Quarterly Report March 2018
The Board of Blackham Resources Ltd (Blackham or the Company) provides the following update on its activities for the quarter ended 31 March 2018 and thereafter:
Matilda-Wiluna Gold Operation
- Quarterly gold production of 20,631oz - an increase of 38% compared to the Dec'17 quarter (14,922oz)
o Record gold production achieved in each successive month of the quarter
o 477kt milled for the quarter (Dec'17 Qtr: 443kt) with consistent improvements to throughput achieved
o Mill feed grade improved to 1.5g/t (Dec'17 Qtr: 1.1g/t)
- High-grade stockpiles are currently 162kt @ 1.7g/t Au, equating to approximately 1 month's mill feed
- All-In sustaining costs ("AISC") for the quarter reduced to A$1,092/oz (or US$858/oz) (Dec'17 Qtr: A$1,882/oz), representing a 42% decrease on last quarter
o includes $186/oz sustaining capital investment, most of which relates to a tailings dam lift
- Average realised gold price of A$1,669/oz for the quarter
- Current gold forward sales contracts - 29,417oz @ A$1,725/oz over the next 9 months
o Refinancing of $14.3 million term loan repayment
- Very strong shareholder support for Entitlement Offer raising $35.9 million (before costs) with greater than 80% take up of entitlements
- Net debt reduced to $10.4 million with cash and bullion of $29.6 million and secured debt of $40.0 million
- Board and executive team strengthened with experienced gold industry professionals
o Milan Jerkovic appointed Executive Chairman
o Greg Fitzgerald appointed as Non-Executive Director
o Richard Boffey appointed Chief Operations Officer
o Jonathan Lea appointed Chief Geological Officer
- Strategic review of non-core assets to improve balance sheet position
- Production guidance reconfirmed at 40-45koz @ A$1,100-1,200/oz (or US$855-932/oz) AISC for this half
Reserve Development and Exploration
- Reserve focused drilling programmes re-commence after 9 months of free milling targeting work
- Focus on free milling near term reserve opportunities at Wiluna open pits
- Commenced drilling of Golden Age Underground extensions in late March
- Drilling of Lake Way exploration targets commences this month
- Positive scoping study completed on 37Mt Wiluna tailings retreatment project (Wiltails)
Access to high-grade zones in the M4 and Galaxy pits was achieved in the Dec'17, which resulted in significant improvements to quarterly mill feed grade and gold production. During the Sep'17 and Dec'17 quarters, 248,000t and 206,000t of low grade stockpiles were processed respectively at an average grade of 0.7g/t, significantly reducing mill feed grade for those quarters (see Chart 1 in link below). Mill feed head grade during the Sep'17 quarter was hampered by 49% of feed being sourced from low grade stockpiles.
During the March quarter, Blackham's processing team achieved another quarterly throughput record with an 8% improvement on the prior quarter. The Dec'17 quarter saw a 17% increase on the Sep'17 quarter. Crushing circuit and mill circuit utilisation for the quarter were 66% and 95% respectively.
Plant recoveries were 89.4% for the March quarter (92.3% Dec'17 Qtr). Plant recoveries decreased slightly, as expected as deeper transitional ore from the M4 and Galaxy pit was processed. As oxide ores from the M2 and M1 pits are processed during the current quarter metallurgical recoveries are expected to improve.
All in sustaining costs ("AISC") reduced to A$1,092/oz for the Mar'18 quarter, representing a 42% decrease on the last quarter (Dec'17 Qtr: A$1,882oz). Mining costs decreased significantly with the lower strip ratio and material movements. AISC includes $3.8M of abnormally high investment in sustaining capital expenditure, predominately for the tailings dam lift to be completed in Apr'18, which will provide capacity until the Sep'19 quarter.
An average realised gold price of A$1,669/oz was achieved for the quarter. Current gold forward sales contracts of 29,417oz @ A$1,725/oz over the next 9 months representing ~50% of targeted production over that period.
Open Pit Mining
During the quarter, 667kt of ore was mined from the open pits delivering 28,648oz contained ounces, which is more than double last quarter. The extensive waste stripping that occurred during calendar year 2017 has provided access to high-grade zones in both the Galaxy and Matilda M4 pits for the Mar'18 and June'18 quarters. Mining of the Matilda M2 and M1 pits commenced in Mar'18 and Apr'18, respectively. Mining of ore has already commenced at M2, with M1 ore expected to be accessed this quarter.
The Operation's high-grade stockpiles started the quarter at 51kt @ 1.6g/t and at the date of this report, have risen to 162kt @ 1.7g/t Au, equating to approximately 1 month's mill feed. Stockpiles have increased since 31 Mar'18 due to mining significant amounts of ore during Apr'18.
Total material mined reduced significantly during the quarter to 1.2 million BCM (1.8 million BCM in Dec'17 quarter) due to reduced waste stripping, which enabled a meaningful reduction in open pit mining costs.
