Vatukoula Gold: Approaching a tipping point in underground mine developmentReported by Proactive Investors on Wednesday, 20 June 2012 (on June 20, 2012)
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Vatukoula Gold Mines (LON:VGM) is working towards an important tipping point.
At the Vatukoula site in Fiji, the company’s emphasis has been on re-establishing the infrastructure and access to the high grade ore that will be the mainstay of future production.
This work is very important but it is not in itself the most rewarding activity. That is because VGM has to mine a great deal of below-par ore in order to reach the best parts of the mine.
In just over a year’s time the critical parts of this development work will be complete, VGM chief Dave Paxton told Proactive Investors.
At this point, VGM will have access to over 1,000 metres of the face of the gold orebody. And this is expected to tip the scales firmly in the company’s favour.
Not only will the grades, and therefore production, be higher but importantly the straight mining operation will be much less expensive.
“Right now we have higher costs because we are doing more development,” he said.
“But once we've caught up with development, we'll be able to spend a larger portion of our time actually mining (it is expected to be around 70 per cent, compared with about 50 per cent currently).
“We'll have lower costs, and higher grades. So we would be producing more gold at higher margins. It is long term process.”
In the meantime surface oxide material is supplementing the underground operation from the Vatukoula open-pit.
The company retains its target of 65,000 ounce production target for 2012, but has placed an outlook caution on this figure. This comes against a fairly challenging backdrop after the heavy Fijian rains, which sparked a state-of-emergency on the Pacific islands early this year and impacted the mining operation.
“There were issues as a result of the rains and that has knocked us slightly. We had lower production in that quarter but we believe we have some higher grade sections coming up, and we believe we’ll get to (our targeted) rate.”
“We believe we’ll make it up as grades pick up considerably in the last few months of the year.”
Paxton says he is aiming, once the current development-heavy phase of work is complete, to be operating the mine with six ‘stopes’ (with another two ‘ready to go).
Stopes are the areas in which miners bore out tunnels to extract ore. At Vatukoula each stope will provide sufficient material to keep VGM in higher grade ore for around six months.
Clearly it is impossible to simply start mining at the best underground position, with the highest grades, without first tunnelling down through plain rock or low grade ore. And of late, VGM has been tied up with this expensive and less rewarding part of underground mining.
But, helped by an alternative development technique, Paxton believes VGM will soon begin reaping the rewards.
Previously VGM developed the mine using 'strike drives' - tunnels that run in ore at right angles to the optimal ore face and allow mining into the ore ‘face’. Paxton says that this has provided good access to the ore.
"Strike drives can open up a large part of the orebody's 'face' but because its runs the whole length of the main ore body, it is more expensive and it can really hammer the grade as you're in the development phase."
Paxton says that as a result this method can add pressure on the mine's cost per ounce - because lower grades mean less produced ounces.
Alternatively VGM is now adopting 'footwall' drives where possible to extract the ore.
Footwall drives run parallel but underneath the ore body, providing the option to drill exploration holes to assess the orebody before mining. Once in production, an access shoot can be mined underneath the orebody and as you mine the stope above, the ore drops down into trucks, Paxton explains.
“It is a change we are going through at the moment. And opening up these areas costs a lot of money. These are large excavations.”
Today’s results show that VGM is in a reasonably strong financial position even though the current operations aren’t as lucrative as the future operation will be. It is a cash generative business, particularly with prevailing gold prices around the US$1,500 mark.
VGM generated £4.7 million from its operations in the first nine months of this year, but spending on development work and exploration drilling has led to a loss of £4.3million.
This cash-flow helps support the group’s capital needs and allows VGM the flexibility it needs to complete its vital underground development work.
The cash position was further boost recently with a notable injection from a Chinese investment group. The investors, Zhongrun International Mining, bought 9 million shares in April, paying 60p for a 9.2 per cent stake in the company.
Paxton alludes to the fact that Zhongrun has the option to double that stake in July, via options priced at 77p, but because of the recent share price weakness – caused in part by a rather panicky investor responsive to the floods – he says it is unlikely that the Chinese will buy the extra shares.
“We are still talking to them. And we are due to go and see them in a couple of weeks.”
Meanwhile the firm’s investors in London will have their eyes peeled for signs that VGM’s investment in underground development is paying off.
Links:  Full news story
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