out of $1bn. The new find and new exploration data changes the economics of the project. Much also depends on the gold and copper prices.

There are exciting numbers coming out there, Briggs said. Thats going to be a mine. Its just a question of how big.

In exploration work done to date, the indications are that it could be a 600,000oz/year gold equivalent mine. Gold equivalent means measuring the mines output of copper as gold.