SINO GOLD MINING LIMITED
Unhedged Gold Production
SGX - Q2 Quarterly Results Announcement - Mr Jake Klein, President and CEO
Tue, 22 Jul 2008 11:00AM
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Mr Jake Klein
Tue, 22 Jul 2008
11:00AM Australia/NSW
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SINO GOLD MINING LIMITED (SGX)
ASX code: SGX
Website: http://www.sinogold.com.au
Industry: Materials
Principal Activities:
An operating gold mining and development company.
Address:
44 Market Street, Level 22
SYDNEY
NSW
Phone: (02) 8259 7000
Fax: (02) 8259 7070
Executives & Directors
Mr James E Askew , Chairman, Non Exec. Director
Mr Jacob Klein , Executive Director, CEO
Mr Hanjing Xu , Executive Director
Mr Brian H Davidson , Non Exec. Director
Mr Peter W Cassidy , Non Exec. Director
Mr Peter John Housden , Non Exec. Director
Mr Thomas David McKeith , Non Exec. Director
Mr Liangang Li , Non Exec. Director
Mr Roger Howe , Investor Relations
Mr Ivo John Polovineo , Company Secretary
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Company ASX Announcements
Company ASX announcements can be viewed on the ASX website.
Announcements from the preceding six months are shown below.
Please refer to the relevant stock exchange if any of the above information is incorrect
SINO GOLD MINING LIMITED (SGX) Events
Australia/NSW
SINO GOLD MINING LIMITED (SGX)
| Becoming a substantial holder | Tue, 25 Nov 2008 |
| Landmark Environment and Community Agreements Signed | Fri, 14 Nov 2008 |
| Development of the Year Award | Thu, 13 Nov 2008 |
| Official Opening of White Mountain Mine | Mon, 10 Nov 2008 |
| Change in substantial holding | Thu, 6 Nov 2008 |
| Appendix 3B - issue of employee options | Tue, 4 Nov 2008 |
| Change of Director`s Interest Notice - Xu Hanjing | Mon, 3 Nov 2008 |
| Appendix 3B - Exercise of unlisted options | Fri, 31 Oct 2008 |
| First Gold Pour at White Mountain Mine | Mon, 27 Oct 2008 |
| September 2008 Quarterly Report Presentation | Wed, 22 Oct 2008 |
Please note: This company appears on this website as a result of its listing on the Australian Securities Exchange. Boardroom Radio does not claim any association with any company listed on this site.
JAKE KLEIN, PRESIDENT AND CEO, SINO GOLD MINING LIMITED (SGX)
“Unhedged Gold Production”
http://www.brr.com.au/event/47804
TUESDAY, JULY 22, 2008, 11:00 AM
SGX Welcome everyone to the June quarterly conference call. This morning we'll be talking about the presentation “Unhedged Gold Production” which was released on the ASX this morning along with our quarterly report which was
10 also released this morning. We understand that it is a busy morning, so we'll try and keep our comments reasonably brief. The order of the call will be a short presentation from management followed by Q&A.
I'm joined today by my colleagues, Colin Johnstone, our Chief Operating
15 Officer; Phillip Uttley, our Chief Geologist; Wayne Rossiter, our CFO; and Roger Howe, Investor Relations Manager.
Just before handing over the call to take you through the operation and development successes we've had during the quarter, just a couple of
20 opening comments from me. From my perspective and our management team's perspective, it's been a particularly pleasing and encouraging quarter. I think we really are making the transition from that single development exploration company into a multi-mine company and the breadth and scope of what we have achieved in the quarter, I hope, demonstrates that.
25
Particularly pleasing is the quality of the assets at Jinfeng is now being demonstrated and is delivering. We're delighted with the technical improvements that have occurred on site. The management team and site team are dealing well with what we anticipated were going to be challenging
30 periods of weather and logistics and has run the operations successfully through that without any interruption.
