SINO GOLD MINING LIMITED
Unhedged Gold Production
SGX - Q2 Quarterly Results Announcement - Mr Jake Klein, President and CEO
Tuesday, 22 July 2008 11:00am
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Mr Jake Klein
Tue, 22 Jul 2008
11:00am Australia/Sydney
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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 , CEO, Executive Director
Mr Hanjing Xu , Executive Director
Mr Peter W Cassidy , Non Exec. Director
Mr Brian H Davidson , Non Exec. Director
Mr Peter John Housden , Non Exec. Director
Mr Liangang Li , Non Exec. Director
Mr Colin (Cobb) Johnstone , Chief Op. Officer
Mr Ed Miu , CFO
Mr Roger Howe , Investor Relations
Mr Ivo John Polovineo , Company Secretary
Company Podcasts
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/Sydney
SINO GOLD MINING LIMITED (SGX)
| Appendix 3B - exercise of unlisted options | Fri, 11 Dec 2009 |
| Appendix 3B - exercise of unlisted options | Wed, 9 Dec 2009 |
| Appendix 3B - exercise of unlisted options | Fri, 4 Dec 2009 |
| Federal Court of Australia approves Schemes of Arrangement | Fri, 4 Dec 2009 |
| Final Director`s Interest Notices | Fri, 4 Dec 2009 |
| Initial Director`s Interest Notices | Fri, 4 Dec 2009 |
| Suspension from Official Quotation at close 4/12/09 | Fri, 4 Dec 2009 |
| Scheme Booklet | Fri, 4 Dec 2009 |
| SINO GOLD SECURITYHOLDERS APPROVE SCHEMES | Wed, 2 Dec 2009 |
| Scheme meetings - Chairman`s address and presentation | Wed, 2 Dec 2009 |
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 And what sort of tonnage would you be expecting to put through from the underground this current year?
5 SGX This current year? I hope it would be north of 30,000 tonnes.
Q Okay. And then a final question, I've noticed with the few companies coming through with a reserve that they are using quite high gold prices, I'm just wondering what sort of gold price assumptions you'd be using for your
10 reserves at the moment, it's the early days for you guys, but...
SGX I don’t think we have -- we will only be releasing our new reserves estimates early next year so it doesn’t really apply to us.
15 Q Okay, well, that was all I have, thank you.
SGX Thanks, Cathy.
Operator Our next question is from Jim Copeland from Mcquarie Bank. Please go
20 ahead, Jim.
Q Thank you very much and good morning. First, perhaps on the rain fall, you have done a lot of work to mitigate the risk, you know, the wet season has gone around, can you just walk us through how it is progressing currently and
25 if those measures have been effective and I guess, give us a bit of an update on what you see in relation to the rain fall.
SGX Yeah, Jim, obviously, on much more places, middle of August, middle of May I think when we last packed, we have actually had, I think -- July, okay.
30 Wishful thinking. We have actually had, until the end of June, 440 millimetres compared to 395 millimetres last year, so we actually have had a bit more rainfall than we had last year and we have continued to have a number of big storms so far in July. So it has been quite a heavy season from a rainfall point of view. The pit in particular, we have done a lot of work with hole rides,
35 quality of hole rides, and the gradient on the hole rides, and what we are seeing in the open pit this year is they have stopped production when we have actually been having those heavy storms and the case when we have had fogs, but it has only been to those periods when we have been having the rainy rains, so they have done remarkably well. The tailing dams, we did a
40 lot of work on our CIL dam including extensive cut-off drain work which has been successful in shedding the bulk of the water away from the CIL dam, so we are seeing the CIL dams increasing slightly but you are talking centimetres as opposed to meters that we were seeing last year, we have also been able to upgrade our discharge capacity from the CIL dam which
45 has helped enormously. We are in the process of lifting the wall on that CIL dam, I think we are about 4 meters above the previous crest and about 95% on that wall lifting program. So that has worked very well, flood dam, likewise, we have had a lot of water come in but we completed an interim 5 mega lift just ahead of the wet season, so it is in reasonable shape. The road down to the CIL dam has held up very well, we did a lot of work on that so we have been -- now that we have commissioned the dry filter tailings, we are tracking that down to the CIL dam and we have been able to continue to track and place that dry material in the CIL dam. The other area of concern was
5 logistics coming in the site, predominantly asset. All the major concerns were acid and lime, we have undertaken a number of projects to reduce our reliance on acid and lime, and they have been quite successful in driving down our usage quantums, which obviously, you also have a lot of impact into cost. There has been some roadwork going on, but it is fair to say that
10 the road is still in pretty poor shape, but we have been able to maintain supplies coming through, so we are looking pretty much at full wins and full tanks of most of the consumable that we need, cyanide is the one where we struggled a little bit as mentioned and we have got about, I think it is about18 days usage of cyanide in front of us at the moment
15
SGX And I'm going to show you the comps smiling a lot more than before the wet season started, but we are not sure whether that's just because the Wallabies won on Saturday night.
