Goldsource hits commercial production

Goldsource Mines (TSXV:GXS) has reached commercial production at its Eagle Mountain gold mine in Guyana, with the junior now optimizing the small-scale operation to break even in the third quarter.

Located 230 km southwest of the capital Georgetown, Eagle Mountain hit commercial production for phase one on June 20, roughly three months after pouring first gold.

“This is a huge milestone. Obviously, it is the biggest achievement we’ve done to date,” Ioannis (Yannis) Tsitos, the company’s president, says.

The junior defines phase one commercial production as achieving at least 80% of nameplate capacity of 1,000 tonnes per day and 45% recovery in gold concentrate in the last 30 days. Over that period, the former BHP Billiton geophysicist notes that recoveries were over 50%. Throughput reached a maximum of 1,400 tonnes per day, with an estimated average of 900 tonnes per day.

Tsitos admits the operation had a slow start given the heavier than usual rains in Guyana. But, he applauded his team for finishing construction this January under budget. Commissioning kicked off in February.

Total capital expenditures (capex) for phase one were US$4.8 million, compared to the budgeted US$5.9 million in the 2014 preliminary economic assessment (PEA).

The PEA envisions Eagle Mountain as a four-stage development, ramping up from 1,000 to 4,000 tonnes per day over four years.

Over its eight-year mine life, Eagle Mountain should deliver 168,700 oz. (from gravity-only processing) at all-in sustaining costs of US$630 per oz., including operating costs of US$500 to US$600 per oz. Helping keep costs down is the life of mine strip ratio of 0.9-to-1.

Goldsource will employ conventional open cut mining of gold mineralized saprolite, using a team of excavators, bulldozers and wheel loaders to extract and separate materials. It will use downhill gravity transport by slurry to send the materials to the processing facility.

Estimated total cost for all the phases is US$25 million.

The scrubber plant and mining operations at Goldsource Mines’ Eagle Mountain gold mine in Guyana.  Credit: Goldsource Mines.

“This is a phased development approach, which means we initiated something with very low capex. We are trying to keep the operating costs very low to deliver some free cash flow, which we constantly want to reinvest in several expansion phases,” Tsitos says. The operation should break even in the third quarter, and start producing free cash flow “by late Q3 or early Q4.”

The PEA forecasts gold production for the first full four years as 5,600, 14,400, 21,600 and 28,800 oz., respectively. Goldsource has guided 2016 production at 3,600 oz.

To optimize the operation, Goldsource intends to introduce a second shift at Eagle Mountain in the third quarter to keep the operation running around the clock. Miners currently work one 12-hour shift, 7 days a week. The additional shift should grow throughput to 1,800 tonnes per day. The junior has already bought equipment, including a 40-tonne articulated truck, and expanded the camp to accommodate new hires. It anticipates growing its current 37-person workforce to 57.

The junior forecasts receiving a leach reactor permit in the third quarter. This would allow it to start intensive cyanide leaching of the gravity gold concentrates to improve the overall recovery and production. Recoveries should climb from 50% in concentrates to more than 95%. Mobilization of the leach reactor should conclude in third quarter.

“These are the two biggest targets. We hope to achieve them, as we’ve achieved commercial production, with a stellar safety record, no security incidents, and with combined support of the local community, the government, and everybody in Guyana.”

By year-end, Goldsource plans to initiate a prefeasibility study to assess whether it could accelerate the expansion.

“We’ve studied the deposit very well, both from a geological and resource side, and from a metallurgical and process side. The target is to reach 4,000 tonnes per day,” Tsitos notes. “The only thing I cannot say is if this is going to be with two or three or only one expansion phase.”

Gold separation from concentrate at the Eagle Mountain mine. Credit: Ioannis (Yannis) Tsitos, Goldsource Mines.

The prefeasibility study — estimated out in first half of 2017 — should contain an upgraded resource.

Eagle Mountain’s existing resource stands at 3.9 million indicated tonnes grading 1.49 grams gold for 188,000 oz., plus 20.6 million inferred tonnes at 1.19 grams for 792,000 oz. Given the deposit remains open in three lateral directions, Tsitos believes his team could expand the resource through exploration.

At the start of June, Goldsource had US$1 million in its treasury, and US$6 million in mostly “in-the-money” warrants.

“We have been blessed somehow in this difficult time with good market acceptance and good stock price, which makes our life easier. Because some of the warrants are controlled by insiders and very loyal shareholders, some of them have voluntarily exercised these warrants already, and some of them are exercising as we speak,” Tsitos says. “So we have no issues with available capital.”

The stock closed June 23 at 48¢, a penny below its 52-week high reached June 17. Its shares sunk to a 52-week low of 13¢ last July.

“It’s really good times at Goldsource,” the executive concludes. “And we are very happy with the progress to date.”