It's fair to say that we are under cost pressures but I also note that we are also very low cost based in China and continue to believe that our quality
35 assets and the China cost base means that we will be able to drive that cost lower into the lowest cost quartile.
White Mountain, construction is on schedule; feasibility at Beyinhar is on track for decision, very excited about both the increase in ownership at Eastern
40 Dragon and some of the early exploration results we're getting which is concerning the quality of that asset. And then with respect to the corporate side, these are volatile markets we're in. We're very pleased with the way Sino gold has positioned itself, strong cash position, $81 million in cash, minimal gearing, and now giving the investors to be 100% exposed to gold
45 price increases.
With that brief introduction, I'm going to hand over to Cobb to give you a more detailed summary of operations himself.
SGX Thanks, Jake. Starting with Jinfeng, Jinfeng continues to improve very pleasing quarter and is now essentially operating at design parameters in all areas. Production was up 14% to 35-1/2 thousand ounces largely on the back of improved recoveries, slightly better grade and slightly higher throughput
5 that have the impact of starting to bring out unit cost down, dropping 6% to $405 for the quarter and finishing below $400 for the first time in June at 3.95.
The real improvement in the quarter was clearly, excuse me, flotation recoveries, jumping to 88.6% for the quarter, once again, finishing on a high
10 note at just under 90% in June. And this has been achieved while maintaining much higher than designed concentrate grades with concentrate grades sitting at about nearly 30 grams per tonne going through the BIOX circuit.
Head grade has been consistent with forecast for the quarter at 4.63. The
15 mining of the open pit has actually been, had an outstanding quarter; 20% improvement to 2.4 million bcm which is a record despite the fact that we've -- seeing the last five weeks of the quarter essentially in the rain -- in the wet season.
20 Underground also had a terrific quarter; 1,200 meters developed well ahead of what they've achieved previously, and importantly, we've now accessed the ore body on the 490 level. We're just cross-cutting across it at this stage but at this stage, that's certainly looking quite promising.
25 Looking at the grass grade, as mentioned, remains on forecast. Availability still a bit below where we'd like to see it. We'd like to see it above the 90%. Pleasingly this quarter, the availabilities were impacted by plant outages due to some rail line work we had to carry out in the SAG mill and one lightning strike which took out variable speed drive on the SAG mill. So, the lower
30 availability was due to basically planned maintenance as opposed to equipment failures or external influences. So, an improving trend on availability.
Throughput, while at design 150 tonne per hour, we do want to get that up to
35 close to 165 tonne an hour. The key to that as we see it at the moment is doing something with their scats. We’re generating about 15 tonne an hour of scats at the moment. So, we are looking at implementing a temporary scat crossing circuit which should be in place, we hope to have in place by the end of August which would then bypass the the SAG mill and feed straight into the
40 ball mill effectively improving our throughput by 15 tonne an hour.
But without doubt, recoveries have been the big improver, but certainly we’re using a finer grind. We're getting the benefits of much greater consistency within the circuit and we've also made some circuit changes. So, the real
45 breakthrough for the quarter was clearly recoveries.
Whilst we saw an improvement in cost in the quarter, we are facing some external cost pressures and we’ve revised our full year guidance up to $390 an ounce, about 5%. The primary drivers have been increasing energy cost within China. Energy cost account for about 30% of our total cost and we've seen an 18% increase in diesel and a 6% increase in power cost.
It's interesting, the diesel cost and the power cost are still relatively low when
5 you compare them to operations outside China. And we believe the or we know that the retail price of diesel actually reflects the actual cost of producing diesel. It is quite a bit lower than you see in Australia, not because of any subsidy from the Chinese government but largely due to the fact that there aren't a whole route of excises that are attached to the diesel price. So,
10 we feel that that 90 cents per litre is in fact reflective of the cost to supply diesel and we're not concerned of the removal of any future subsidies.
We're well into the wet season. At this stage, we've actually had more rain than we've had at this time last year and we’ve coped remarkably well. The
15 pit, I've mentioned has continued to produce at record levels despite the rainfall. We're in the process of lifting our dams and they're under control.
