ROAD TO SUCCESS--

By John Miller, editor, The ASIA Miner

By November 30 more than half of the overburden had been removed by CMC equipment at Havilah Resources’ Portia project.

THERE are not many start-up projects in the global mining industry at present, particularly those involving junior companies, but a unique approach adopted by Havilah Resources and contractor Consolidated Mining and Civil (CMC) has enabled mining at the Portia Gold Project in South Australia to get under way.

With Havilah unlikely to have raised development funds in the current climate and with the project not big enough to involve a third party investor, it must have seemed to the company’s long suffering, but patient, shareholders that development of Portia would go the same way as most other new ventures with the metal remaining in the ground.

However, the involvement of CMC in a unique joint venture has seen mining begin this year with first gold expected within six months. CMC is undertaking all mining and will split the revenue 50:50 with Havilah. It seems hard to believe this approach hasn’t been used before but it is a big up-front commitment for CMC, which must first remove around 70 metres of overburden in the open pit before gold is accessed and before any income is earned. It works partly because Portia is a comparatively short life mine, with a finite, gravity recoverable gold resource that is well quantified.

Although agreement was only reached in January 2015 and mining did not start until March 30, Havilah and CMC have already established a close working relationship which augurs well for the future of both.

The story is not likely to end when the small Portia deposit is exhausted as there are other deposits on Havilah’s tenements, including the very large Kalkaroo Copper-Gold Project 20km south of Portia. Havilah’s properties are close to the border of New South Wales and not far from CMC’s base of Broken Hill, one of the world’s most iconic mining towns and birthplace of BHP.

Havilah’s managing director Dr Chris Giles said like most mines it has been a lengthy road leading to Portia’s development. “We said before the GFC in 2007 that we were going to develop Portia and submitted all data to the Mines Department. However, owing to the presence of soft clay and sand overburden, they told us we should look at reducing the angle of the pit walls for increased stability. The gold price was about $600 or $700 an ounce and changing the angle would have meant the project was uneconomic. Then the GFC struck and presented more pressing economic issues.

“We kept working on permitting and geotechnical aspects and in October 2014 received final approvals but our share price was at a near all-time low and banks weren’t prepared to commit, which meant we couldn’t get finance or raise equity.

“I had been aware of CMC and the Radford family for many years but had never met Steve Radford or his father Gary. Out of the blue Steve, CMC’s owner, called and said he would like to meet because a colleague was interested in iron ore and wanted to talk about our prospect. We discussed this but the timing was not good for iron ore … and still isn’t.

“It had been in the back of my mind for some time to approach contractors to see if we could work out an affordable arrangement to proceed with Portia, which is not the typical gold deposit mined from the top with cash flow from the outset. To access Portia’s gold 70-75 metres down, you have to remove the overburden at a cost of about $25 million under a conventional contracting arrangement with no income, and we certainly could not afford it.

“As Steve was leaving, I told him we had an interesting project not far from Broken Hill and had been investigating various options, including seeking Chinese investors, but would need a contractor. I said there was probably not enough in it for three parties – an investor, Havilah and a contractor – so if we could do without the third party, perhaps we could work together. He said he would consider this as he knew about Portia and its history.”

CMC ‘takes a punt’

“Steve did his homework and told us it looked like a good opportunity, particularly considering that he would have a set of equipment free with one other job winding back,” Chris Giles says. “Rather than having a 250-tonne excavator and set of dump trucks sitting around and having to lay-off people, he said he would rather be doing something with the gear and keep people employed.

“He said although it was a big commitment he was prepared to take the punt. We negotiated the finer details and in January signed an agreement. They were quickly on site preparing and there was plenty to do, including the road to the site. There were 13 fences to go through and after removing the narrow gates, CMC replaced them with grids and bypass gates. They mobilised their gear and set up a camp in weeks, enabling removal of overburden to start on March 30.

“CMC has been digging steadily since then and accelerating their work with the half-way point of 3.5 million cubic metres reached at the end of November. As the pit gets deeper, attention to geotechnical issues such as faults, joints and small slips becomes more critical to maintain a safe mining environment.”

Steve Radford says, “After Havilah advised they were looking for a contractor to assist them, we did six months of due diligence. We considered the history, the large amount of drilling Havilah had done and the real understanding its experienced geologists had of the deposit. They were also looking for someone to bankroll it as, like other junior exploration companies, they were having difficulty getting finance.

“Havilah’s business is like ours – it runs on the smell of an oily rag, operates on positives and its people are at the coal face with a can-do, hands-on approach. Being the fourth generation of the Radford family involved in this line of work and having taken over from my father Gary in 2001, we continue to grow. Today we have 520 people, about 900 pieces of equipment and continue to seek opportunities. My passion for this business and its ongoing success is all about the people and the community of Broken Hill. My great grandfather Les Radford, his sons, my father and I have all had a passion for the community and what we can do for it.

