Dacian Gold (DCN) shares eased 2% to $3.07 yesterday as investors considered the continuing weakness in gold and the company’s plans to spend $220 million in what appears to be a tidy WA gold prospect.
Although a small amount compared to some other projects in iron ore and LNG, the project spending outlined yesterday by Dacian is more confirmation that there is life in resources yet. OZ Minerals (OZL) with its Carapateena project in outback South Australia which will cost just under $A1 billion (initially).
Gold prices were trading around $US1,212 an ounce (around $A1640) on world market yesterday – down more than 10% in the past three months.
Dacian’s proposed mine near Laverton, on the WA goldfields would be an eight year operation (initially) which is expected to pay for itself within 21 months based on a gold price of $A1600 an ounce at all-in sustaining costs of $A1039 an ounce.
Releasing the results of a feasibility study on the project, Dacian yesterday put initial ore reserves at 18.6 million tonnes at 2 grams per tonne gold for 1.2 million ounces.
The study envisages a mine producing 186,000 ounces a year for the first four years (with around $A300 million a year at current prices).
Dacian estimated the cost of the mine at $172 million for infrastructure and $48 million for mine development.
The project is expected to pay for itself within 21 months and would comprise an open pit at the Jupiter mine area and two underground mines (Beresford and Allanson) at the Westralia mine area.
Dacian also released a pre-feasibility study on the proposed expansion of the Westralia mine, which it estimated could boost the broader project’s ore reserve to 21.4 million tonnes at 2.4 grams per tonne gold for 1.7 million ounces.
The study suggested an extra capital spend of $3 million could lift the project’s minelife to nine years, producing at 197,000 ounces a year for the first seven years.
It could also lower all-in sustaining costs to $970-$975 an ounce.
Executive chairman Rohan Williams said in a statement to the ASX that the studies showed that Mt Morgans would be a high quality gold project with significant production scale, low costs and outstanding potential for further growth.
“It is almost four years to the day that Dacian listed on the ASX as a junior explorer and today we announce an initial eight-year Ore Reserve that will mine 1.2 million ounces of gold,” he said.
“We have delivered on our feasibility study target of converting the 2015 scoping study potential production profile into a maiden ore reserve.”
“There are also abundant growth opportunities, with the new expansion PFS demonstrating the potential to increase production while potentially reducing the AISC to around $970 an ounce over a nine-year period.
“Add to that the excellent exploration upside and it’s not hard to see a long mine life at Mt Morgans,” Mr Williams said yesterday.
The company plans to fund Mt Morgans via a combination of project debt and equity.
Like so many other gold companies, Dacian has ridden the higher gold price (and lately, the weaker Aussie dollar) very nicely the shares are up 303% year to date to yesterday’s closing.