The main issue we have had is the ride into site is in relatively poor shape but despite that, we have been able to ensure that all our
20 consumables have been arriving regularly at site and all our stocks are relatively at levels.
I think the Beijing Olympics are probably giving us more logistic challenges than the (inaudible) (8:31) with increased security concerns across China.
25 We have had to work hard to ensure that we continue to get supplies of cyanide and explosives coming into sites but they're also remaining at relatively healthy levels.
Turning to BioGold, I think BioGold is a real success story for the first six
30 months of the year. We've taken what was essentially a state-owned enterprise and we've restructured that to focus on treading profitable concentrates as opposed to keeping the plant full and that has meant we've had to reduce throughputs significantly in some areas and it has had the benefit of reducing our working capital, but we're now at a point where we're
35 seeing ourselves as a stable producer. The bulk of our feed from this refractory ore is going through the BacOx plant. We're in the process of commissioning an expansion to that which will double our capacity there, and we have thought up some long-term concentrate supply to ensure we can feed that at its at its commission.
40
So, we're now at a point where we have a stable base. We've got very little material going through the second part of the circuit which is a CIL which was not operating profitably. We've been feeding that with a small amount of international concentrate that we believe makes reasonable money for us.
45 We're now at a point where we will start to look to see whether we can source any more material, not only the throughput in that area but it's basically now a stable marginal producer and certainly, something that we'd like to take on this space and grow a little more.
White Mountain continues to progress very well in terms of schedule. The construction's now about 70% complete. The procurement and design are completed. Structural steels are largely complete. Equipment, we've got about 60% completion in terms of equipment installation. So, it's tracking well
5 to produce first gold sometime this year. The underground, likewise, 1200 meters during the quarter. We did run into some ground conditions with the decline in the footwall. We're now in the process of relocating that to the hang wall where we think ground conditions or we know ground conditions from what we have observed as significantly better. We have accessed the first
10 two starting blocks and the gram conditions within those starting blocks look good and we'll be ready to produce ore later in this quarter. As at Jinfeng, we are in incurring some cost pressures. The major cost pressure at White Mountain to the guidance we've given is the fact that the renminbi has appreciated considerably from when we first did that capital estimates and
15 that is giving us some significant cost pressures in US dollar terms. Land compensation likewise, we're seeing that land compensation increasing across China and we're not exempt at Jinfeng and we are getting some further pressures from input cost particularly steel, but the big driver is the appreciating renminbi and escalation in land compensation cost. We're
20 continuing drilling campaign at White Mountain and we are seeing that the ore body remains open at depth into the north with some reasonable intersections as we hit further into the north, and the ore body is certainly remaining open.
25 We're progressing the feasibility study at Beyinhar and we're just about at a point where we can take that forward. It is indicating that it will be a robust, if not outstanding project at 2.5 million tonne per annum heap leach and we are at this stage indicating that we think we will commence gold production in the spring, that's the northern hemisphere spring at 2010. We've looked pretty
30 hard at the schedule and it would be possible to start commissioning this light in 2009, but we think that commissioning heap leach in the middle of the northern winter is not a smart thing to do. So, in preference, we've decided to defer that and start the commissioning in the spring of the following year, so lagging White Mountain a little over 12 months. We have four drill rigs drilling
35 there testing peroxide potential a long strike to add to the heap leach and in particular testing for high-grade sulphide ore in deep. It hasn't been a resounding success. We're still seeing a lot of the, a large backlog of gold to be assayed, but at this stage we're still hopeful that we're going to be able to extend the oxide and still got a lot of testing to do for that sulphide.
40
Eastern Dragon is continuing to look like a fabulous deposit. We're still targeting 600,000 to 800,000 ounces of gold reserves by the end of the year, and we are starting to work on feasibility studies for Eastern Dragon. We were able during the quarter to purchase some additional 8% for $11 million.