“I saw this venture as an opportunity. After the due diligence and taking on board some advice, it was a decision I had to make but in doing so I’ve had to gamble the farm, albeit a hedged gamble. I’m very comfortable with what I’ve learnt, our company’s ability and its ‘can-do’ attitude, and we will make it work.

“I was always taught that you should buy when people are selling and sell when they are buying, so now represents a good time to be doing business. If you are prepared to take a calculated punt, then why not – there have been a lot of successful people in this country who have taken that punt,” Steve Radford adds.

The arrangement is a great deal, according to Chris Giles. “It is a win-win for CMC and Havilah, doesn’t dilute existing shareholdings and allows us to mine Portia, otherwise we would still be sitting around wondering what to do. Steve is astute, he worked out what needed to be done and how, so that he could achieve a better than normal a return in the end. He knows that by doing a good job and establishing a good relationship, there is every possibility of more work as our other deposits come on line in the future.

“I know it’s a Radford family tradition, but when Steve shook my hand, the deal was done and he’s done everything he promised since with no issues. It’s great to have a dependable and capable partner. They have all the gear and the people - you know they will get the job done.

“To my knowledge, no one else has done it like this before, at least not at this scale. However, you have to find a contractor with the ability to do it and the capability of funding the digging, labour, fuel and maintenance for at least 12 months before getting a return. It’s a unique combination of circumstances that has enabled this to happen.”

CMC has guaranteed to have first ore on the surface by July 1, 2016. Chris Giles says Havilah is working with CMC to see how the open pit design may be altered slightly to access ore a little earlier rather than removing all overburden before starting. Doing this will push cash flow forward a bit, which suits both parties.

Processing

CMC’s responsibility is the mining and Havilah’s the processing, which will be done in a simple gravity plant owing to the fact that the gold is free, coarse-grained and nuggetty.

Chris Giles says the deposit is unique in the way it was formed and because it is not conventional, Havilah would have had difficulty attracting finance even in a good market. “We think it is hydromorphic gold which has eroded from a primary sulphide deposit nearby and trickled down the slopes in solution, ending up in a gutter or drain above a very graphitic shale unit. This is like a natural CIP plant which trapped the gold in a layer about three metres thick at 70-75 metres below the surface. The gold has grown like potatoes in the soil.

“The coarseness of the gold has made estimating a resource using conventional assaying methods somewhat hit and miss. To overcome this we collected the largest samples we could with our drilling rig using a specially adapted bit.

“We treated the samples in a small trial plant we built, comprising a trommel through which high pressure water was passed, and a small Knelson concentrator. We produced a concentrate and panned this down to get gold, which we then picked out and weighed. We knew no one would believe our results so we had a former manager of Amdel in Adelaide, QC everything.

“By this method we ended up with a very accurate measure of how many grams of gold were in each cubic metre and, therefore, established a resource. It is conservative because we only picked out the coarse gold and there is a lot of fine gold you can’t pick out. There can only be upside to the resource which the processing should establish.

“The processing plant is based on the pilot – a simple gravity washing plant with a 120 tonne/hour trommel which breaks up the clay so the gold can fall out. Once gold is liberated from the clay the material goes into a simple high speed spinner, called a Knelson concentrator, which is very efficient at recovering gold. The heavy gold is flung out in the spinning motion and is very effectively trapped. The actual plant is much larger with fully automated, self-dumping Knelson concentrators.

“We could never have afforded to do this work in a lab as it was an arduous process with about 800 samples tested. We learned a great deal about how the gold occurs and how it can be recovered, and we now have a high degree of confidence in our processing system. The plant is being built in in various parts of Australia and will be transported to Portia and assembled on site early in 2016.”

Portia’s fourth owner

Chris Giles is an exploration geologist who says he loves exploration because every deposit is unique. “It is rarely ever a case of ‘walk up to it and there it is’ as in the prospecting days of old. In most cases it is usually the third or fourth explorer to cover the ground that finds a deposit able to be mined.

“Portia is a classic case. It was picked up in the 1980s by Marathon Petroleum which was doing uranium exploration. They were drilling through sand and clay into a gravelly old river bed 90 metres below the surface where the water flowed and every now and then deposited uranium in what is called a roll-front deposit, of which nearby Honeymoon is an example. These ancient channels are called palaeochannels but you have no idea from the surface that they are present. Marathon drilled into the bedrock and took samples so if there happened to be an ore body in the bedrock they would pick it up. Just north of Portia they picked up a copper kick in one hole.

John Lynch of Werrie Gold recognised the opportunity, and invited Pasminco in as joint venture partner. Pasminco followed up the copper anomalies in the late 1990s and found the gold, becoming the third company involved. Havilah acquired the property from the receivers of Pasminco in 2003, and drilled it out, establishing the gold resource that is now being mined at Portia.

