Mundo Minerals Limited (ASX - MUN)
Open Briefing�. Mundo Minerals. Engenho Production &
Other Projects
Record of interview:
corporatefile.com.au
Mundo Minerals Limited (ASX code -
MUN) poured first gold from its Engenho Gold Project (MUN 100%) in Brazil
in June 2008. How do operating parameters at the mine and treatment plant
compare with expectations?
CEO John Langford
We recognise that the mining and
processing operations remain at early stages, but we are exceptionally pleased
with the initial performance of the project. Before mentioning the
operational aspects of the plant and mine, I would like to briefly cover the
performance of the teams on site as well as our safety culture because we place
a great deal of importance on both. Apart from having strong project
metrics, the performance of Engenho is a reflection of the competencies we have
in these areas.
While Engenho is a compact site and
a reasonably compact underground operation, I have never been to a site where,
even during the initial start-up period, the housekeeping matters have been as
well attended to. There are no tools or equipment out of place nor are
there areas which have not been properly cleared after activity. This reflects
the diligence of the team and makes us optimistic about the ongoing performance
of the project. The attitude of our personnel is enthusiastic and their
commitment to the Company is excellent, as it is at all of our projects.
At Engenho, we have just exceeded six months without a lost time injury
and the only injuries to date have been a strained finger and a cut to an arm.
I am also justifiably proud of the
development progress in the development of the decline. During the last two
months the mining team have achieved in excess of 400 metres of decline
development which we believe anecdotally from other mining companies in Brazil
to be a record for development in Brazil.
The progress is sensational for any mining team anywhere and they have achieved
this without compromising the housekeeping issues associated with operating the
mine.
The team is justifiably proud of
their achievements and their attitude and diligence reflects well on the
project performance to date.
Both the plant and mine are
performing well. Since commissioning, the plant has had very little down
time because of mechanical break down. As with all commissioning, we had
some interruptions while pumps and conveyors were adjusted, which can only be
effectively assessed when the plant is operating. Apart from that,
performance has been exceptional. The plant is operating approximately
10% above budgeted capacity. Metallurgical recoveries are excellent.
In June they were running at over 95% compared to budget of 93% and July
is showing a little above 96%.
We poured our initial gold in June.
Our gold is refined and delivered to banks under contract by AngloGold Ashanti
and they deliver London Metals Exchange specification gold bars to the banks of
approximately 400 ounces and 99.9% purity. This completed the first
production cycle and demonstrated that we had no technical hitches within the
circuit. Subsequently we allowed gold stocks in the circuit to reach
optimum levels so that we could ensure proper continuity in the production
cycle. This is an appropriate management strategy and is important for
the effective long-term management of the project, although it delayed the
pouring of additional gold bars for about two weeks. We delivered the
next gold to AngloGold Ashanti
early July and now have a consistent production cycle and cash flow.
corporatefile.com.au
How is the mined ore reconciling
with your resource model? Can you outline the mine development progress
so far? What are ground conditions like?
CEO John Langford
We are pleased with the way the mine
is reconciling to the ore body model. Of course, the actual shape of the
ore body is somewhat different to the original geological interpretation, but
we are achieving the tonnes we expect and finding additional ore as we develop.
Most of the work to date has been
focused on developing the decline and mining levels to open up the primary ore
bodies and allow full production at resource grade. This is normal with all mines
and, if planned development is properly completed, bottlenecks can occur which
affect the ability to achieve a consistent production profile. As a
result, most ore to date has been lower grade development ore; again, this is
normal for a new project and the stoping ore in the areas currently being mined
has been developed and prepared for mining commencing in late July.
We have been mining ore left in the
open pit wall as we've developed the decline below the open pit. Our
modelling indicates there is approximately 170,000 tonnes of ore in the open
pit wall. The decline has now been developed below the open pit floor and
the team is now developing levels to access the primary ore body under the open
pit. Access for stoping is well under way and we need to properly develop
this prior to commencing stoping. We expect stoping from this area to
commence in November and, until then, we have enough ore from the open pit to
sustain our production base.
Subsequent to the end of the June
quarter, a new ore body was identified providing further confidence in the
expectation that additional ore sources will be discovered during the
development of the Engenho mine. A number of new ore sources have now
been identified and will be developed in accordance with the programmed mining
schedule. Initial assays have yielded commercial grade, however at the date of
this report, assessment of this ore body remains at an early stage so there is
no additional information that is valid for this quarterly report. It is not proposed
to make specific announcements with each new ore source apart from normal
quarterly reporting as it is believed now that these are part of the general
Engenho mineralised structure and within normal expectations of mine
development. Notwithstanding this, the identification of these ore sources is
most encouraging for the future of the mine.
Ground conditions are excellent and,
as mentioned previously, the general housekeeping associated with the mine is
superb.
It has been a really focused and busy
period and will continue to be, but we have an excellent team and, from what I
have seen to date, excellent infrastructure from which to develop the mining
operation.
corporatefile.com.au
What are your expectations on
production ramp-up and reaching steady state production? What is the
decline development and mine scheduling timetable from here on? What
about the operating cost structure once you reach steady state
production?
CEO John Langford
We expect consistent production from
the mine at around 21,000 tonnes per month from August 2008. This is
above budgeted productivity and has allowed us to reduce the grade slightly
without compromising the production profile. We continue to expect our cost
structure to deliver in the mid A$300 per ounce range at full production,
providing a strong cash margin for the operation moving forward.
At the moment our treatment costs
are within budget, admin costs are a little below and mining costs a bit above.
