July 17, 2007
Tanami Returns From Its 40 Weeks In The Wilderness
By Our Man In Oz
Source:
www.minesite.com/aus.html
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The last time Denis Waddell travelled to London it was “with cap in hand” looking for money to pay for the rectification of problems at the Coyote project of Australian listed Tanami Gold. The next time he makes the long haul from Australia he wants to travel “with dividend cheques”. If, as seems likely, Tanami has overcome its problems in processing Coyote ore that is a distinct possibility. News from site, which has been awful for the past 12-months, has taken a turn for the better. Changes to the plant are working. Exploration is throwing up more gold. There are encouraging indications that the orebody will be bigger than forecast, and costs are slowly being reined in. Rather than being seen as a sick man of Australian gold Tanami could soon win recognition as one of the rising stars.
Patient institutional investors are maintaining their faith in Tanami. Last month they chipped in an extra A$20 million through a placement priced at A13 cents a share. They remain modestly “in the money” but will be hoping for a much better price as the news from Coyote improves. Waddell is confident that there will be no more return visits seeking capital. Site work, which largely involves turning the Coyote plant into a conventional carbon-in-leach operations, is largely complete with gold recoveries heading for the design target of 95 per cent. Costs of A$500 an ounce remain relatively high at this early stage of the project, but will fall as the mine deepens and grade rises. Most importantly, the extra capital means Tanami is debt and hedge free.
Waddell’s plan for the future is simplicity itself, like the modified plant which replaced an inefficient gravity recovery circuit. “We’ve just moved to double shifts at the mine, and we’ve placed a contract for three new leach tanks,” he told Minesite from his Perth office. “The leach tanks are part of the conversion to conventional CIP processing, replacing the vat leach which was a bloody disaster.” The technical stuff remains too technical for the average follower of Tanami. It is enough to say that the company accepted the wrong advice, partly to save construction costs. It’s an admission that prompts Minesite to remind Waddell of a famous saying that every thoughtful mother tells her son: “never buy cheap shoes”.
With the rectification almost complete the trick for Tanami now is to deliver on its promises. Geology and metallurgy are not an issue. Waddell said the mine, in its early days, with grade relatively low and the strip ratio relatively high in the open pit, is producing gold at around A$500 an ounce, and perhaps a little higher, leaving a gross margin of around A$267/oz, based on the latest Aussie gold price of A$767/oz. “Once we get underground we’re targeting A$400-to-A$450/oz,” Waddell said.
The good news for Tanami shareholders, assuming the worst of the processing errors are indeed history, is that Coyote is poised to deliver sharply higher ore grades, better processing yields, and exciting exploration results. While the near-surface ore grades around 3.5 grams a tonne, the deeper ore grades around 12g/t. The challenge will be lifting gold production off what is essentially a fixed cost base which comes from operating in remote desert country.
If Coyote can do no better than 50,000oz a year it will be rated as a high-cost mine, but once output rises closer to the target of 70,000oz then the returns rise substantially. The higher output is not too big a challenge for Tanami because it has double the current capacity in its mill, and with the new leach tanks being installed throughput can be doubled with fixed costs remaining about the same. Mine production for the next six months will come from the open-pit phase of Coyote. A start is expected on the underground phase when the pit reaches the portal (underground mine opening) level in November.
The daily grind at Coyote is one part of the Tanami story. The more interesting aspect is the exploration blue sky because the nature of orebodies in the desert country of the Northern Territory is that once opened mines tend to get bigger. Newmont’s Granites mine started at 40,000oz a year and then rose sharply as grade and tonnage increased with depth. It was a similar story at another nearby mine, Callie. Tanami’s recent focus has been an in-fill drilling campaign at the Muttley lode where visible gold has been found in six of seven holes. Assays were in the 12g/t range with one narrow seam of a metre grading 250g/t.
As happens with many Australian goldmines Coyote is starting small, and with a short life expectancy. Based on the current known reserve the project has a life of three years. When resources are included life expectancy extends to five years. But, when the potential depth extension of the gold lodes is factored in, as has happened at Callie and Granites, then Tanami could be working Coyote and its surrounding for many years.
Waddell estimates that the problems of bad plant design has set Tanami back by about a year, and cost the company A$20 million. “The whole experience has cost us dearly, on a number of fronts,” he said. “It’s still tough. We’ve got a good team together and the exploration potential is fabulous. That’s why we’ve had the support we have. The shareholders understand the ground position we have, and once we start generating decent cash flow the exploration budget will increase. I’m certainly looking forward to being self-funding ad going back to shareholders with a dividend cheque instead of a bloody cap.”