45 We now have 80% ownership of Eastern Dragon. We've been through and we've re-assayed all of the samples and that has come back confirming the previous assays. We've opened the adit and we’re just able to get in there now to start doing some additional sampling and some geotechnical assessment in the underground and we've got three drill rigs drilling on site. We've had some good results. As you would expect this was always purchased on the basis of being a high-grade deposit. We've had some very attractive intersections of plus 5 metres true width at nearly 18 grams and perhaps significantly the one hole we've got unexpectedly good results on the
5 southern end at 20 meters through with 10 grams gold and 71 grams silver. So, still early days in that drilling campaign but all the indications are that this will be a marvellous high grade deposit and a fantastic asset.
So, on this note, I'll hand over to Phil Uttley.
10 SGX Thanks, Cobb. In addition to the major drilling programs outlined by Cobb in Northeast China, Sino is also drilling one of the major exploration projects with some aging currently active across four mineral belts in China.
Looking at the next slide, in the Golden Triangle, the south drilling is
15 continuing in three main areas investigating Jinfeng's gold mineralisation; firstly, looking at the next slide again, at Yandan. Yandan is located in Guangxi province. Drilling with three machines continues to delineate a large low-grade gold system associated with a major west-northwest fault. High grade intersections include recently 10 meters of 3.6 grams and 5 meters of
20 3.5 grams in Hole 20.
At Yandan, mineralisation now extends at 1 kilometre strike and drilling is being redirected currently to finding a high-grade zone in the Yandan fault and drilling will now step up further 2 kilometres west to the previously
25 untested Yandan Central and Yandan Western. Yandan itself is part of a 12-kilometre long gold anomalous regional fault zone and other workers actively bring the belt to develop gold target several kilometres further east at (inaudible) (17:11).
30 Coming back to the previous slide, the Golden Triangle, elsewhere in the Golden Triangle, the program continues to systematically turn out gold targets and we've made a new discovery in the Jindu joint venture located northeast of Jinfeng at (inaudible). Initial three holes have intersected 4 meters at 10.2 grams in Hole 1 and 12 meters at 12.2 grams in Hole 3 and anomalous low
35 grade values in Hole 2.
This (inaudible) (17:37) appears to be very encouraging but while waiting for the initial results to come back the drill machines from (inaudible) are being temporarily moved to Nibao Project and will return in the near future. At
40 Nibao, western gold deposit drilling has recently commenced to extend the existing resource and to investigate potential high-grade areas in the western end of Nibao.
And now the project areas in China, at Shandong, drilling is expected to
45 commence in the next couple of weeks on targets on potential, untested, (inaudible) (18:05) extensions of the main Jiaojia fault which is host to the major gold deposits in Shandong. In the southwest of the country, in the Yunnan copper gold belt in Southwest China, the Sino Gold Fields joint venture has commenced the first of several holes testing the Bengge gold target. Meanwhile, active project acquisition studies continue within the four highest priority mineral belts within China.
SGX Thanks, Phil. Thanks, Cobb. With regard to the equity raising, we are living in
5 very volatile capital market and I think the equity raising through the accelerated rate (inaudible) (18:42) replacement gold field has put Sino Gold in a very strong position. We obviously appreciate Gold Field support. They're now a major shareholder. They're now at 19.9%, but we're equally delighted with the very strong take-up. We had 95% take-up in institutional
10 offer and a very high 78% in the retail offer. So, we're delighted with that strong shareholder support which obviously puts us in a position where investors can now enjoy the full exposure to the gold price. But I think importantly, it also gives us a very strong balance sheet, US $81 million in cash; minimal debt, we have US $35 million of project debt at Jinfeng. And I
15 think with the exciting development and exploration opportunities we have in front of us, we now have a balance sheet which is capable of taking full advantage of those opportunities. So, in summary, I think this quarter was very much - there wasn't expectation around delivery – we think we have ticked the boxes in all five of the areas where I think investors and analysts
20 will be looking for delivery. We were delighted to see that the first couple of comments coming out from brokers was that production was exactly in line with the expectations and we're looking forward to try and to deliver that same result in line with the expectations with respect to production this quarter, and hopefully, surprising you somewhat on the upside which just
25 makes some of the very exciting exploration portfolio we have, and of course, the progress at White Mountain which is well on track to become our second gold mine. So, with that Sarah, if you could open the lines for questions. Thank you.
