Resource at Wallaby grows

Drilling beneath the Wallaby gold deposit at the Granny Smith mine in Western Australia has added 2.1 million oz., bringing the total resource of the deposit to 7.1 million contained ounces.

Granny Smith is owned 60% by Placer Dome (PDG-T), which manages and operates the mine, and 40% by Australian-listed Delta Gold. The joint venture approved the open-pit development of the Wallaby deposit in October 2000. Wallaby will be the ninth significant deposit mined at the Granny Smith operation since startup in 1990. Up to December 2000, the mine, which lies 23 km south of Laverton and 200 km north of Kalgoorlie, had produced 3.4 million oz.

At the end of 1999, Granny Smith had a remaining mine life of just two years. The decision to proceed with the Wallaby project adds at least six years to that estimate. Production from the Sunrise pit is scheduled to be completed in October 2001, and Wallaby is expected to come on-stream in February 2002. Production from Wallaby is forecast to average 320,000 oz., with cash and total costs of US$160 and US$215 per oz., respectively. The first two years are expected to see slightly higher rates, of 375,000 oz. and 340,000 oz.

The cost of bringing Wallaby into production is pegged at US$90 million, including US$18 million for pre-stripping, US$22.2 million for mining equipment and US$10.8 million for plant upgrades.

The processing plant utilizes crushing circuits for fresh and oxide ores, followed by a semi-autogenous grinding mill in closed circuit. Included in the process are a cone crusher, ball mill, agitation leaching and carbon-in-pulp circuit, tailings retreatment plant and gold recovery plant with carbon reactivation. The plant has been designed to treat highly variable ore, from weathered oxide to competent fresh rock.

The Wallaby material will be processed at the rate of 3 million tonnes of unoxidized ore per year. Gold recovery is estimated at 86.5%.

Wallaby contains a reserve, minable by open-pit methods, of 18.1 million tonnes grading 3.4 grams, equivalent to 2 million oz. The stripping ratio of the 230-metre-deep pit is expected to be 5.7-to-1, or 7-to-1 if pre-stripping is included. Delta says an improvement in grade, gold price or operating cost could justify access to extensive deeper mineralized zones.

The reserve includes 500,000 oz. that will be mined from Homestake Mining‘s (HM-N) adjoining Just-in-Case property. In return, Homestake will be paid US$13 million over six years and retain a 3.5% net smelter return royalty on gold produced from its property.

Placer has estimated the mineral resource to a 500-metre depth at 58.4 million tonnes grading 2.6 grams, or 5 million oz. The mineralization consists of a series of sub-parallel, flat-lying, silica-sericite-carbonate zones in a conglomerate host rock. The zones appear to continue at various depths and thicknesses. The average thickness of the zones ranges from 3 to 25 metres.

So far, nine zones have been identified to a depth of 1,000 metres, comprising Zones 40 (the shallowest), 50, 250, 60, 70, 80, 90, 100 and 110 (deepest). The open-pit reserve includes Zones 40 and 50, as well as part of 250, whereas the overall resource takes in Zones 40 through 70.

Encouraged by deeper drilling results, the joint venture decided to scope its potential by drilling out the mineralized system on 100-sq.-metre centres to a depth of 1,000 metres. Fourteen holes were completed during the December 2000 quarter, bringing the number of holes drilled below 500 metres to 31. A further five or six holes are required to complete the broad drill pattern.

The high-grade potential at depth is highlighted by several intercepts, including 6.9 metres of 22.3 grams in Zone 100, 7 metres of 17.4 grams in Zone 80, and 11.7 metres of 16 grams in Zone 80.

Based on the results from deep drilling, Delta estimates that an inferred resource of 8.7 million tonnes grading 7.7 grams, equal to 2.1 million oz., sits between 500 and 1,000 metres of depth. The company believes that the higher-grade resource offers the potential for underground mining down the road.

While acknowledging that a lot more work needs to be done before the full extent of the mineral system is known, Placer President Jay Taylor says he is “optimistic about the untapped, long-term upside of this project,” adding that “we haven’t seen the bottom of it yet.”

The Granny Smith mine was put into production by the Placer and Delta joint venture in 1990 on the basis of three discontinuous deposits: Granny, Goanna and Windrich. Four additional satellite deposits (Childe Harold, Phoenix, Keringal and Sunrise) were subsequently discovered and mined. The Keringal deposit was mined as two open pits.

The Granny Smith deposits are in the Eastern Goldfields, within the Archean greenstone belt of Western Australia. Most of the region is covered by Tertiary-to-recent laterite, colluvium and alluvium; outcrop is sparse. Geophysics played a key role in the discovery of the deposits. The potential for gold mineralization was highlighted by aeromagnetic surveys, which indicated the presence of major fault zones.

The three original Granny Smith deposits were found over a distance of 3 km in a north-south-trending strike-slip fault that follows, in part, the contact between granite and sedimentary rocks. Wallaby was discovered 11 km southwest of Granny Smith in 1998.

In calendar 2000, Granny Smith produced 412,048 oz. gold by milling 4.1 million tonnes grading 3.5 grams at a recovery rate of 89.7%. Despite improved recovery, an anticipated lower head grade (4.5 grams in 1999) contributed to a 21% decrease in production. Cash and total production costs for 2000 came in at a respective US$207 and US$221 per oz., versus US$98 and US$106 per oz. in 1999. Mine operating earnings in 2000 were US$24 million, versus US$52 million a year ago.

Delta Gold holds varying interests in four gold operations, including Kanowna Belle, Golden Feather, Wirralie and Granny Smith. During the fiscal year ended June 30, 2000, the company’s share of production was 603,429 oz. at a total cash cost of A$282 per oz. (US$160 per oz.) and a total cost of A$370 per oz.

During the first six months of 2001, Delta’s share of production totalled 294,434 oz. at a cash cost of A$310 per oz. and a total cost of A$416 per oz. The realized gold price of A$565 per oz. was some A$71 above the spot price and reflects Delta’s hedge book. The company posted a half-year profit of A$17.1 million, up 62% over the corresponding period of a year ago. Operations generated A$42 million in cash flow.

“Kanowna Belle’s excellent performance was a key driver in Delta’s improved half-year profit result and provided more than A$25 million in earnings,” says Chief Executive Officer Terry Burgess. “Attributable production from Kanowna Belle increased 45% to 148,000 oz., while total production costs were reduced by 13%.”

With 267 million shares outstanding, Delta Gold is trading around A$1.29 in a 52-week range of A$1.92-1.10. The company has a net debt of A$159 million.