20 Q Yeah, sorry about that, Jake. Just secondly then, you talked about the ground conditions at White Mountain as how you have gone into the hanging wall, can you describe the ground conditions at Jinfeng and how they are measuring up relative to expectations?
25
SGX I would preface it by saying I haven’t seen the ground conditions myself, Jim, they're in about 30 meters into the ore body, our general manager there, (inaudible) (36:27) is a mining engineer who has a geotechnical background. He has been down and had a look and he said the ground conditions at this stage are better than we had expected, albeit that we are cross cutting and
30 not driving on the ore, so we are quite pleased with that. So I would say at this stage, at these very early stages, and on one horizon, that the ground conditions are better that we had expected them to be.
Q Great, and finally, for Jake, you talked in the past about the low cost made in
35 China, and how to date, you haven’t exactly extracted the full advantage of that low cost base that you’re, I guess, ramping up. Can you pep talk through what those cost advantages are and the ability to capture them going forward?
40 SGX Sure, I mean, I think your research actually that you distributed this morning seem to capture reasonably well that cost is going up over 140% in the industry over the last five years. So China undoubtedly offered a low cost base, and some of the examples which we give are sort of the underground development at White Mountain which is costing us some $1,200 or $1,300 a
45 meter, the shaft sinking exercise at Jinfeng is $3,000 a meter - a fully lined shaft for a 5-1/2 meter shaft. I know one of our directors is talking about more like $25,000 to $30,000 a meter in Australia. With respect to the cost at Jinfeng, we are starting to see the downward trend, we have got a lot of work still to go on costs but it is fair to say that our focus has been more on just getting the operational stability there and I'm sure Cobb and the team on site will start to focus their attention on cost, but we still are of the view that China and Jinfeng particularly an asset of the quality of Jinfeng, offers the opportunity to operate at low cost on a relative basis -- relative to global
5 industry.
Q Thank you very much.
Operator Our next question is from Iris Long from Bloomberg News, please go ahead,
10 Iris.
Q Good morning, gentlemen. I have two questions. The first one is about the power shortage in China which has already affected some of the copper and aluminum operations for the mainland companies and is there a foreseeable
15 risk for Sino Gold that the power shortage may affect the operations later this year?
SGX Iris, we have no indications from the power authorities who are supplying us with power that there are concerns about the availability of power in the
20 region which we operate.
Q Okay, thank you. And the second one is…
SGX We did lose power for 24 hours when the villager chopped down a tree that
25 took down our power line, but other than that -- no external withholding of power.
SGX The power authorities are in a position to provide us power and they certainly have not indicated as they did when we had some power shortages during
30 that snow season and cold season across Southern China in January. We did get early warnings that they were under pressure, we certainly have had no indication of that to date at Jinfeng.
Q So it will not pose a possible risk later this year, right?
35
SGX Of course, the availability of power represents a risk to us, but it is coming off the main grid and all I can say is at this point in time, we have had no indication or no concerns from the power authorities that they will not be able to provide us with full power.
40
Q Okay, thank you and a second question is about the final goal is now completely exposed to the fluctuation of gold prices, so what do you think about the outlook of gold prices this year, whether it be standing for a more -- will it be testing the high level in March.
45
SGX Right at the moment, we are pleased that the gold price movement since when we closed out the hedge has made us look fairly smart although I wouldn’t put it down to considered timing, but we did take advantage of that opportunity, we are obviously having closed up the hedge of very supportive of an increased gold price and you'd have to say that some of the best friends of gold are out in force -- inflation, financial market instability and geopolitical tension. So we see this as a very favorable gold price environment, but I'm sure there are other people on this call that have a much better and more
5 informed view than I do on the gold price. Thanks, Iris.
Q Okay, thank you.
Operator Our next question is from Michael Slifirski from Credit Suisse. Please go
10 ahead, Michael.
