Final feasibility studies on the Kassandra projects on the Khalkidiki Peninsula of northern Greece predict low production costs for the two mines.
Consulting firm Kvaerner Metals has delivered a report to operator
The feasibility study modelled annual production rates of 410,000 oz. gold and 2 million oz. silver, and concluded that byproduct credits — zinc and lead at Olympias and copper at Skouries — would push the combined project’s operating costs to below US$75 per oz. gold.
Construction costs at Olympias are estimated at US$225 million, and EU grants are expected to defray up to US$70 million of that cost. At Skouries, the feasibility study estimated a US$240-million capital cost, and the EU could kick in as much as US$96 million.
Over the first five years, Olympias’s average annual production is expected to be 210,000 oz. gold and 2 million oz. silver. Skouries is expected to add another 200,000 oz. of gold per year over the same period.
Olympias, which has an underground minable reserve of 9.1 million tonnes grading 8.7 grams gold and 138 grams silver per tonne, with 4.6% lead and 5.8% zinc, will have a 15-year mine life at the planned production rate. TVX, which expects to bring resources into the reserves category and plans to test potential extensions to the orebody, is predicting a minimum 20-year life.
There is also a pyrite stockpile of 300,000 tonnes grading 22.9 grams gold and 24 grams silver, and 2.4 million tonnes of tailings grading 3.4 grams gold and 14 grams silver. The tailings will be processed separately from the ores.
The mine should have a cash production cost of around US$125 per oz., including byproduct credits of US$5 per oz. for silver, US46.5 cents per lb. (US$1,025 per tonne) for zinc and US23.5 cents per lb. (US$518 per tonne) for lead.
The internal rate of return for the Olympias project, on its own, is 8.3% at US$300 per oz. gold, and the operation pays back after 5.1 years. A rise to US$350, with higher byproduct credits, increases the rate of return to 16.5% and shortens the payback period to 3.4 years — not least because the byproduct credits shrink the cash cost to US$105 per oz.
The Skouries feasibility study was based on a 130-million-tonne minable reserve grading 0.55% copper and 0.88 gram gold. The mining plan would allow a mine life of more than 20 years. The minable reserve is part of a 244-million-tonne resource, which carried an average of 0.52% copper and 0.76 gram gold.
Like Olympias, Skouries has resources and potential extensions to the orebody that TVX predicts will add to the mine life.
Earlier mining plans had envisioned block caving for the entire underground operation, but the new feasibility study is based on initial sub-level caving, to be followed by block caving. There will be an open pit exploited in the earliest years of the mine.
Skouries’ internal rate of return at US$300 per oz. gold is 13.6%, with a payback period of 3.6 years. Cash gold production costs, after credits for byproduct copper based on a price of US80 cents per lb., are expected to be around US$25 per oz.
N.M Rothschild & Sons, financial advisor to TVX, has told the company that about US$75-100 million will have to be raised in the equity market, with the remaining cash requirement covered by loans. TVX is therefore considering bringing in a joint-venture partner for the development of the project.
TVX and Rothschilds both believe lenders will not be scared off by the 12% carried interest awarded by the courts to the Alpha Group, a Toronto-based syndicate of three businessmen who originally brought a proposal to bid on the project to TVX. The court reinstated an earlier agreement between TVX and the group, which also gave Alpha an option to acquire an additional working interest in the project (T.N.M., Oct. 26/98).
James Stephenson, a lawyer and one of the partners in the Alpha Group, says the syndicate is looking at ways of financing its back-in right but that the exact form of the arrangement still has to be settled. The original agreement allowed Alpha to back into a 12% working interest by reimbursing TVX for 12% of its expenditures.
The project’s own approval process is on schedule to allow TVX to start construction in the second half of 1999. The Greek government has already braved local political opposition to the mine, including a terrorist attack on the Industry Ministry in late 1997, and is expected to back the proposed development strongly.
Outside exploration on the 314-sq.-km property is concentrating at the Piavitza massive-sulphide prospect, where a second phase of drilling is under way.
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