This reflects the fact that we have accelerated development in the
decline. These costs should revert to budget in the next couple of months
as we move development back to budgeted expectations. We deliberately advanced
development to ensure that we have a number of access options to the ore body,
which is a prudent management process for underground mining.
corporatefile.com.au
You've stated that major exploration
drilling activities have been deferred until August to allow cash flows from
Engenho to be properly established. What level of operating cash
flows do you expect from Engenho once production is fully established?
What is the size of the temporary bank facility and what is the maximum level
you expect to draw it to?
CEO John Langford
We stated
earlier this year that Engenho should produce an annualised EBITDA of
approximately A$17 million per annum at a gold price of US$750 per ounce.
We remain comfortable with those parameters at this stage of the
project's development. The gold price has appreciated, as has the
Brazilian currency, but we are comfortable with the robustness of the projected
financial performance of the project at budgeted production.
We have
established a temporary overdraft facility of A$2 million. This will
provide buffer finance while consistent cash flow is established in the early
stage of production where operating costs are paid while we are waiting for
revenue from the sale of the gold. This is temporary while we establish a
robust cash surplus. In addition to operations, we are maintaining our
development activities in Peru
and, while we are not currently drilling, the exploration team remains active.
Finally, we have normal administrative costs to service. We expect
to maybe draw down the overdraft to $1.5 million for a few days in the next
couple of months to cover some short term operating expenses until the proceeds
of gold sales arrive in our bank account. We are comfortable with the
financial management of the Company.
corporatefile.com.au
What capital
expenditure and exploration activities are continuing across the Company?
What exploration or development activities have been suspended? Do you
remain as enthusiastic about the potential for additional ore sources around
Engenho?
CEO John Langford
On exploration
expenditure, we have always stated that we manage Mundo Minerals in accordance
with prudent management practice to ensure the longevity of the Company.
As with any start-up business, it is essential that tight financial
management is maintained. This includes ensuring that we establish a
strong understanding of the financial parameters of our initial cash flow
operation before committing to other expenditure.
The reduced
exploration fits appropriately into our strategic approach in any event.
We had announced previously that we would be deferring drilling at our
new gold discovery at the Concei��o project while a complete data review was
undertaken and that we would be spending time establishing the logistics for
initial drilling at our new Jaqueira project. Both these activities were
scheduled for this period in any event. We expect to be drilling at
Conceicao and Jaqueira in early September.
At Concei��o
our data review is progressing well and we are developing a good understanding
of the structural profile of the mineralisation. We have now encountered
visible gold in eight drill holes within the main mineralised zone. From
an initial review, the structures appear to be cigar-like and it appears from
the modelling that they could be developed through open pit mining. The
next phase of exploration at Concei��o will be to focus on resource definition
to allow us to progress to the feasibility stage.
We are
continuing our development and evaluation programme in Peru
and have done a small amount of drilling on one of the other tenements at our Tocantins
project. We are about to start developing one of the mineralised veins at
Torrecillas while we continue to develop out to the high-grade vein structures
known as Ady. This is the next phase of our project assessment and will
produce valuable mining and production information as well as developing
confidence in the resource model. Work to date has mainly been establishing the
exploration decline, but we are now getting to the business end of the project
assessment.
We have
previously provided information regarding strong initial success from soil
sampling and mapping around the Engenho tenements and we have recently
completed in-fill soil sampling around the Mazoca anomaly, which is located
approximately 750 metres to the north of the Engenho ore body. We are
waiting on assays before we can finalise an initial drill program to test the
anomaly. The success of the soil sampling has resulted in an expansion of
our exploration targets at Engenho and we have had to change our focus from
planning to test a single anomaly to treating the Engenho Project both as one
of our priority exploration assets, as well as a significant source of cash
flow. This entails greater planning, but our assessment of the
exploration potential of the tenements has also been significantly enhanced.
While we may
not be drilling a lot of metres at the moment, the exploration focus has
remained exceptionally busy.
Finally, on
capital expenditure, we have recently acquired a second Jumbo for Engenho. This
was commissioned in early July and will assist with developing the decline.
corporatefile.com.au
Can you
summarise the more exciting projects for Mundo Minerals as you progress a
pipeline of projects?
CEO John Langford
Frankly our
biggest problem is not where to source new projects, but how to deal with our
current opportunities. As of this moment, we expect to develop production
from all our projects. Notwithstanding this, we need to do the exploration work
to prove the potential, but all projects are showing great promise.
We have always stated that in order to develop sustainability by growing our
production profile we need assets in each of the different stages of
production, development, assessment and exploration. We now have production
occurring at Engenho, Torrecillas is at the project assessment stage and, over
the next 12 months, should move into the development stage. Concei��o is
still at the exploration stage, but in the next six months we expect it will
move to assessment. And we expect to assess Jaqueira within a relatively
short time frame. Engenho exploration is exciting, but needs the work
done systematically and we have not touched on the fact that we have over
196,000 hectares at Tocantins that will feed
exploration opportunities for many years. This is highly prospective and
Concei��o covers only a small fraction of this tenement holding.
To summarise, we have enormous
potential - rather like a teenager going through puberty. We have growth
spurts that keep expanding our potential and an appetite that needs
controlling. We have a cash flow to feed the appetite but, more
importantly, we have the discipline to manage our growth to maximise our
potential and not squander the enormous opportunities we are so fortunate to
have within our asset portfolio. This is further complemented by our committed
and highly professional team.
corporatefile.com.au
Thank you, John.
For further information on Mundo
Minerals Ltd visit http://www.mundominerals.com/ or contact John Langford on 08
9429 8889.
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