Q Thanks very much, I've got two questions please. First, Jinfeng underground, you have now intersected the ore body, I guess I'm interested in what it looks like compared to your expectation compared to the model. Have you done
15 any sampling to seek great reconciliations with what the model is, what it looks like or dilution assumptions accountable, what insights have you got from getting into the ore body?
SGX Sorry, Michael, but virtually none or any of the above, other than an initial
20 thought of 25 or 30 meters of development across the ore body. As mentioned, the ground conditions which were my major concern have long been my major concern with Jinfeng underground do look better than we have expected but we have got no assay results back yet at this stage. So I can't give you any real clarity on that, it is very early days.
25
Q So when you adjust the reserve last quarter, was the adjustment across the whole reserve or was it just for the open pit and the mining issues that did extend equally -- did you make the same assumptions in your adjustments of the underground portion?
30
SGX No, we didn’t. We treated the underground differently. It has a different geological model and a slightly different structural setting and a different cut off grade, so we retained the -- I think we have dropped the grade from 6 grams to 5.8 as we brought a lot of grade material from inferred into
35 measured and indicated but we retained the grade (inaudible) (43:10) at that time.
Q Right. And so in terms of the dilution assumption, what is the dilution assumption in terms of are there meters of ore which you anticipate might
40 bring in or is the percentage perhaps by the place?
SGX It is a percentage but I can't off the top of my head, recall what it was, I think it was about 12% dilution. It is based loosely on meters of ore that you would expect to see coming in with your development as well as some dilution from
45 backfill. I think it was about a half a meter assumption on wall dilution but we are stretching my recall at the moment. I am really -- I mean this is -- I got to point our, this is the first drive that we put through the underground, I mean it is just way too early to be making any definitive statements in relation, particularly to reserves, it is a 25-30 meter across cutting.
Q Okay.
SGX And if you want a bit more detail, there is the job checklist on our website
5 which outlines those things and I guess the other thing, to just highlight with respect to the underground development is that we are a couple of months ahead of where we expected to be which is encouraging as well.
Q Yeah, sure, thank you. The second question is on the land compensation cost
10 change, can you lead me through the formula that defines what land compensation cost is? Is there a formula and what drove the 25% increase?
SGX There is a formula and the land is managed by the Land Bureaus of China. You would have read no doubt that across China land usage and
15 environmental management is becoming increasingly important, so the rate which is set by the government has in fact increased. Remember, we did this feasibility study for White Mountain some 18 months ago, and hence, that's when the renminbi was 7.8 and land use rights. At that point in time, we got the formula from the government. Of course, the 17th People's Congress was
20 held late last year and that re-emphasized land use and had an impact of changing the land use right costs. But that is a wild thing. Essentially, you are leasing the land from the government and there is no freehold land in China, so it is all leasehold and you are effectively leasing it for‑‑I do remember that the Jinfeng land use rights are for a period of 50 years.
25
Q Okay, thank you. So is there potential that that moves further or is it something that is locked in within your lease arrangement or can it be annually renegotiated?
30 SGX It is a one whole payment. So you effectively pay it one full but it could affect future projects.
Q Yes, okay. Thank you.
35 Operator Our next question is from Ian Preston from Goldman Sachs JBWere. Please go ahead, Ian.
Q Thank you very much. I wonder if you could just give us an idea of how much capital you will still have to spend at Jinfeng in terms of the upgrade to the
40 process circuit in the second half of this year, that is the first one.
SGX Ian, we are not looking at spending an awful lot on the upgrade to the process circuits. When we talk about a temporary scats crusher, we have got (inaudible) (0:46:41) Company, our open-cut mining contractors actually
45 sourcing the crusher for us and they will do the crushing on a contract basis. We are upgrading our (inaudible) (0:46:52) to make sure that we can take advantage of any increased throughput, but there is no major capital work ongoing at the processing plant.
Q Okay, and in fact the other one, just on Beyinhar, you have indicated that you want to leave the commissioning of the heap leach until you get into the spring, can you just try and get us to understand exactly what the implications are in the different periods through the year, the different weather periods
5 because some other operations in the high rainfall periods really struggle with a heap leach? You are clearly indicating in the winter you would expect some issues as well. I'm wondering if you could just sort of tell us what are the sort of design parameters that you need in looking at running this on a 12-month basis through the different periods?
