ROAD TO SUCCESS - By John Miller, editor, The ASIA Miner
|Drilling at the Woodlark Island Gold Project in eastern Papua New Guinea.|
AT a time when many junior mining companies are in hibernation due to poor economic conditions caused by low commodity prices and lack of capital, Geopacific Resources is alive and kicking, backed by a proactive board, experienced management and supportive investors.
Evidence of this refreshing approach has been the company’s recent move to acquire the Woodlark Gold Project in Papua New Guinea.
It has become the company’s third area of influence within the Asia Pacific region after Fiji and Cambodia, and another foray into what is considered by many as a risky mining investment environment. However, the ASX-listed junior knows it has what it takes to effectively manage any risks and is confident that the benefits far outweigh any negatives.
In fact, the company’s managing director Ron Heeks says, “Woodlark is a development project with significant exploration upside - it’s a game changer for Geopacific.”
The path to Woodlark
The current mining downturn has been an opportune time to seek extra projects. “The Board is one that builds projects,” he says, “and our record is pretty good with team members having been involved in building over 10 mines in six countries in three different commodities.
“Although Cambodia is a great place to be and we are committed there, we have the experience and the capacity to manage large portfolios of projects and have spent two years seeking projects in the Asia Pacific that we consider to be undervalued.
“Woodlark was identified as one of the world’s few remaining undeveloped, multi-million ounce deposits. We started discussions with Kula Gold 18 months ago and these evolved into a deal. We see it as an excellent path forward because we are earning into the project by developing it and in doing so gaining access to 2.1 million ounces of resources on a fully permitted project.
“It is a fantastic project which has suffered from the downturn in mining.
“I believe it is easier for juniors to do projects on the islands of PNG rather than the mainland. Larger companies have generally done well on the mainland because they have the capacity to overcome the issues.
“An island allows you to better manage the environment you operate in. Logistically it is quite easy, unlike the highlands where you need a helicopter to do just about everything, which is incredibly expensive. I’ve run helicopter supported operations and an hour of chopper time at $1500 is the same as a drill rig for a day.
|PNG hosts many large gold deposits on the mainland and on islands such as Woodlark.|
“While exploration can be a little more expensive, operations are more cost effective. Fuel is generally a third of operating costs and we can bring it in bulk by boat directly to the project. Compare that with Western Australia where the fuel comes in on a boat, is then loaded on a truck and driven several hundred kilometres to the mine site in 30-tonne loads. Our team is used to moving big loads on barges, its easy and very cost effective.
“The majority of the workforce is onsite with islands – you are not flying your workforce in and out. There are already a number of skilled people on the Island and we will provide training to up-skill many more - truck drivers, field assistants, mill workers, admin people and the like.
|Woodlark has three defined deposits – Busai, Kulumadau and Woodlark King - with a resource of 2.12 million ounces.|
“People have been working on the Woodlark Gold Project for 10 years. It has provided a source of income to the locals and has the potential to do so to a far greater degree as we develop a mine. Given the location of the Island there are limited opportunities for the Islanders to generate income so they are supportive of the project and look forward to see it progressing. There has been 265,000 metres of drilling and there is a good core of cost-effective, semi-skilled labour. There has been little activity on the project for the last couple of years, owing to lack of funds and this means that the locals have also experienced what happens when a company is inactive. When activity returns and Islanders are employed, there is more appreciation for the fact that they do not want us to go away because life was tougher when we weren’t there. When an operation is run well, you don’t need many expats. It’s an opportunity that benefits both the Islanders and the company.”
|Core samples gathered from drilling at Woodlark Island.|
Woodlark has three defined deposits – Busai, Kulumadau and Woodlark King - with a resource of 45.1 million tonnes @ 1.50 grams/tonne (g/t) gold for 2.12 million ounces, including a reserve of 10.9 million tonnes @ 2.20 g/t for 766,000 ounces. Geopacific is assessing resources to establish which areas hold the best potential to convert a further 500,000 ounces into reserves, delivering a 1.2 million ounce reserve. This is in accordance with the earn-in transaction to acquire up to 80% of the project from Kula Gold.