30 Operator Our first question is from Nathan Majorwood from Credit Suisse. Please go ahead, Nathan.
Q Good morning, gentlemen and thank you for the call. I just got a few daily straightforward operational tough questions probably for Cobb. First one is I
35 was wondering if you could tell us what your diesel usage and electricity consumption are at Jinfeng.
SGX No, I can't tell you off the top of my head. All I can tell you is that diesel drives the rise and fall in the mining contracted cost, so we don’t incur the cost
40 directly. It drives the rise and fall about -- to the tune of 40% of our mining contractor's cost and comprises roughly $70 an ounce for diesel cost. Power represents about $50 an ounce or about 15% of our operating cost.
SGX As noted, it is interesting to us obviously, the diesel prices went up 18%
45 during the quarter and we did term analysis to relative diesel prices. It was interesting for us to see that the differential between Chinese diesel prices and international prices is not so much a subsidy which China applies but more the excise taxes which international countries apply. So, we're paying pretty much the international diesel price in China.
Q Okay, great. Thank you. Second question was just about White Mountain. In light of the increased operating costs you just let us know about at Jinfeng and also the increased CAPEX cost there, how comfortable are you with the
5 operating cost guidance for White Mountain which I believe last stated at $300 an ounce?
SGX You know, I think we'll see the same cost increases at White Mountain. We're just going through the budgeting process now. But there's no doubt
10 there's some – as diesel prices will flow on, so, we would expect to see that White Mountain prices or cost will increase in line with what we're seeing in Jinfeng.
Q Right. Thank you. And the last question is just about BioGold. How should we
15 be thinking about that in terms of modelling perspective? Is that $50 an ounce fairly consistent and does that change with throughput? And I noticed that the throughput production was quite variable first quarter to second quarter, what sort of throughput should we be modelling for the next couple of periods?
20 SGX To take the second, fast forward -- to answer the first question -- the second question, sorry, throughput has been quite variable. We start at the year with quite high levels of inventory. We've drawn down those inventory without always replacing them. We would expect to put through somewhere in the order of 3,000 tonnes through the CIL circuit and as we commission the
25 Bangkok circuit, we should be building that up to about 100 tonnes a day, starting from a base of 50 tonnes a day for the first probably two-and-a-half months going forward. The cost, we pay generally a percentage of the gold price to our suppliers. So, our costs increase in line with the gold price or a large proportion of our cost. We have a smaller proportion, probably
30 somewhere in the order of 30% which is the direct operating cost that we incur ourselves and obviously, they benefit by increasing throughput, but the largest driver is the concentrate terms that we negotiate and whether we can source profitable concentrates.
35 SGX I have to say in finishing off on BioGold, it was more towards the latter half of the past year that we started to see the better results and really stabilising the operation. So, for the six months to June, it made a very marginal contribution. But I guess what we are most pleased about that we stemmed some fairly significant losses that incurred last year and now we have a base
40 to build on which although in modest space, at least we could say a positive base.
Q Okay. So, there's no degree of sort of gold price risk with BioGold, is there? I mean, in the period where you guys are effectively holding that gold as
45 inventory after you purchased it, are you exposed to gold price risk or is it purely just like a (inaudible) (25:30) assay?
SGX We were exposed to gold price risk and that was one of the big exposures which we identified when we took it over that we're sitting with a large amount of stock on hand. What we've not done is try to very much align our long term supply contract in line with the processing of the materials so that it minimizes the gold risk so the payment to the supplier is essentially priced at a date close to when we process the material.
5
Q Okay, great. Thanks very much.
Operator Our next question is from Craig Campbell from Morgan Stanley. Please go ahead, Craig.
