This decision comes on the back of strong results from drilling, high gold prices and the shallow nature of the proposed open pit targeting oxidised gold resources.
A West Kalkaroo open pit would provide cash flow to develop the larger Kalkaroo copper-gold sulphide project and make development of that project easier because the gold operation would effectively expose the underlying copper-gold sulphide ore body.
More conducive for financing
Havilah believes this approach will also be more conducive to attracting financing for West Kalkaroo and, in turn, enhance the future development prospects of Kalkaroo.
With much of the overburden removed, the Kalkaroo project would potentially become a more attractive mining investment proposition that is more likely to attract the funding required to develop the large-scale open pit copper-gold mine.
“Makes business sense”
The company’s technical director Dr Chris Giles said: “Taking advantage of the current long-term forecast gold price and pursuing the gold-only start-up open pit option at West Kalkaroo makes business sense, given the considerably reduced upfront capital as compared with the full-scale copper-gold project contemplated in the PFS.
“We have a good understanding of the mining and materials handling of the overburden and ore based on our Portia gold mining experience. Dealing with the soft oxidised ores should simplify the startup.
“Havilah retains a high degree of optionality as the project copper production could be initiated at any time after completion of the West Kalkaroo stage 3 open pit, if sufficient capital was available.
“In the meantime, the gold-only mining will remove much of the overburden at West Kalkaroo, which should make the ultimate copper-gold operation a potentially more attractive investment proposition.”
High degree of confidence
Infill drilling at 25 x 25-metre spacing over the last four months within the planned open pit shell has delivered a high degree of confidence in the gold resource.
Until recently, development of Kalkaroo was predicated on a large-scale copper-gold mine as outlined in the published Kalkaroo PFS that was compiled for Wanbao Mining by independent mining consultants, RPM Global Asia Limited.
That PFS contemplated average annual production of 30,000 tonnes of copper and 72,000 ounces of gold as recovered metal over a 13-year production period from a large open pit based on an ore reserve of 100.1 million tonnes that contains 474,000 tonnes of copper and 1.41 million ounces of gold.
As documented in that PFS, the estimated pre-production capital expenditure is A$332 million, including mining fleet of A$76 million and a contingency of A$46 million.
Total capital expenditure over the life of mine is A$680 million, including A$149 million for the mining fleet and A$82 million in contingency.
Such amounts are challenging for Havilah to fund given its sub A$50 million market capitalisation.
Strong gold market
Over the past 12 months, there has been a 25% rise in the long-term forecast USD gold price from US$1,200 an ounce used in the PFS to US$1,500 an ounce (Source: World Bank, JP Morgan) and this week prices have been close to US$2,000.
Directors note that in view of this, the commencement of West Kalkaroo as a shallow gold-only open pit has potentially become a realistic development option.
Accordingly, Havilah has focused drilling efforts this year at West Kalkaroo where it has completed more than 90 aircore holes for over 8,000 metres, mostly within the limits of a conceptual starter open pit.
The objective was to gain greater confidence in the shallow gold resources, particularly grade and distribution, at West Kalkaroo, which has largely been achieved.
Open pit design
Havilah’s senior mine planning engineer Richard Buckley has incorporated the results into the design of a series of progressively larger open pits at West Kalkaroo.
The largest optimised shallow gold-only open pit design is estimated to contain around 80,000-90,000 ounces of gold (plus some native copper) after removal of an estimated 7-8 million cubic metres of soft free-dig overburden.
Presently, this technical information is being used to obtain firm mining quotes from mining contractors to assist in determining project feasibility.
The results of Havilah’s comprehensive metallurgical studies for the oxidised saprolite gold and native copper ores have enabled design of a preferred gold processing plant.
Capital and operating costs for this plant are being determined by an independent engineering consulting firm.
In parallel, Havilah’s technical personnel are working towards completion and lodgement of the final environmental approvals documentation for the gold-only start-up open pit option, which closely aligns with the scope of the September 2014 approved Kalkaroo Copper-Gold Mining Lease Proposal and Management Plan.
The company has already secured the required mining permits for Kalkaroo and also owns the surrounding Kalkaroo Station pastoral lease, thus providing unrestricted access.
“Opportunities are rare”
Giles added: “It is worth noting that low sovereign risk, advanced, large-scale open pit copper-gold development opportunities like Kalkaroo, with associated land ownership, are rare at a time when renewable energy and electric vehicles are adding to the demand for copper and cobalt and with gold breaching US$1,900 an ounce.
“South Australia’s low sovereign risk, mining-friendly government and high ESG (environmental, social and governance) ranking makes the Kalkaroo Copper-Gold Project a potentially more attractive mining investment proposition compared to many offshore copper-gold projects that are located in risker locations where the COVID-19 pandemic continues unabated.”