"Prefeasibility concepts will consider open pit and underground mining scenarios, followed by the development of an exploration decline to ~300m below surface to enable the underground drilling of the primary Mallee Bull copper mineralisation."
The "engineer" is supposedly working on the above. I might be mistaken but I don't think this engineer is an employee of the company. It is my understanding that he or she is a consultant working for a consultancy. Unfortunately any mine manager will tell you there are plenty of very average mining consultants out there and charging a fortune for their expertise - this is a legacy of the mining boom when acute shortages meant that a lot of inexperienced engineers (and geologists posing as engineers) took the soft option of taking city based consultancy jobs rather than really learning their craft whilst based on mine sites. That aside, this idea that developing a decline to a depth of 300 meters is going to provide a platform to cost effectively drill out the MB orebody is wrong. Here is why:
1) Cost of decline to a depth of 300m beneath surface (from 100m bench of a proposed 120m deep T1 pit) is $12.0 million. The decline would be based in the footwall with a standoff of 60m from the ore and a cross cut would be driven towards the orebody and 60m beyond the hanging wall to provide optimum geometry for drilling. The 1 in 7 decline would require a stockpile every 140 meters. Total development of 2,000m would cost of $6,000 per meter (in $AUD)
2) Time to achieve this would be approximately 1.5 to 2.0 years after completion of the T1 pit. A big delay!
3) What are you saving in cost? Answer - Nothing! It is costing extra! I estimate the published JORC resource is based on an average drill hole spacing of 40 meters (up and down dip and along strike) - currently there are circa 40 diamond holes drilled through the orebody which has a hanging wall area of about 60,000 square meters (strike by dip extent). If you wanted to close up the drill hole spacing to 20 meters you would need approximately an additional 110 holes. By virtue of having a $12 million decline which will not be available for at least 18 months after the T1 pit is complete you can save on 110 holes over a depth of 300 meters - at a drill rate of $120/m that represents a saving of less than $4 million. It does not stack up!
Regarding the economics of Mallee Bull as it now stands I believe it will make money but not enough to either excite the market or justify the pre-production capital required . The solution is to follow up on Mallee Bull North - @pfuzzy I do not accept this notion that Peel can only concentrate on Southern Nights (or Wirlong for that matter). There is no justification for MBN to have been shelved and it indicates the limitations of the BOD. It also demonstrates that Tyson isn't capable of standing up to CBH! The next round of drilling at MBN is literally begging to be done as it has the hallmarks of being another MB and that changes all the metrics of this asset.
Here is my appraisal of the MB economics:
1)Resource - 7.0 MT @ 2.6 CuEq
2) Reserve - 5.5 MT @ 2.4% CuEq (Assume 75% of resource converted to reserve, dilution 10% and ore loss 5%).
3) Revenue AUD$1.1 Billion (Assume Cu price $9,000/t, Recovery 85%
4) Capital Costs - AUD$115 Million (Assumes underground contractor appointed who provides mobile fleet. Also assumes that all ore trucked to Endeavour to save on estimated $150 million plant construction).
5) Operating costs - AUD$570 Million (Assumes mine operating cost of $50/tonne, road transport of $10/tonne, processing of $25/t, General and Admin costs of $10/t, smelting charges of $5/t.
The discounted time value of money obviously has to be taken into account when working out the NPV and IRR -that is beyond my capability. I'll also concede that the above analysis contains a lot of guess work as well.
The revenue exceeds costs by $415 million which is encouraging however when you consider that the copper price has been 40% lower than its current level as recently as January 2016 you begin to understand that the project isn't robust enough until more tons are added to the inventory.
PEX Price at posting:
63.5¢ Sentiment: Hold Disclosure: Held
(20min delay)
