Integra Mining Ltd (ASX code - IGR)
OPEN BRIEFING?: INTEGRA MINING - MD ON SALT CREEK
RESOURCES UPGRADE
corporatefile.com.au
Integra Mining Ltd (ASX code - IGR) has released a 60% increase in JORC Resources to 400,000 ounces at the Salt Creek gold deposit within the 100%-owned Aldiss-Randalls Gold Project where Resources now stand at 1.8 million ounces. How significant is this in Integra?s overall exploration and development strategy at Aldiss-Randalls?
MD Chris Cairns
Integra has demonstrated an impressive track record of resource growth since starting in 2004 ? when no resources which could be reported in compliance with the JORC Code ? to the most recent upgrade to 1.8 million ounces of contained gold. This rapid increase in gold resources is the ultimate result of our strong focus on exploration as the primary driver of value and shareholder wealth. It is also what differentiates Integra as an emerging gold story ? our investment proposition is driven by exploration success in delineating new ounces in the ground, not re-working existing deposits.
The other important point is that, while Integra remains committed to ongoing exploration and we are confident of further discoveries and resources additions, the Company now believes that the resources defined to date are sufficient to underpin a superior open pit mine development proposition of a calibre that has not been seen in the Eastern Goldfields in almost a decade.
corporatefile.com.au
The average grade of the Salt Creek resource is 2.7 grams per tonne. Can you explain how this deposit will fit into your initial production strategy in terms of blending with other deposits and what average head grade do you expect once operations commence?
MD Chris Cairns
There is no question that the single greatest influence on the success or otherwise of a mine development is grade. All other things being equal such as strip ratio, metallurgical recovery and so on ? the old adage ?grade is king? is of fundamental importance to profitability. As far as Salt Creek?s input into the production mix, we envisage that the process plant will be located adjacent to Salt Creek with Salt Creek providing approximately 75% of the tonnage to the plant at a grade over 2.5 g/t gold and the remaining 25% of feed coming from the Maxwells and Cock-eyed Bob open pits, located some 15km to the east. The production grade of Maxwells and Cock-eyed Bob is expected to be over 4 g/t gold, resulting in an overall feed grade of over 3 g/t gold.
To put this grade in perspective, as a general rule in the current cost environment ? again all cost influences being equal ? I would expect that for open pit mining a ?break-even? grade would be about 1.5 g/t gold whereas for underground mining it is probably around 4.5 g/t to 5 g/t gold. An average head grade of more than 3g/t for an open pit mining operation should therefore enable us to generate a very strong cash surplus.
corporatefile.com.au
What is the potential to further expand the Resource at Salt Creek? What further exploration do you plan?
MD Chris Cairns
Exploration is a fundamental capability of Integra and will continue to be the major value driver for the company. In the medium term, Integra has established a very strong ground position in a very prospective and underexplored region located just east of Kalgoorlie. Remember that the area within a 100km radius of Kalgoorlie has delivered total historical gold production of around 120 million ounces.
We have exploration initiatives in place with the objective of delivering additional significant gold discoveries in these areas over a three year time frame. Despite the short-termism of the markets, we have a strong view that a well-considered and methodical development of geological concepts and targeting is the way forward for unlocking significant new discoveries. Investors should consider why there have been so few major discoveries in the past decade. One of the key reasons is that too few have been doing meaningful grassroots exploration ? that is true of both majors and juniors. That is why we have seen only two or three plus 100 tonne (3.5 million ounce) discoveries in Australia in the past two decades.
In the short term, through some fairly intensive studies, we have been building our understanding of the major controls on gold mineralisation in the Salt Creek region. While this work is not ?sexy? in that it does not generate any market excitement ? especially as none of it sees the light of day due to the competitive advantage it provides for our exploration team ? it is the key to the next major discovery in the area. We are well advanced in this work and it is showing early significant promise. We have a number of regional targets which will be tested in the near-term and we are confident of additional success.
