Bendigo raises cash for Victorian revival (July 19, 2004)

Bendigo Mining has raised sufficient funds to begin mine construction in southeastern Australia’s Victoria state.

Investors in Australasia, Europe and North America have purchased A$100 million worth of shares at A72 apiece. Also, the company’s two major shareholders, Harmony Gold Mining (HMY-N) of South Africa and General Oriental Investments, will underwrite a share purchase plan of up to A$15 million for existing shareholders.

The New Bendigo mine is expected to start up in the fourth quarter of 2005; production will then be ramped up over six years to more than 570,000 oz. per year.

Plans call for New Bendigo to mine 33.6 million tonnes of ore, at the annual rate of 1.6 million tonnes, over 25 years. The underground operation’s target head grade is 12 grams gold per tonne, and more than 12.7 million oz. gold are expected to be recovered.

At present, however, reserves stand at 656,000 tonnes grading 9 grams gold per tonne, which are sufficient for only three years of operation. The company says the cost of defining more reserves at this stage would be prohibitive, owing to the nuggety nature and depth of the ore. Instead, Bendigo plans to have just 2-3 years of reserves defined at any given time.

The gold is hosted by reefs over a strike length of 5 km. The reefs run parallel to the hinges of enclosing anticlines and commonly occur in clusters, forming distinct linear bands, or ribbons, which repeat at depth. Historically, the most productive part of the field has been one in which 15 anticlines occur over an area measuring 17 km long by 4 km wide.

In each of the first three years of production, the mine is expected to produce 83,000 oz. gold from 300,000 tonnes of ore. In 2011, a second million-tonne-per-year processing plant will be added to achieve the design rate of 1.6 million tonnes annually; production at that stage is expected to exceed 570,000 oz. per year.

At full steam, from 2011 on, production should average 600,000 oz. per year for a further 19 years. Average cash operating costs are estimated at less than US$120 per oz., and exploration and sustaining capital costs are pegged at US$42 per oz.

The feasibility study indicates a net present value of more than A$400 million, based on a discount rate of 10%. The internal rate of return is pegged at more than 20%, based on unhedged production and a long-term gold price of A$525 per oz. The project is expected to generate average after-tax cash flow of A$130 million per year.

The project requires two waves of capital investment. The first, A$135-million tranche will finance construction of a 300,000-tonne-per-year processing plant at the nearby Carshalton mine site. Some of the initial capital will also go toward ramping up to production stages two and three. An additional A$80 will be required to double the plant capacity in the fourth year, and reach the design throughput rate in the seventh.

Plant construction is expected to last about a year. Initially, mining will target the Sheepshead and the Deborah reefs, which are already accessible via the Swan decline at the southern end of the project.

Ultimately, mining operations will extend over some 10 km of strike length at depths ranging from 500 to 1,500 metres. The main mining method will be cut-and-fill, with some bench stoping.

Ore will be crushed underground and trucked to the surface for processing. Tests indicate a gold recovery rate of 95% via crushing, grinding, primary gravity concentration, flotation and secondary gravity concentration of the flotation tail. Gold will be recovered from the gravity concentrate in a leach reactor, consisting of dewatering, reactor, detoxification and electrowinning.

Residue from the leach reactor will have any remaining cyanide neutralized before being used in backfill; cyanide-free tailings from the primary processing circuit will be sent to a tailings storage facility or used as backfill.