10
SGX The biggest driver, Ian, is that we need to agglomerate the ore and we've got three months of the year where the temperatures are such that you are -- your cement might cure so there are three months of the year in the feasibility study that we were assuming we won't be actually adding ore to the pile. The
15 two months either side of that, it is very important to maintain your fluid flows. It generally involves some sort of covering over the top of your fluid lines, using drippers rather than sprays, and being vigilant to ensure that your fluid flows are maintained. Now, we are looking to see whether we can do anything clever in terms of either heating the agglomeration circuit, but that
20 comes with a capital and an operating cost but would allow us to maintain production through those three months. The other thing is trying to source and stockpile some of the harder material from lower down in the pit that we may be able to treat without agglomeration. So it is still early days. At this stage, we have sized the equipment on the basis of nine months of
25 production, but we are looking at whether we may be able to up that to 12 months.
Q Which season presents any particular issues? I think you said that at Jinfeng you would have had about 400 millimetres of rain?
30
SGX We don’t expect to see that at Beyinhar. It’s a very dry climate, Ian.
SGX (Inaudible) (0:49:24) It is a desert. The closest I can compare it to is warmer at the southern terrain.
35
Q Okay, thanks very much.
SGX Thanks, Ian.
40 Operator There are currently no questions. If you would like to ask a question, please press zero-one on your telephone keypad now.
Our next question is from Anna Kassianos from Merrill Lynch. Please go ahead, Anna.
45
Q Hi, Jake and the rest of the team there. Just quickly, on flotation recoveries, can you go through the exact process improvements that have been made and is this actually going to be stabilized? Also, I have got another question following that.
SGX Okay, look, we would hope it would be stable. We finished June at about 1% below design, but we were producing a higher concentrate grade which is a pretty standard trade-up. We would hope to be able to sneak it up to that 91%
5 over the remainder of the year. We have had a number of changes. One of the big drivers is that we are trading progressively pressure ore, so there is less on the stockpiles, so we are trading pressure ore which certainly helps from lower down in the pit. The other big change is we are now getting a slightly finer grind size which is helping with our liberation, but the big driver
10 and the big driver in any flotation circuit is being able to achieve consistency and getting consistent throughputs, consistent reagent additions, so that you can settle your circuit down, make small incremental changes and see what works and drive recovery up that way. So we've actually eliminated some reagents, we changed the dosage point for other reagents, but a lot of those
15 are sort of incremental changes that gradually lead to improvements. So yes, we would expect to not only maintain these sorts of recoveries, but we would be hopeful of increasing them by a percentage point or so over the remainder of the year.
20 Q Okay, thanks for that. Just lastly, from the exploration, I see you’ve got a lot of drill rigs out there. In terms, what are your high priority targets and also how many ounces can we except to add from each individual sources?
SGX That second question is hard so I won't touch that. I will ask Phil to describe
25 to you what he is most excited about because we asked him the same question yesterday.
SGX I think I will defer on the second question, thanks for asking.
30 Basically, in the northeast of the country, we can really realistically drill until early to mid November, and in the northeast of the country, we would be certainly looking at enhancing the resources at White Mountain, Beyinhar and of course Eastern Dragon, and getting access to the exploration license around Eastern Dragon which I would have to say has very exciting potential.
35 In the south of the country, in the Golden Triangle, clearly, Yandan, although the results are generally of a (inaudible) (0:52:53) at the moment, that is a major mineralized system and extending over more than a kilometre within the 12- to 15-kilometre zone, so we are quite excited about the potential of that (inaudible) (0:53:04) and a lot of mineralized fluid move through it. The
40 challenge for us is to find where it is focused into a high grade deposit somewhere along that plus 12-kilometre zone and that will be the direction of the program there for the remainder of the year.
In Shandong, the area on the south extension of the Jiaojia Fault, that is
45 where the Jiaojia Fault dives under cover. It is a somewhat conceptual target, but it has never really been tested previously so we are quite excited by that and it is a relatively simple target to test with a series of holes once we start drilling by mid August.
In the joint venture alliance with Gold Fields, the Yunnan belt is a very well-endowed copper-gold belt. We are very fortunate to take a position there. We have just started drilling. We have been looking at other properties in the belt, so we are quite excited about the potential of that belt.
5
Elsewhere in the Golden Triangle, the (inaudible) (0:54:10) intersection in the Jindu joint venture, that is really a new discovery on an area which is adjacent to a small gold occurrence and has a very similar geological setting to other deposits in the Golden Triangle such as Jinfeng so we are quite encouraged
10 and excited by that intersection as well.
So the program is really quite well focused in what we believe are the foremost well-endowed mineral belts in China and we are systematically turning these over and hopefully working on the highest priority areas.
15
SGX I hope that gives you enough information to answer your second question.