Kula had the project for about 10 years, undertook a lot of drilling and obtained all key approvals. A definitive feasibility study showed that Woodlark will be an open pit operation with initial annual throughput of 1.8 million tonnes, producing about 100,000 ounces, over an initial nine-year life.
Ron Heeks said, “We are in a due diligence period and recognise that there is huge potential to re-base the project. We are looking at the numbers and coming up with an outline so that when we decide to proceed, we will have a development plan that details how the project will move forward.
“Capex was done at the top of the market in 2012 and is now way out of the money. US$250 million to build a 1.8 million tonne mill is high and operational costs are commensurately high. By re-basing costs we would expect to move more measured and indicated resources into reserves. We are also including the inferred resources to work out which bit we tackle first to advance into measured and indicated categories then into reserve. It is not an exploration program, it’s a development drill-out.
“Every part of the project has been signed off by the government; it is fully permitted - tailings, environmental and social components. We just need to move it to a point where capex is such that the mine life allows it to occur. The original DFS allowed for a four-year capex payback with nine year mine life which made raising development finance too difficult. We aim to move it to a much shorter payback with a 10 year mine life at which point it is nearly a no-brainer for development financiers.
“When it is taken from the current cut-off of just above 1 g/t to around a 0.6 g/t cut, where a 1.8 million tonne operation should be, a massive amount of incremental ounces are brought in and we are aiming at savings in other operational areas as well, significantly improving the strip ratio.”
Geopacific’s assessment of Busai deposit has identified significant potential to increase resources and reserves. The assessment used 3D financial modelling to demonstrate the relationship between current pit designs and existing resources. It demonstrated that in spite of a substantial portion of the resource being measured and indicated, a large portion has not been converted to reserve because high OPEX costs resulted in the in-pit, cut-off grade being too high.
The assessment enables targeting of optimal areas for development drilling to increase the resource. There are 408,000 ounces in reserve at a 1.0 g/t lower cut-off and 1.04 million ounces in resource at a 0.5 g/t lower cut, meaning that there are 400,000 ounces in the pit which can be captured with improved economics. There are 370,000 ounces of inferred resource within and around the current pits which are available to be converted to measured an indicated resources with selective drilling and then included in the reserves. On top of that there is the expansion potential, with more than 3km of mineralised trend.
“We believe the known resources surrounding Busai pit, which currently contains more than half of the project reserves, are a small portion of the total mineralisation available from the 3km of widely drilled strike length in the area,” Ron Heeks says. “This zone has the potential to be expanded further and provide a solid base for future mining operations.”
Assessment of Kulumadau also identified significant potential to increase resources and reserves. 3D modelling shows substantial inferred mineralisation surrounding the pits and includes an area with a core of more than 5 g/t. Resources may be amenable to conversion with a combination of improved economics, selected drilling and updated pit designs.
There are 282,000 ounces in reserve at the 1.0 g/t cut and 840,000 ounces in resource at the 0.5 g/t cut. There is significant potential to increase the reserve with a high-grade zone adjacent to the current pit and a 397,000 ounce inferred resource surrounding the current pits.
“Significantly, increasing the reserve base does not rely on new exploration success, just development drilling in the existing resource,” Ron Heeks says. “We believe the known mineralisation surrounding the Kulumadau pits, which contain about a third of the project reserves, will provide an excellent starting point from which to increase reserves.”
The Kulumadau area covers two pits on opposite sides of a circular geological structure. Wide-spaced drilling between the pits indicates continuity of mineralisation and suggests that the pits could be joined. Geopacific aims to undertake infill drilling with a view to moving existing inferred resources into the measured and indicated categories.
The exploration potential is being assessed simultaneous to the development plan. Scout drilling, geophysics and airborne magnetics have identified numerous targets that require follow-up. These areas will be prioritised and developed as the project progresses. Indications are that Woodlark has the potential to host more than 5 million ounces of gold.
|The project has provided a source of income for locals and has the potential to do so to a far greater degree as it is developed.|
The company’s primary focus is to progress Woodlark by defining a development plan allowing it to define an initial 1.2 million ounce reserve. The reserve is an incentive target and achieving it will earn Geopacific 51%.