It is also worth noting that we do not feel that we need any further success as a prerequisite for development but that the cash flow generated during operations will sustain the exploration effort and the flow of additional discovery successes.
corporatefile.com.au
Can you provide more detail on the style of mineralisation and the dimensions and quality of the Resource? Why is it so amenable to open pit mining?
MD Chris Cairns
The Salt Creek gold mineralisation is hosted in a differentiated gabbro sill ? to a layman that is a flat lying intrusion of a mafic (iron-rich / silica poor) igneous rock. The mineralisation is disseminated and associated with pyrrhotite sulphide. The disseminated nature of the mineralisation means that gold grades are consistent and there is very little ?nugget? or variance in gold grade.
What we have with Salt creek is a 400,000 ounce body of mineralisation with a very attractive open pit mining grade of >2.5 g/t gold, 97% of the resource occurring above 150 metres below surface, excellent mining geometries, a low strip ratio and fantastic metallurgical gold recoveries of >95% on a relatively coarse grind. Had we been asked what we wanted in a gold deposit, it would have been difficult to have asked for much better than what Salt Creek has turned out to be.
corporatefile.com.au
Integra is undertaking geo-statistical studies in order to assess the risk of grade underperformance associated with not completing any additional in-fill drilling within the 20m x 40m spaced drillings. Why is this type of study necessary?
MD Chris Cairns
My personal opinion is that the gold grade behaviour of the Salt Creek deposit is unusually consistent and that drilling the entire deposit on a 20m x 20m grid is unnecessary, expensive and time consuming.
Basically, the method being employed runs 100 simulated models of potential gold grade outcomes based on the grade variance inherent in the population of gold assays we have. The outcome provides a range of gold grade values within a 90% and 80% probability. With a low variance of gold grades equating to higher confidence in the predicted grades, if the percentage variance in the range of gold grade outcomes is lower than what would be considered usual for a particular classification of Mineral Resource, then that portion of the deposit can be classified accordingly. In this case, we took the approach that we would initially classify the majority of the current Mineral Resource as Inferred prior to the outcome of these statistical models. It is likely that parts of the Salt Creek deposit will be re-classified to a higher category of resources as a result of these studies and that other parts may require a little more drilling.
In terms of our confidence in the resource grade providing an accurate indication of the actual mining gold grade outcome, this is very important work and will provide additional confidence to those groups providing the funds for our mine development.
corporatefile.com.au
Integra is undertaking a Scoping Study at Aldiss-Randalls. Can you provide more detail on how that is progressing? When do you expect to complete the Study?
MD Chris Cairns
The study is progressing very well. Clearly, the recent resource upgrade provides the basis for the mining study, which will include open pit optimisations using mining costs provided by mining contractor quotations and milling cost estimates based on our metallurgical testwork programme. The study will also provide expected production levels, cash cost estimates and overall project revenues. The study remains on track to be completed near the end of July, just ahead of the Diggers & Dealers Mining Forum.
corporatefile.com.au
Does the Scoping Study still support your major corporate objective of producing 120,000 ounces per year with a mine life of five years? Is there room to expand this level of production? What level of cash operating costs are you targeting in this Scoping Study?
MD Chris Cairns
Recent metallurgical and grind information are having an influence on the expected production outcomes. The primary objective of the Scoping Study is to determine the optimal rate of production to maximise cash flows and match the volume of material we have available to us. It is important to note that our intention is to make the development decision as simple as possible, so we are focussing on initial production from two areas only ? namely, Salt Creek and Maxwells / Cock-eyed Bob.
These deposits alone, in our view, justify the development while the other deposits where we have JORC Code compliant resources ? 13 in total ? will extend mine life beyond the initial four years of production to a 6-year mine life and beyond.
