OXR oxiana limited

Sepon gold mine is set to become a long-life cash

  1. 4,756 Posts.
    By: Peter Gonnella


    Posted: 2002/11/12 Tue 21:00 ZE8 | © Mineweb 1997-2002

    PERTH – Budding junior miner Oxiana Resources [ASX:OXR] has revealed there’s a lot more gold and copper at the Sepon property in Laos than the reserve estimates used in its bankable feasibility studies.
    The Melbourne-based company – which has an 80 percent stake in the developing Sepon gold and copper projects, with diversified mining giant Rio Tinto [ASX:RIO] holding the balance – reported today (Tuesday) that exploration results this year have suggested its expectations of both projects might be on the conservative side.

    What had originally been envisaged as a fast-track into commercial production ahead of the bigger ticket copper development, the soon-to-be-commissioned Sepon gold mine is set to become a long-life cash cow. Recent definition drilling, carried out after the gold bankable feasibility study (BFS) was completed, returned several high-grade intersections from outside the boundaries of the five planned open pits. According to the BFS, the initial gold reserve of 9.1 million tonnes grading 3.2g/t for a contained 932,000oz (within a resource of 70Mt at 1.56g/t for 3.5 million ounces) would support an operation generating around 125,000 ounces per annum at average cash costs of about US$150/oz over eight years. An estimated internal rate of return (IRR) has not been released to the market, however, an Oxiana spokesperson told Mineweb it was “comfortably in double digits”, while Sepon should yield gross operating cash flows in the order of about US$20 million a year based on the current gold price.

    Oxiana’s managing director, Owen Hegarty, said the company was now assessing the viability of higher annualised output rates, which would contribute to bringing down the cash costs, but nevertheless “recent drilling indicates that the mine life could be considerably longer than the eight years in the BFS”, he said in an open briefing. “The mineralised corridor seems large enough to host a resource of in excess of 5Moz.”

    Commencement of commissioning of the gold plant was imminent with gold production expected to get underway at the end of the year. The US$41 million capital cost of the gold development has been equity funded and was wrapped up following the take-up by investors last month of 236 million options at A$0.25 each which raised A$59 million pre-fees.

    In addition, the proposed second-phase Sepon copper project was looking even more exciting. Hegarty predicted the area could host at least double the existing copper resources at Sepon (which currently stood at 1.1 million tonnes of contained metal). Aside from possible increases in the known Khanong copper deposit, the Thengkham copper prospect was offering plenty of exploration encouragement. “In the future we’ll do a more detailed assessment of Thengkham and there’s potential to delineate new copper resources within the other four mineralised systems in the district,” he said.

    Based on the copper BFS finished last month, the proposed US$167 million Sepon copper mine was designed to produce 60,000 tonnes per annum of LME grade copper cathodes at cash costs projected to average US$0.38 per pound over an initial mine life of 11 years. The latest stated mining reserve was 13.5Mt at 5.1 percent copper (within a resource of 26Mt at 4.1 percent copper at a 1.0 percent cut-off for 1.1Mt copper), and applying a long-term copper price of US$0.85/lb the project was forecast to provide an IRR of around 20 percent, annual operating cash flows of US$50-60 million and capital payback after three years of full production.

    “Funding the gold project with equity gives us the capacity to largely debt fund the copper project,” Hegarty said, with the balance probably to come from an equity contribution. “The capital and operating costs are in the lowest quartile of world copper producers and banks will be willing to write debt facilities.”

    He considered Sepon the world’s best undeveloped copper orebody. “There are very few copper resources in the world with grades this high and particularly with readily extractable metal,” he said. The copper construction period is slated to begin around mid-2003 once funding is in place and the process optimisation work has been completed. First commercial cathode copper production was pencilled for about March 2005.

    Meantime on the corporate front, if Oxiana continues to add value to the project, then it's hard to see joint venture partner Rio, which sold 80 percent of Sepon to Oxiana more than a couple of years ago, maintaining a back-seat role. “It’s fair to say Rio has taken a less passive role,” Hegarty admitted, referring to Rio’s guaranteeing of a short-term US$10 million bridging finance facility, which was repaid out of the options exercising proceeds. When asked about Rio’s possible future intentions, the Oxiana spokesperson said there was no formal change in their relationship “at this time”.

    Shares in Oxiana, which is unhedged and debt free, ended the day almost steady at A$0.375, representing a market cap of just under A$290 million.


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