Economics stack up

Portia is Australia’s newest and probably smallest gold mine with the shortest life. There are 350,000 tonnes of gold-bearing material grading 5-6 grams/tonne for 67,000 ounces which will be mined out in a few months and will take about six months to process. Mining and processing should be all over by December 2016.

The current gold price of around A$1500-1600 is excellent, Chris Giles says, and means that based on the current resource, Portia can generate about $80 million in revenue. “We have to pay about $3 million in royalties and the rest will be split between CMC and Havilah. Once we access the ore body it should be quite attractive and the revenue is likely to be earned in six months.

“There is also the upside which is largely unknown. In the current pit we will recover about 80% of the known gold resource, but we also know from drilling there is patchy, high-grade gold in cracks and fractures in the bedrock. It’s definitely not the tip of an iceberg but after mining out the pit floor we aim to identify and dig out any rich ‘patches’ that may exist. Any upside will provide more cash to help advance our other larger projects in the area and will benefit CMC which has had to bear the cost of getting down there.

“In a typical iceberg project you do a lot of work for perhaps 1-2 grams/tonne at a cost of around $1000 per ounce and sell at $1600 with no quick payback but if the gold price drops margins decrease. In our case we will get a quick payback once we reach the gold and the cost per ounce may be less than $100 per ounce as it is a simple plant with just a few operators.”

Steve Radford says he can’t see any shortcomings for gold as a commodity in the near future. “There are always peaks and troughs in mining and we are fortunate to get Portia going during a trough when fuel prices are lower, parts for plant and equipment are cheaper, more quality equipment is available at lower prices, labour costs are not as expensive and there are plenty of quality tradespeople seeking work.

“We went on site with one set of kit but have increased that to two. Those on site enjoy the work. We have shearers’ cooks preparing home-made meals for workers. The job is on time, on target, on budget and more than 50% of the dirt has been shifted.”

CMC has a 50-man camp, two Hitachi 250-tonne excavators, 13 Cat 777 haul trucks, two Cat 637 scrapers, two 631 water trucks, service truck, fuel truck, an 18-tonne crane, maintenance support, cement-floored container workshop, a 15x15 office, an RO plant, satellite communication, and a 50-seat coach for transport to and from Broken Hill as the team operates on a 10 day on, five day off roster. Steve Radford says, “We also have a couple of GPS-controlled Cat D10s on site that look after the waste dump and batter angles. The diggers are shifting between 13,500 and 15,000 cubic metres of dirt per shift per tractor. One of them also has a GPS which looks after the batter profiles.”

After Portia

Chris Giles said that Havilah had decided to fast track a feasibility study on the adjoining North Portia deposit to determine whether it could be developed immediately after mining finishes at Portia. “It is a completely different deposit – a primary copper-gold sulphide deposit that forms a palaeo hill in bedrock under the surface just north of the Portia pit. It is a cigar-shaped deposit with 50 metres of clay overburden on top but it contains100,000 tonnes of copper and 235,000 ounces of gold at good grades. We think it is the primary source of the Portia deposit but two-thirds of it requires sulphide processing. Because the size doesn’t warrant a standalone plant we had planned to truck ore to Kalkaroo after we built a plant for the much larger sulphide deposit located there.

“Steve suggested that as we already have the infrastructure in place, including camp, equipment and tailings storage, we should consider mining North Portia immediately after Portia. We then decided to seriously look at the possibility of mining the top one-third, oxidized part of the deposit which can more than likely be treated at Portia. It contains about 4 million tonnes of soft oxidized material containing quite attractive copper and gold grades.

This can be mined before the hard sulphide material which requires grinding and conventional sulphide processing. Steve also suggested cutting into the ground between the two deposits, running a conveyor system between the two and placing the North Portia overburden into the Portia pit, which could considerably reduce the waste mining costs.

“We are now looking at the feasibility and economics of proceeding in this manner. As Kalkaroo is a much bigger, long-term project, mining North Portia oxidized material will create more cash flow to enhance the economics of proceeding with Kalkaroo.”

“North Portia was not high on Havilah’s priority list until I started looking at the logistics and could see that it could be mined next,” Steve Radford says. “Chris seriously considered my ideas and obtained Havilah Board approval to carry out a fast-tracked feasibility study into the economics, which includes some further drilling and metallurgy work. If all goes well mining could take place from October 2016.

“We will help take Havilah from junior explorer to junior miner and will help it get some cash flow allowing it to grow into the next two projects. This also takes CMC to the next level with cash flow and fleet expansion while giving us more horsepower for other opportunities that come along. If we deliver, we are confident Havilah will take us with them to their next project, and hopefully beyond.

“My vision is of a long-term relationship that extends to North Portia and then Kalkaroo, which can offer a 25-year mine life and provides a major boost for Broken Hill. There are 50 new jobs at Portia and there could be 250 at Kalkaroo.”

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