The primary issue for us is to proceed on the basis of a quality gold mine development, something that we are confident can deliver robust returns and in which the confidence of execution is very high.
corporatefile.com.au
You are undertaking A$16 million in exploration to further define and extend Integra?s Resource. What additional areas to Salt Creek are you targeting?
MD Chris Cairns
While we have flagged to the market that we have active or planned programmes in areas like Lucky Bay, Salt Creek South, Fingalls and Mohegan, we also are targeting some areas in the immediate vicinity of the Salt Creek deposit. While we are very confident that additional discoveries will flow from our exploration programmes, we also feel that it is important that we resist pressure from the market for instant gratification and that we conduct our programmes in a considered and methodical fashion.
Exploration needs sufficient time for concept development and understanding to drive the discovery process, rather than running like a bull at a gate. Our track record and capability speaks volumes and history shows that those groups who have a history of success are the most likely to make additional discoveries.
corporatefile.com.au
Integra has recently completed the acquisition of interests in the Mt Monger and Glandore tenements. How might the new tenements add value to Aldiss-Randalls? What exploration is planned for each?
MD Chris Cairns
Both of these projects fit into our 3-year discovery strategy as opposed to our near-term focus on the Salt Creek region. Having said that, Fingalls in the Mt Monger Project may contribute to the production mix with current programmes targeting shallow oxide gold mineralisation that would have a high-value as a soft ore feed to the process plant. In the medium term, these areas have the potential for bulk tonnage moderate grade gold deposits associated with late intrusive phases and iron oxide alteration. There is significant ?smoke? in these areas ? in fact, some areas are so anomalous in surface gold that it has been difficult to target where the big deposits are hiding. Considering the abundance of surface gold anomalism, it is a glaring opportunity that no significant gold deposits have yet been identified.
Integra has recently completed acquisitions of interests in the Mt Monger and Glandore tenements. How might the new tenements add value to Aldiss-Randalls? What exploration is planned for each?
corporatefile.com.au
The New Celebration Mill was dismantled ahead of schedule and is being relocated to your site. When do you expect to commission the plant? How are you tracking with respect to capital costs?
MD Chris Cairns
We were very pleased with the early completion of the mill dismantling and also the quality of the work ? that puts us in a good position when we go to reassemble the plant. At the moment our target is to have the mill re-established at Salt Creek in late 2009 for first production before Christmas 2009.
The capital cost estimate for the process plant construction and associated mine infrastructure is just over $50 million, but this number will be further refined in our feasibility study to be completed at the end of 2008.
corporatefile.com.au
Cost pressures are a significant issue in the Australian gold mining industry at the moment. How can you mitigate against these pressures and differentiate Integra as an investment proposition in the current market?
MD Chris Cairns
Clearly costs have had a major impact on the industry. Despite the increases in the gold price, the cost base has also advanced such that margins have remained essentially static or even narrowed. This squeeze on margins has been very clearly demonstrated where a number of groups have been enticed into resuming production from previously shut down old gold mines. Unfortunately, they have fairly quickly realised that, in the current cost environment, old operations that were not profitable when they were shut down are still not profitable now, despite the gold price increase.
That is precisely why our strong view and our corporate philosophy has been that, unless you are bringing something new into the equation ? something that would have been considered very robust at any point in the commodity cycle ? the risks of rushing into production are simply too high. That is why we deferred production in 2006 and, against market pressure, went exploring for additional high-grade resources. Having successfully discovered Salt Creek and made the overall project far more robust, we are now saying that we are confident of delivering a profitable gold mine.
The distinction about our development is that we are looking at a fundamentally robust new mine development based on a discovery with low-risk open pit mining, excellent grades, good geometries, low strip ratios and excellent metallurgical gold recoveries. This is a development proposition that is robust regardless of where we currently sit in the long-term price / cost cycle. Unfortunately, at the moment the market is not of a mind to make this distinction, and I strongly believe that Integra is very much the baby that is being thrown out with the bathwater.
corporatefile.com.au
Thank you Chris
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