January 16, 2008
Tanami Gold Seems To Have Got Things Right At Last.
By Our Man In Oz
www.minesite.com
Holidays have been a rare treat for Dennis Waddell over the past few years. Trouble in the early days of the new Coyote mine of Tanami Gold in Australia’s “top end” meant that every waking hour of the executive chairman was dedicated to overseeing a major re-design of the process plant within months of start-up. Discovering that Waddell had “gone fishing” over January was the first positive clue of a major improvement detected by Minesite when it called last week to see how the overhaul was progressing. The simple fact that Waddell felt sufficiently confident to disappear for a few weeks was an encouraging sign that the worst is over. The second clue, which required far less deduction, was in the numbers flowing from Coyote. For the first time since Tanami commenced work at its remote project, adjacent to the border between Western Australia and the Northern Territory, there is evidence of a strongly rising rate of gold production which is starting to be reflected on the stock market.
Over the past few weeks, thanks also to the contribution from the rising gold price, Tanami has been able to rise above the A13 cent price paid by institutions in mid-2007 when called on to help fund the re-build at Coyote. The latest price is around A14.5 cents. What will be especially pleasing for shareholders is the output data coming from Coyote, together with confirmation of the high-grade nature of the orebody at depth, and fresh drilling results which point to the potential for more rich ore deep under the mine, and in nearby exploration targets.
On the production front, Tanami’s gold output has been trending upward for four consecutive months. From 2,361 ounces in September Coyote rose to 3,170oz in October and 3,822 ounces in November, and then up to 4,787 in December. Two keys factors lie behind the raw numbers. First, the mine itself has reached the high-grade Gonzales lode which yields in excess of 13 grams a tonne, roughly triple what has been mined before. Second, Tanami has resolved its processing problems and has lifted recoveries to around 95 per cent, and is targetting 98 per cent as it fine-tunes the plant.
From now on, in theory, Coyote just gets better. How good? Well, that’s the big question because the project has always had the potential to be something special, in much the same way as other prolific gold mines in the belt that slashes across central Australia, incorporating the 5 million ounce Callie mine and the 1.5 million ounce Granites project. Waddell, in comments made to the stock exchange before reaching for his fishing rod around Christmas, said the immediate target was an annual output of 50,000 ounces, then up to 70,000 ounces, and then a stretch target of 100,000 ounces as reserves are expanded.
More from Waddell’s on-the-record remarks later, but for investors it is worth looking at what those numbers mean if Tanami can also deliver on promised production costs. When Minesite last spoke with him, Waddell said the high-grade underground phase of Coyote, which is just starting, would yield gold in the range of A$400-to-A$450 an ounce. Even if that figure blows out somewhat, say to around A$500 an ounce Tanami is still sitting pretty because the Australian gold price last week slipped quietly past the magic A$1000 an ounce mark. You don’t need a calculator to see that Coyote will soon be spinning off A$25 million in annual gross profit at the lower target production level, A$35 million at the mid-range, and A$50 million at the upper level – assuming a steady gold price and mine costs. Given that the company is capitalised on the ASX at about A$150 million and those potential profit numbers become quite interesting – and that’s before the exploration factor kicks in, something which should not be ignored in a very positive gold market.
Waddell told the ASX that one of the most important developments at Coyote was the deepening of the openpit mine to 65 metres below surface the point at which the Gonzales lode was first encountered. Above Gonzales, the ore mined graded between 3-and-4 grams a tonne, below and it meant pulling out 13 g/t Gonzales ore. “Gaining access to Gonzales ore in October, combined with some higher grade ore from Pit 1, enabled production in October to exceed 3000 ounces for the first time,” he said. “Although we cannot draw too much from the first parcel of the Gonzales ore treated, we are encouraged with the early indications of grade and continuity.” The trick now for Tanami is expand on the production rate and finalise the plant improvements which should see gold recovery rise further.
Over the next few months Coyote will process a mix of low-grade openpit material and higher grade development ore from Gonzales. By June, Waddell said, the mine is expected to be “stoping” a minimum of 12,000 tonnes a month of high grade underground ore, sufficient to hit the base case target of 50,000 ounces of gold a year. Next, it’s up to the 70,000 and 100,000 ounce targets. “We don’t need to mine a lot more to lift production from 50, to 70, to 100,000 ounces because Coyote is a high-grade mine,” he said.
Rising production from ore that has been delineated is one step in the rise of Tanami as a significant Australian gold producer. Important as that is, if only so Waddell can show his institutional investor supporters that they have back a good thing, is the future – and that’s when Tanami has a lot to talk about. Under the rich Gonzales lode is the equally rich Bugsy and Muttley lodes, plus the recently discovered Peacemaker lode, plus what lies deeper than the 200 metre limit which has been the depth of most drilling so far, plus the ultimate blue-sky potential of the company’s extensive land holding. It might be a little early, and Coyote has disappointed in the past, but developments at Tanami make it a company well-worth a fresh look as one of Australia’s top gold revival stories.