Q In terms of answers, yes, definitely, but you did not say which one was the more exciting, is it all of them? It sounds like all of them are.
20
SGX Of course.
Q Of course, that’s what I thought, okay, thanks.
25 SGX I think I am most excited about Eastern Dragon at the moment. I don’t think it is just a spectacular asset. It is high grade, very good silver credits, reasonably well defined from previous drilling, so in terms of explorations, an asset which is going to turn into a very high quality operation. We are racing as hard as we possibly can to get the permits in place, get all the feasibility
30 study work done and we are at the early stages of all of that. But you'd have to say what you are seeing there, it would be a screamer to get into production.
Q If the results are coming out really good for Eastern Dragon, is the potential to
35 push all this stuff forward in terms of permits and feasibility studies, I mean what is the smallest -- shortest possible timeframe we could get all that done?
SGX Well, I don’t think that the bureaucracy of China and the timeframe that they are working are related to your drill success, so preferably no.
40
Q No, okay.
SGX But certainly, it would accelerate out and -- which is high at the moment, we have a very skilled and highly qualified team up there at this time, they are
45 the group that predominantly discovered and brought White Mountain to where it is today so they’ve been through that process of permitting. They initiated this project and we think, you know, we got our resources well aligned with the objective of getting in as quickly as possible, albeit, permitting is something that needs to go through due process.
Q Thank you for that.
Operator Our next question is from Peter Harris from JF Capital Partners. Please go
5 ahead, Peter.
Q Hi guys great quarter. Also, I thought your assets on the (inaudible) (56:47) were really fantastic, Phil just answered my question in exploration, but I just had an operational one at Jinfeng, you know, do you, Cobb, where your costs
10 will settle next year? 2009?
SGX Well, it is crude science, it is earlier on White Mountain. We’re just going through the budgeting exercise. We will have the first cut of that coming through in the next couple of weeks, we would obviously expect them to be
15 lower than we are seeing this year and I guess conceptually, we are targeting somewhere in the 350 range.
Q Thank you.
20 Operator Our next question is from Hunter Hillcoat from Oldstock. Please go ahead, Hunter.
Q Hello, it is Rod Cox and Hunter Hillcoat. Congratulations to you and the team, you’ve obviously created a very stable platform for growth here now and my
25 question really is to the Olympic impact, I mean, obviously, there is a lot of talk of restricted visas, restricted movement of fertiliser and cyanide, can you quantify the cost to date of the Olympic impact and do you think production is going to be affected at all by the period of the Olympics and how quickly do you think everything is going to get back to normal?
30
SGX Thanks, Rod and thanks Hunter for the question and the interest, but I mean I don’t think there is specific cost associated with the Olympics. It is more stress levels and you know, the diversion of management time. We have had a lot of assets working with the local authorities, working with the public
35 security bureaus at both White Mountain and at Jinfeng, but Jinfeng particularly to ensure that we can get cyanide and explosives and use them because every transportation has to be approved and obviously, that approval is being much more diligently focused on. So, you know, at this point in time, we have been successful and there is certainly no raised flags
40 suggesting that we can't get these items, we got our delivery of cyanide a couple of days ago and we are not expecting that we are going to have an interruption, we have tried to keep our stock levels as high as possible with respect to -- and at White Mountain, we have -- we are struggling with getting explosives at the minute on site but construction is going ahead and we are
45 doing, you know, the mine is not on a critical part at this point in time for delivery. With respect to visas, don’t try and visit China in August, although I am going there next Friday with my old visa and hoping to get in so I will let you know how that works. But you know, we all got visas and logistics is a challenge but look, it is not impacting us at this point in time. And we think we have done enough work to mitigate that impact.
Q Okay, thanks, Jake.
5
Operator As there are no further questions, we will now begin closing comments. Please go ahead, Jake.
SGX Thanks, Sarah and thanks everyone. That was a good call and I appreciate
10 all the questions and the interest, I know it is a really busy time and there are a number of companies releasing at the moment, but really delighted that we were able to deliver in Hunter and Jim's words initially this morning, production exactly in line with expectations. We are looking to do that again this quarter and I hope and trust that you see the progress we are making in
15 all other areas of our business which continue to motivate us as a management team that we are working on a very exciting company with fantastic projects in what is of course, the world's largest gold producing country in the world today. We will speak to you again in the latter part of August when we release our half year results. I’m looking forward to giving
20 you an update at that time as well. Thanks very much.
INTERVIEW CONCLUDED
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