10
Q Good morning, gentlemen. Yeah, very solid result and good to see things settling down. Just in relation to that BIOX, do you intend to hold that for a longer period and like a core part of the portfolio or is the strategy to get the operation stable and working properly and then as you grow your mining
15 assets maybe let it go given that it's probably not going to be a major EBIT contributor?
SGX Craig, I mean, I think consistent with what we said before, BioGold is not a core asset for us. I think what pleased us is that we've taken essentially an
20 operation that was being run similar to a state-owned enterprise and reformed that. That's given us some confidence as a management team that, you know, there are potential opportunities of taking over existing assets, which is something we've often shied away from. So, I think from that perspective that's been an interesting and a useful exercise but with respect to BioGold
25 being a long-term core asset, I'll have to say no. Obviously, it gives us a lot more opportunity to sell it, if we do decide to sell it, when it's making some money which was not the case a few months ago when we were starting to speak to potential buyers.
30 Q Yeah. Okay, that's great. Second question, with regard to the heap leach project, we're seeing a whole lot of input process going up including acid and I'm just wondering what the sensitivity of that particular operation will be to those rising cost and in particular acid and have you had to review that project in light of that?
35
SGX Certainly, as we've completed the feasibility work. We have factored in the increased cost. We have seen the cost increase over what we had initially hoped for. We haven't finished that work yet, Craig, but it still looks a pretty robust project. But we've certainly factored in increased acid cost, increased
40 diesel cost and increased power cost.
Q Okay. And Cobb, you mentioned during the call that turnaround time on core result assays was taking a while. Is that just due to remote location in getting them back to laboratory or is there something else going on?
45
SGX I'll hand that one over to Phil, Craig.
SGX Hi, Craig. Good morning. Well, I think the main reason is in China this is really now a peak gold season and two or three most reputable laboratories including this one which is in Beijing has been virtually inundated with samples and they're having a hard time keeping up with the sample preparation. They’re now swinging between a number of facilities and that combined with the occasional (inaudible) (29:10) and breakdown has caused
5 a significant backlog, but they’re presently doing the best they can. The bottom line is that Beyinhar in particular (inaudible) (29:19) of what we would expect to have by now.
Q Right, okay. And just going on from that particular aspect, do you have
10 (inaudible) (29:30) Jake, that could be a resource reserve upgrade for that project or target that pushes any upgrade back maybe into I'd like to say a quarter or fourth quarter? Would that be right?
SGX Yeah, I think we'd be looking to do our resources, recalculations as, you
15 know, at the end of fourth quarter as we normally do.
Q Well, yeah, thanks very much, gentlemen.
SGX Thank you.
20
Operator Our next question is from Cathy More from Evanson Partners. Please go ahead, Cathy.
Q Good morning, I got just a few smaller questions, you had some issues with
25 the reconciliation at the beginning with Jinfeng, is that totally under control now given your various data at the reserve?
SGX What we are seeing is that -- where we have been able to undertake our drilling on the blocks, we are getting quite a good reconciliation back to the
30 new reserves. We haven’t yet been able to do that on all the areas we are mining, but we are also seeing that the forecast grades for the mill is exactly where we expected it to be, we put through 4.63, I think at the start of the quarter, 4.56.
35 Q Okay, and on the increasing costs, you'll be starting processing the underground at Jianfeng, I presume sometime this year potentially or it might push through to early next year. Do you expect to put some tonnage to this year and what sort of impact on the mining cost per tonne do you expect they ought to have?
40
SGX We will start putting some of the underground ore through, as mentioned, we are actually driving in the ore body now, so that is going straight on to the stockpile. There is a little impact on our underground cost, not to the same extent that you see in the mining cost -- sorry, in the open pit cost, they are
45 less diesel driven than the open pit, so we will see a similar sort of quantum of costs in the underground.
SGX We’ll certainly, Cathy, try to build that into this guidance of $390. We have tried to add a bit of contingency into that.
Q