Blackham confirmed during Mar'18 that the Golden Age Underground mine plan continues to grow and has been extended for at least a further 6 months to Dec'18. Mining costs and risks have been reduced following Blackham successfully moving to an owner operator miner at Golden Age Underground in Oct'17.
Blackham commenced evaluation of the economics of the remaining Golden Age Underground resource of 0.9Mt @ 4.5g/t for 129koz Au. These mining studies have now added another 24.6kt @ 6g/t for 4,700oz of production targeted between July and December 2018. This additional targeted production is incremental to the previously disclosed Underground mine plan which finished in Jun'18. Production is now expected to continue at a rate of ~ 2,500oz per quarter through to at least Dec'18.
The Golden Age Underground mine has now generated strong cash flows for the past three quarters.
Reserve and Exploration Drilling
Reserve Definition Drilling will continue this quarter as the Company seeks to increase its gold reserves (currently 15Mt @ 2.5g/t for 1.2Moz) by converting more of its ~6.5Moz of gold resources (65Mt @ 3.1g/t) to reserves. Blackham has committed to significant ongoing exploration drilling including the acceleration of this reserve conversion work as well as exploration drilling targeted at new oxide deposits to extend the current free milling mine life. Over the last 12 months, Blackham has successfully added reserves at a cost of less than $22/reserve ounce.
Golden Age Drill Programme
Approximately 2,500m of diamond drilling commenced in late Mar'18. The previous successful reserve drilling programme at Golden Age Underground was completed in June 2017. Over the last 9 months, Blackham's geology team has identified several priority targets. Underground drilling aimed at further extending the mine plan commenced late last month. The three initial priority targets are:
1. Champagne Lens down plunge - SW lateral extension testing 60-70m down plunge from current mining on the 858 Level.
2. Champagne Lens down dip - The initial programme will test the mineralisation approximately 160m further down dip from the current mining area.
3. Golden Age Offset Target - NW extension - Analysis suggests the Golden Age mineralisation could be offset by the Bulletin Fault into an area of no previous drilling.
Wiluna Mine Reserve Development
During Mar'18, Blackham's exploration team drilled 84 RC holes (6,491m) focused on delineating further free milling open pit reserves over the 4km's of strike at the Wiluna Mine. This is a follow up programme on the 77,000m drilling completed during FY17, which successfully delivered probable reserves of 669,000oz (7.7Mt @ 2.7g/t Au), which includes oxide and transitional reserves of 144,000oz (2.5Mt @ 1.8g/t). The current drilling is focused on free milling ores above the top of fresh rock (generally top 60m) which can be processed through the current plant.
Revised Wiluna mining and metallurgical studies are well advanced in this area following the Wiluna Expansion PFS published in Aug'17. Blackham is currently re-estimating the open pit oxide reserves around the Wiluna Mine site. The Blackham management team believes the Wiluna free milling ores which are an attractive feed stock for the current operating mill and has a plan to fast track mining approvals.
Wiluna Tailings Retreatment (Wiltails)
Blackham has teamed up with Independent Metallurgical Operations (IMO) to assess the viability of re-treating the historical Wiluna tailings which are estimated at 37Mt (23Mm3). IMO has significant experience from the Kalgoorlie tailings project (Kaltails) that operated in the 1990's to which Wiltails has many similarities.
Historical records show that the last 13 years of Wiluna operations ending June 2013 had an average tails grade of 0.72g/t. The average composite grade of the 27 aircore holes drilled into the tails dams used during this period have also averaged 0.71g/t. Blackham is about to commence drilling 53 RC holes (1,500m) for a cost of $42,000 with a view to delineating a JORC-compliant resource over the estimated 37 million total tonnes.
Metallurgical work to date has looked at a number of processing solutions. Test work has confirmed the tails that have an average size of around 75micron and appear to have further oxidised since deposited in the tailings dam, resulting in improved gold recovery. The current base case flowsheet involves a simple whole of ore CIL leach without the need for additional concentration or grinding, with estimated gold recoveries of 45-50%. Due to not needing to regrind or concentrate the material, processing costs are estimated at just $5.50/t of ore. The Wiltails could be processed through the existing or new CIL tanks. Studies continue focussed on further improvements to the flowsheet and how best to integrate with the existing gold plant and infrastructure to minimise initial capital costs.
Wiluna Expansion Study
The Expansion Preliminary Feasibility Study ("Expansion PFS") published on 30 August 2017, confirmed the robust economics for a +200kozpa long mine life operation. Key outcomes were life-of-mine AISC of A$1,058/oz (US$822/oz), IRR 123% and NPV8 of $360M before tax at A$1,600/oz gold price.
