Mundo
Minerals Limited (ASX: MUN)
ASX
Release
4 February 2008
Update on Engenho
& Exploration
Date of lodgement: 4-Feb-2008
Title: Open Briefing�.
Mundo Minerals. Update on Engenho & Exploration
Record of interview:
corporatefile.com.au
Mundo Minerals Limited (ASX code – MUN) is expecting
to commission its Engenho Gold Project (MUN 100%) in Brazil in March 2008. The final
capital cost is expected to be A$13 million and is approximately 21% below the
Bankable Feasibility Study (BFS) numbers. What are the risks to meeting that
budget? Can you outline the ramp-up schedule? How have you been able to reduce
the capital expenditure relative to the BFS? To what extent is the capital
expenditure estimate locked in?
CEO John Langford
We see the risks of not achieving our capital expenditure
budget as minimal. At this late stage of development all major components of
the construction are locked
in and costs are known. Any variances will be not
significant to the overall budget.
As part of our ramp up strategy we commenced mining in
November, allowing the development to expose the ore body and a stockpile of
ore to be available as soon
as the treatment plant has been commissioned. This will
enable us to move pretty much into full production immediately. The treatment
plant is a straightforward
CIL plant and we have the advantage of having had 170,000
tonnes of ore from the mine previously treated when AngloGold Ashanti had the mine, so we know
metallurgically that the ore has no complications. This
gives us a significant degree of confidence that the commissioning process
should not be overly time consuming or complicated.
We have been able to reduce the capital expenditure
essentially from two areas. We managed the construction process with an
internal project manager who was
able to achieve significant cost reductions, for instance by
purchasing steel direct from the manufacturers and then commissioning
fabrication, as well as close management of all purchasing etc. We also achieved
great reductions through being able to acquire a second-hand mill and
second-hand mining equipment which has now been completely refurbished. In many
ways it has been like establishing a project in the same manner as could be
achieved in Australia
in the early 1990’s when efficiencies could be achieved.
corporatefile.com.au
Can you explain how other key project variables for Engenho
differ from the BFS numbers?
CEO John Langford
We have revised our mine plan and the capacity of our
treatment facility is more robust than we anticipated. This has allowed us to
increase our forecast mining rate and annual production. While increasing the
mining rate effectively reduces the mine life, we are less concerned about this
as the orebody remains open at depth and has only been drilled to approximately
230 metres. In addition, we have great exploration targets on the tenement, so
we are confident we will not be compromising the integrity of the mine. It
makes absolute sense to be taking advantage of the current gold price to bring
forward production. Operating costs are about 5% below the BFS expectations. We
have undertaken a robust budgeting process and, subject of course to external
factors beyond, our control we are confident that these are achievable milestones.
corporatefile.com.au
You have forecast EBITDA from Engenho at A$17 million per
annum. How robust do you expect operating costs to be? What are your
assumptions for gold price and currency? What EBITDA could you generate at
current spot prices?
CEO John Langford
As mentioned before, our budgeting has been robust. I have
personally discussed the operating costs with both our mine manager and
metallurgist. Both are confident they can deliver to the budget. We have used a
gold price of US$750/oz for the budget. The A$/US exchange rate was 88 cents and
the A$/Brazilian Real was 1.57. The exchange rates remain current and the gold
price has improved significantly since we prepared the budget – which all
adds to the EDITDA.
corporatefile.com.au
Can you put in context the forecast production from Engenho
relative to your broader plans for the Company?
CEO John Langford
In context of the broader corporate plan, Mundo has a medium
term strategy of developing a sustainable annual production base of around
250,000 ounces of
gold. We expect 50-60,000 ounces pa from Engenho (which will
be driven largely from the existing mine and anticipated exploration potential
from the tenements);
50-70,000 ounces pa are from Torrecillas in Peru (a mine
with a proposed mill grade of around 20g/t does not require a significant scale
of operation to deliver the proposed production, so we do not see this as a
stretch target subject to the success of the current work we are doing); and we
hope to deliver about 110,000 ounces pa from Tocantins in Brazil, which is a
major greenstone belt. We need to undertake a strong exploration programme and
achieve further success, but the early results from all of our assets suggest
at this stage that we can deliver to our targets. These are targets and we do
need to do the work so any assumptions are subject to exploration success and
not yet based on proven resources, but we are confident that the targets have
solid foundations based on the exploration results we are seeing.
corporatefile.com.au
Can you give more detail on the mining progress at Engenho
and the reconciliation with the resource model and the implications for the
project?
CEO John Langford
Mining has progressed since November on two fronts. We are
driving the decline to access the main ore body and we are also progressing
with the development of
an adit to access approximately 170,000 tonnes of ore that
has been left in the pit wall. Ground conditions are excellent and the quality
of the mining being undertaken is very high. At this early stage we are
extremely pleased with the reconciliation between the resource model and what
is being achieved in the mine. We have no reason to anticipate that we will
have any issues. Of course it would be foolish to anticipate that the model
will be perfect as the mine develops, but we certainly have a high degree of
confidence that, should there be any ore losses arising from any
reconciliation, these will be replaced from ore exposed and not in the model.
Time will tell, but to date we are very happy with progress.
corporatefile.com.au
The Engenho resource is open at depth. What are your plans -
and the potential - to extend the resources within the Engenho tenements
including the Mazoca anomaly?
