It was interesting that, on the same day as Ramelius Resources pulled the plug on an expansion of a gold mine in WA because of higher operating and capital costs, New Century Resources was talking up its pre-feasibility for bringing back to life the veteran Mount Lyell copper and gold mine in north-western Tasmania.
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Higher costs over the last two years have forced Ramelius Resources (ASX: RMS) to defer the third stage expansion of its Edna May gold mine in WA.
Ramelius said company said that the higher operating and capital costs will outweigh the rise recent in gold prices, reducing the return on the project to a level below Ramelius’ internal hurdle.
The market took the news in its stride and Ramelius shares eased 0.9% to $1.075.
According to Ramelius’ statement to the ASX on Monday, mining contractor pricing had increased “significantly” since a scoping study was completed for the project in January 2021, and higher estimated operating costs increased the cut-off grade, resulting in a smaller overall pit.
The company’s pre-feasibility study for the project estimated all in sustaining costs of $A1977 per ounce, up 28% increase from the scoping study estimate of $US1,540 an ounce.
While the price of gold has increased 13% to $A2,600 per ounce from the scoping study base price of $A2,300 an ounce, the company said it was still outweighed by the higher operating and capital costs.
CEO Mark Zeptner told investors the company’s focus would remain centred on delivery of cash flows from current operations.
“Ramelius has a number of development options elsewhere in our portfolio and we will instead look to deploy capital in those directions for better financial returns at a later date.”
While the company board decided to put the project on pause, environmental permitting will continue to enable a quick re-start in a lower cost/higher gold price environment in the future.
“The ounces at Edna May are not lost but we will not mine them merely to fill out a production profile when the financial returns don’t meet our hurdles,” he declared on Monday.
“However, by completing the permitting the company maintains optionality,” Mr Zeptner said.
The company said its three-year production outlook remains unchanged as its Edna May Stage three project was not included.
“The PFS remains incomplete however environmental permitting work will continue to allow for a quick re-start in any lower cost/higher gold price environment in the future,” Ramelius said on Monday.
(Given the two-year gap between the scoping study and yesterday’s announcement, a cost escalation was to be expected, especially so with the rise in energy costs and labour shortages because of Covid and lockdowns.)
Looking to the future, Ramelius said itspreviously released 3 Year Production Outlook remained unchanged, given Edna May Stage 3 was not included (capital expenditure or gold production).
The outlook allows for consistent gold production in the 240,000 – 290,000 ounce a year range with reducing its All in Sustaining Cost (AISC) driven by the commencement of the high grade Penny mine in second half of 2022-23.
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New Century Resources (ASX: NCZ) has been talking up the prospects of reviving Mount Lyell now for the best part of 16 months and yesterday produced the pre-feasibility study for the project, claiming the study demonstrated “highly attractive economics.”
Pre-production capital expenditure is estimated to be $279 million. With Mt Lyell’s existing infrastructure, New Century said in Monday’s statement the aim of the mine plan was to minimise capital development and maximise return on investment by bringing forward production as soon as practicable.
New Century CEO Robert Cooper said on Monday the release of the Mt Lyell PFS was a key milestone en route to first production.
“The study clearly demonstrates that Mt Lyell is one of the largest and most attractive near-term copper projects in Australia, with projected operational metrics that compare favourably to many current operations and a resource size that allows significant scale and mine life,” he said.
“With an initial 25-year life of mine and an overall resource base greater than 1 million tonnes of copper and almost 1 million ounces of gold, this project is transformational for our company and represents a material long-term source of low-carbon copper to support the global transition to renewable energy and contribute to the decarbonisation of the economy.”
The company said a feasibility study is expected to be complete in the third quarter of this year. The question is whether the cost pressures that drove Ramelius’s decision impact New Century’s plans for Mount Lyell which is a more isolated operation near Queenstown in Tasmania’s northwest.
NCZ said the potential development of a “low-cost, long-life” copper and gold operation would see a pre-tax net present value of $560 million, internal rate of return of 22%, and make $1.08 billion over an initial 25 years.
Over this time, it’s expected to produce 555,000 tonnes of copper and 320,000 ounces of gold in concentrate.
The first 10 years of mine life is expected to produce 27,000 of copper and 16,000 ounces of gold a year.
This period will comprise 82% of production from the Indicated Mineral Resource, with an additional eight per cent inferred mineral resource drilled and pending conversion to an indicated mineral resource.
Average C1 costs (the cost of mining and processing) are estimated at $US1.73 a pound of copper over the first 10 years, with C1 costs over the average life of mine at $US1.89 per pound. Comex copper is currently more than $US4 a pound.
In October of 2021, New Century took a two-year option agreement to evaluate a potential restart at Mt Lyell.
If it exercises the option, the company will acquire Copper Mines of Tasmania, which owns the Mt Lyell project.
The news saw NCZ shares pop more than 3.7% to close at 84 cents.