The Expansion DFS is well advanced with the bulk of expenditure already incurred. Processing optimisation studies continue with a view to further de-risking the expansion opportunity. Fast tracking of the Wiluna oxide/transition open pits is expected to further de-risk the geology and mining risks prior to committing further capital in the sulphide plant.
Wiluna Nickel-Cobalt Project
Blackham's Wiluna Nickel-Cobalt Project covers 40km's of strike of the "Perseverance Ultramafics" sequence, which hosts world class nickel projects including Mt Keith, Cosmos, Venus, Perseverance and Honeymoon Well. The project has an inferred JORC 2004 Nickel/Cobalt resource of 80.5Mt at 0.77% Ni, 0.058% Co (0.5% Ni cut-off). Due to record cobalt prices, Blackham has received strong interest from a number of parties interested in acquiring the project.
Lake Way Potash Project
Salt Lake Potash Limited (SLP) and Blackham entered a Memorandum of Understanding (MOU), as announced by SLP on 12 March 2018, to investigate a potential development of a Sulphate of Potash (SOP) operation based at Lake Way, near Wiluna. SLP holds approximately 290km2 of tenure over the Lake Way Paleochannel. Blackham holds a further 62km2 at the northern end of the Lake, surrounding the former Williamson Pit that was last mined in 2006 and is now filled with brine at the exceptional grade of 25kg/m3 of SOP.
Under the MOU, SLP will acquire Blackham's brine rights and Blackham will acquire gold rights to SLP's Lake Way holdings, with each company retaining a royalty on their respective holdings. The parties will also co-operate to exchange data and facilitate exploration on each other properties. SLP will also investigate and potentially develop a SOP operation at Lake Way, including a 40-50,000tpa Demonstration Plant. SLP will sole fund the evaluation and developing any SOP operation at Lake Way. SLP's works will not hinder Blackham's ability to further mine the Williamson or other potential deposits on the lake.
Lake Way has some compelling infrastructure and transport advantages which make it potentially an ideal site for a Demonstration Plant. SLP will complete a Scoping Study for a potential SOP operation at Lake Way, including a Demonstration Plant, by mid-2018, in time to allow a decision on dewatering the Williamson Pit. There is substantial historical data available for Lake Way and the companies have already undertaken preliminary sampling in the Blackham area. Along with the extensive, high quality technical work undertaken at SLP's other lakes, which has substantial application at Lake Way, a Scoping Study can be reliably undertaken in a much shorter timeframe than would normally be the case.
As at 31 March 2018, the Company had significantly improved its net debt position to $10.4 million (31 Dec' 2017: $27.4 million), with cash and bullion of $29.6 million and secured interest bearing debt of $40.0 million. The $14.3 million term loan previously due on 31 December 2017 was refinanced in mid Jan'18.
Blackham completed a fully underwritten pro rata entitlement offer to raise ~$35.9 million (before costs). The Company received very strong shareholder support for the underwritten Entitlement Offer with greater than 80% take-up of entitlements.
Board and executive team strengthened with highly experienced gold mining professionals
Milan Jerkovic has assumed the role of Executive Chairman as part of the recapitalisation strategy, with the Company continuing to seek opportunities to further strengthen its Board and management team to focus on the successful implementation of the recapitalisation strategy and delivery of the near-term mine plan.
Greg Fitzgerald joined the Board following the successful completion of the Entitlement Offer. Mr Fitzgerald is a Chartered Accountant with over 30 years of gold mining and resources related experience, along with extensive executive experience in managing finance and administrative matters for listed companies. For more than 15 years he held the positions of Chief Financial Officer and Company Secretary for Resolute Mining Limited, an ASX 200 Company, until his resignation in 2017.
Richard Boffey has been appointed Chief Operating Officer and Jonathan Lea appointed as Chief Geological Officer and both will work with the Blackham executive team to further de-risk and optimise both the current operations and strong growth opportunities of the 6.5Moz Matilda-Wiluna Gold Operation.
Blackham has commenced joint venturing and divesting a number of non-core assets currently not being valued by equity markets within the Company with a view to further reducing costs and improving its balance sheet position.
The Company reconfirms production guidance at 40-45koz @ A$1,100-1,200/oz AISC for the Jun'18 half year. Following the successful re-capitalisation of the Company and step change in production levels the Board has decided to return to quarterly production reporting in line with its industry peers.
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About Blackham Resources Ltd
Blackham Resources Limited (ASX:BLK) (OTCMKTS:BKHRF) Wiluna-Matilda Gold Operation is located in Australia's largest gold belt which stretches from Norseman through Kalgoorlie to Wiluna. The Operation now includes resources of 96Mt @ 2.2g/t for 6.7Moz Au all within 20kms of the central processing facility. Blackham has consolidated the entire Wiluna Goldfield within a +1,100km2 tenement package which has historically produced in excess of 4.4 million ounces over a 120-year mining history.
Blackham Resources Ltd