CEO John Langford
Development of the resource at the bottom of the current ore
body is not our immediate priority. That will just extend the end of the mine
plan. The immediate
priority will be to test anomalies on our tenement such as
Mazoca and test some anomalies that suggest there may be parallel orebodies to
Engenho. We are
currently undertaking a full mapping and soil sampling
exercise over the tenements. We have 711 hectares of tenements and Engenho only
takes up 12 hectares so there is a lot of ground to look at. We would hope to
be drilling the Mazoca anomaly around April. We won’t test the parallel
targets maybe for 18 months when we can get appropriate access to drill from
underground. Because of the large number of opportunities ahead of us, we have
established a dedicated exploration team responsible for Engenho.
corporatefile.com.au
Mundo recently reported two significant drill intercepts
from different anomalies at the Concei��o target within the Tocantins Gold
Project (MUN 51%). You’ve stated that two separate mineralised zones are
developing and are respectively 1.2 kilometres and 400 metres in length. Can
you explain what you know so far about the geometry of the structures? What are
your plans for Concei��o?
CEO John Langford
While Conceicao has been talked about for approximately 6
months, it remains in a reasonably early stage of development as it is a target
that keeps developing. We need to do a fair bit more drilling to properly
understand the potential, but we feel it has a real chance of developing into
something significant. We have achieved some great drilling intersections and
the correlation between the drilling and soil sampling is excellent. Towards
the latter stage of 2007 we had the rigs working on the 400 metre area, but
when we reviewed our strategy in December, it has become clear that the central
zone with a strike now of in excess of 2.5 kilometres is where we need to focus
to get an understanding of the potential of a resource. The 400 metres region
will feed into this larger potential. As such our focus over the next 6 months
will be to develop our understanding of this region, the geometry of the
structures and the resource potential. While this may sound a little
frustrating to some people, we are a focused company and we will drive our
exploration strategy to maximise the potential of the asset rather than just
driving to deliver short term results. This is an exciting region and we are
looking forward to seeing how the potential develops in the forthcoming months.
corporatefile.com.au
During the quarter, Mundo advised its joint venture partner
in the Tocantins Project that it would be selecting the tenements that would
form the ongoing joint venture. Can you describe your current understanding of
the geology of these tenements?
CEO John Langford
Tocantins is really
two separate areas. In the northern section of the tenements the gold is
associated with quartz while the southern areas, near Conceicao, are Banded
Iron Formations. We have selected the tenements that form the current joint venture
and we are assessing other regional opportunities, but it is premature to
discuss this further.
corporatefile.com.au
The exploration decline to access the vein structure and to
undertake development work is advancing at the Torrecillas Gold Project in Peru
(100%). What is the timetable and tasks planned before making a decision on
whether to proceed to commercial production? When do you expect to decide
whether you will proceed to commercial production?
CEO John Langford
At Torrecillas we are progressing with the development of
the exploration decline to intercept the vein structure from the decline. At
the same time we are developing along existing levels that were developed from
previous mining operations. The decline and existing development will connect
in the next few months. Once the existing decline has connected with the
existing development and accessed the vein structure, the contractors will
focus on driving out to another vein system so we can assess a third vein
structure while our existing mining team will focus on developing along the
vein structure with the view of opening up mineralised structures. This will be
the primary focus of work at Torrecillas over
the next 18 months.
In the quarterly report we announced that existing development
has recently opened up strong sulphide structures on both the 6 and10 levels
and geologically they are projected to join up. This is consistent with what we
expect to achieve through this development exercise and represents the type of
development success we expect to encounter to enable us to commit to developing
Torrecillas as an economic mining operation.
In addition to development work, we will in the next few
months start looking at logistics associated with developing a plant on site.
The production levels we
would expect with the grade anticipated suggest we are not
looking at a major treatment facility and we have developed a strong
understanding and database for the logistics of establishing a treatment
facility from our experience in developing Engenho. We will obviously transpose
what is applicable to our assessment of Torrecillas.
We are also looking at mechanical ore sorting which
hopefully will allow us to focus on more bulk mining techniques in Peru,
rather than the labour intensive approach to mining the narrow veins previously
used. Labour costs are low in Peru,
but if we can get productivity benefits from bulk mining, there are obvious
benefits. We had a small sample of ore tested at an ore sorting laboratory in Germany
late in 2007. The initial tests were encouraging and we are looking at sending
a larger sample of rock (ore and waste) from Torrecillas to Germany possibly in April depending
on availability of the laboratory. This is not a critical path matter, but if
we can get the testing done then, we will do so.
All of this is part of the overall project assessment that
hopefully will enable us to commit to developing Torrecillas as a commercial
mining operation in 2010. At this early stage all is looking promising.
corporatefile.com.au
Can you summarise Mundo’s overall project development
plans and how you will build the Company? Where do you see greatest value for
Mundo shareholders?
CEO John Langford
We have a medium term strategy to develop Mundo as an
emerging sustainable gold production company heading towards 250,000 ounces per
annum. Our
development plan to date is to get Engenho into production
in March 2008, hopefully to commit to developing Torrecillas in 2010 and be
able to commit to
our first project at Tocantins
in 2012. At the same time we will be developing the exploration potential at
Engenho and seeking to enhance the annual production
there. This is an ambitious programme, but from what we are
seeing, our assets are showing strong potential to deliver to this programme.
We need to do a lot of work
to achieve the goal, but in addition to the quality that the
assets are showing, we have an experienced technical team located in Brazil and Peru, a good cash
position and an emerging cash flow to draw on – and we
have no debt or hedging, so we benefit from the evolving gold price we are
seeing. This does not take into
account new opportunities and that remains the crystal ball.
We will however remain focussed and our primary goal is to develop a strong
business with appropriate fundamentals. While that may sound boring,
shareholder wealth has a strong chance of evolving in a sustainable manner if
we take this approach to building our company.
corporatefile.com.au
Thank you John.
For further information on Mundo Minerals Ltd visit
http://www.mundominerals.com/ or contact John Langford on 08
9429 8889.
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