Ron Heeks says, “The arbitrage is on Woodlark because it is permitted and basically ready to go – it could be built tomorrow. The metallurgy is done and we are well down the path to re-basing the costs. It’s not like we have to finish drilling, then do metallurgy, then do this and do that – we already know all of that. The deepest of the open pits will be 170 metres, so you don’t have massive cut-back issues.”
|A visit to the project site on Woodlark Island.|
On the future he says, “We are happy with the projects we have, which will keep us busy, but if the right project comes along in the right region we would be silly not to consider it. Woodlark is a serious operation of 120,000 to 150,000 ounces of gold annually and I can’t think of another permitted, unmined resource just sitting there, ready to go.
“With gold prices, anything north of US$1200 is fantastic. We still have the Australian dollar advantage as well and if the price goes north of this, it goes straight on the bottom line.”
Kou Sa for the future
|Geopacific Resources managing director Ron Heeks (left) examines samples at the Kou Sa project in Cambodia.|
Cambodia has been a fantastic place to operate, according to Ron Heeks. “I have worked in a lot of countries and place it at the top of the list – the government is very much on side, the locals are supportive and it’s a low-cost environment. The Kou Sa project is remote but now easily accessible. At the start we were 45 minutes up a dirt road but now are alongside a bitumen highway, mains hydro-electric power has come in and there is fibre optic cable. There are better comms in the local village than we have in the Perth office and eight months ago they didn’t even have power. Cambodia is developing rapidly and it’s fantastic that the development is reaching regional areas.
“The new road and mains power will reduce costs significantly. We are only 2.5 hours from an international airport, build costs in the region are exceptional and there skilled workers are available.
“The site is logistically simple - it is flat, easy to move around and no flooding issues. The government has introduced a new mining code based on the Western Australia model and has been proactive at all times.
“We have had some fantastic results and recently announced a maiden resource of 51,000 tonnes of copper equivalent, which is a bit lighter than we had hoped but this is probably more due to geological complexity and we are still only testing the low-hanging fruit. We can see that we will have enough for a starter operation, which we envisage as a 10,000 tonnes/ annum plant.
|Drilling at the Kou Sa Gold Project in northern Cambodia.|
“We are now focusing on the deeper, bigger targets that have been on the backburner. We wanted to see a path forward and can now test some of the other targets. The 190 Gold zone is coming along well. There is an interesting high grade core within a bigger system and we have drill rigs there.”
The most recent results have confirmed that this zone holds potential to host more significant mineralisation. The drilling encountered additional gold and silver mineralisation in the epithermal system. The best result was 6.0 metres from 22.5 metres @ 3.56 g/t gold and 15.48 g/t silver, including 3.0 metres @ 6.80 g/t gold and 29.45 g/t silver.
These results indicate that the zone extends upwards while also continuing to the west. The gold zone remains open to the west and east with a potential open plunge to the southwest.
“Kou Sa is in a developing area and the problem with going into an area where no one has explored within 300km is that you start from a very low geological base,” Ron Heeks says. “We now have a very good understanding of what is happening.
“It’s very cost effective for us to work there. We are accepted by and work well with the locals and the project is coming along well. It is a longer term proposition than Woodlark.”
The target is a kick-starter, maiden resource and scoping study to take the project into production with a modest but profitable operation and ongoing exploration to increase the scale of the project well beyond the initial resource.
“The current resource is only from the 150 and 160 areas and we are working on four or five other areas, so we believe we are just about there to be able to support a starter operation.
“We have advanced a lot of costings and a 750,000 tpa float plant built by an Australian engineering company is about $20 million on site. Our plan is for the plant to be built in the region. Capex costs are fantastic, which is one of the benefits of operating in Asia.”
|Faddy’s Prospect is the most advanced of Geopacific’s Fiji prospects and is the initial priority.|
Geopacific’s initial work was in Fiji. At the time that Kou Sa was included in Geopacific’s portfolio there was also a change in management and the environment wasn’t quite right to advance the Fijian projects, so the decision was made to focus on Kou Sa. “Except for Faddy’s Prospect, they were early stage exploration prospects and at the time nobody wanted early plays and nobody wanted Fiji. This has changed and although early plays are still not on top of the hit list, the government is stable and Fiji is viewed more positively.
“Fiji is like Cambodia – a great place to do business with a very cost effective place to operate. Our projects are in logistically simple areas with the three lead projects adjacent to a highway.
“With the renewed interest in gold and the fact that we had to do some work for licensing purposes, it made sense to revisit the projects and, accordingly, we have accelerated work. Rakiraki is an epithermal system with some great trench samples so we are putting a few holes into that to see what happens at depth.
“Faddy’s is our initial priority because it is the most advanced project and holds potential for near-term cash flow. Some resources have been estimated but they are not JORC-compliant and we will undertake confirmation drilling to prepare a JORC resource. It looks like there are some nice ounces but not enough to warrant standalone processing facilities. Since Lion One Metals has stated that they will build a plant down the road at Tuvatu, this leaves Faddy’s open for a toll milling option and cash flow potential for Geopacific.
|A meeting with the locals at the Woodlark Island project in PNG.|
“As soon as we see that the Lion One plant is about to happen, we can proceed with Faddy’s by getting applications in to mine. We’ll take the high grade material out for toll milling, which could present us with cash flow for other projects.”
|Woodlark will be an open pit operation with initial annual throughput of 1.8 million tonnes, producing about 100,000 ounces.|
“Our project areas are in emerging nations where we have a lot of operating experience. We have targeted areas in similar time zones to Australia because it is much easier to operate in these areas and ultimately saves money. We understand the associated risks and how to create solutions having worked extensively in similar places, including Indonesia, Laos, Thailand, Mongolia and Ghana.
“Many islands around Woodlark in PNG, including Simberi and Misima, have had successful mines on them, and we don’t see any great issues in progressing Woodlark. PNG has issues but also has a long mining history and providing you do things right socially and environmentally, they are pretty much on board. We understand the importance of these issues have a good record of getting them right.
“PNG has a good skills base in mining because they have been mining for about 50 years. There are highly trained engineers and geologists, and the country is coming along well with mining.
“If we proceed with Woodlark we are committed to making it work and getting everything right.”
Geopacific raised $28 million last year for exploration, which Ron Heeks said was amazing for an early stage company. “Our team is about building mines and we are pretty aggressive in this regard.”
Company chairman Milan Jerkovic said, “Geopacific has two big resource funds as major shareholders in RCF (40%) and Tembo. RCF is a global fund with projects throughout the world. The RCF principals and the directors and management of Geopacific have long working relationships. They have been very supportive in backing us to become involved in a more advanced project, which we secured at Woodlark.
“Tembo has joined our register more recently with a 25% stake, which gives us comfort that as we progress our projects through to feasibility and then development, we will have funding available to finish the tasks.”
|Local Woodlark Island children enjoying the beach.|
Ron Heeks says RCF and Tembo are both incredibly supportive. “RCF came in at grassroots geochem, which was a first for them. RCF normally comes in at bankable stage or feasibility at the earliest, but our team had done projects with them before and they wanted us to become their team in this part of the world.
“Tembo is an emerging nations fund and we are a good match. These funds are on the journey with us, they are great to work with and neither has a representative on the Board, which is unusual but indicates the strength of the relationship. They are part of the team and RCF has high level geologists, engineers, environmental scientists, recruitment people and the like that we can leverage off.”
Geopacific recently completed a placement which raised A$15 million and attracted investment from a number of new, high-calibre investors, as well as ongoing support from RCF and Tembo. These funds will see the company well into the third tranche of the earn-in transaction to acquire up to 80% of Woodlark and enable significant progress to be made towards developing it in the most effective manner.