409332cd-1177-4577-aa73-c6ead08e97ee.pdf
QUARTERLY REPORT for the period ending 30 September 2015
ASX Code: MAR
Issued Shares: 1,125,567,291
ABN: 86 075 613 268
Directors
Terry Cuthbertson James Dean Andrew McMillan
Top Shareholders Mr Lindsay Jones Olhoc Pty Ltd
Morrison Charity Trustee Ltd
Head Office
Malachite Resources Limited Suite 2, Level 10
8-10 Loftus St
SYDNEY NSW 2000
T: +61 (0)2 9251 0032
F: +61 (0)2 9475 0439
E: [email protected] W: www.malachite.com.au
30 October 2015
OVERVIEW
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Lorena Gold Project:
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In July 2015, Malachite executed a financing Letter of Offer with MKS Switzerland (SA) ('MKS') for the development of Lorena. One of the conditions to the offer was a fully costed project development plan.
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In September 2015, Malachite completed the project development plan and concluded that the cost to complete the Lorena project was more than that assumed by MKS.
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Malachite and MKS agreed that without further financing from MKS and without a change in financing and concentrate purchase terms as stated in the Letter of Offer, the MKS financing offer could not be provided nor accepted. As such, MKS withdrew its financing offer.
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Since then, Malachite and the Receivers and Managers to BCD have been negotiating terms to settle the partly constructed Lorena concentrate plant.
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As part of the Lorena project development plan, the Company assessed that the benefits from producing gold (rather than a gold concentrate) on site were compelling.
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Malachite is progressing discussions with financiers to develop Lorena on the basis that gold will be produced on site.
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The Company is progressing with the engineering of a CIL gold plant to enable gold to be produced on site.
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Malachite has arranged a drilling contractor to carry out a 500 metre reverse circulation drilling exploration program at the Lady Mary prospect commencing mid-November 2015.
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Malachite has received the cash component from the sale of the Conrad project to Silver Mines Limited ('SVL'). The total consideration was $450,000 in cash, $125,000 in SVL shares and a 1% net smelter return royalty.
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Malachite successfully extended the maturity date of its Convertible Notes to 5 May 2016.
Lorena Gold Project
MLs 7147, 90192 - 90196
In 2013, Malachite Resources Limited ('Malachite') entered into an agreement with BCD Resources NL (BCD) for BCD to sole fund and manage the development of the Lorena Gold Project (Lorena). In January 2015, BCD put the development site work at Lorena on hold. In late January 2015, MKS Switzerland (SA) ('MKS'), the ultimate secured lender to BCD appointed Receivers and Managers to BCD. In May 2015, Malachite terminated the agreement with BCD.
On 16 July 2015, Malachite announced that it had executed a financing Letter of Offer with MKS which was to allow Malachite to proceed with the development of the Lorena Gold Project using the plant and equipment partially constructed by BCD, under the previous agreement that was terminated in May 2015.
The financing offered by MKS was subject to certain conditions precedent, one of which was a Project Development Plan ('PDP') to be prepared by Malachite including a cost estimate to complete the project development. Malachite engaged Ore Processing Services Pty Ltd ('OPS') to carry out the PDP. OPS, in conjunction with Malachite, completed the PDP and one of the main conclusions was that the cost to complete the Lorena project was more than that determined by BCD and assumed by MKS. In September 2015, MKS and Malachite agreed that without further financing from MKS and without a change in financing and concentrate purchase terms as stated in the Letter of Offer, the MKS financing offer could not be provided nor accepted. As such, MKS withdrew its financing offer.
Post quarter, Malachite and the Receivers and Managers to BCD have been negotiating terms to settle issues relating to the partly constructed Lorena concentrate plant to provide Malachite with unfettered access to the plant.
As part of the PDP, Malachite and OPS, carried out a development scenario which incorporated building a cyanide plant ('CIL') on the back of the concentrate plant at Lorena so that gold dore could be produced on site. The benefits of this scenario compared to producing a gold concentrate and transporting the concentrate to BCD's plant at Beaconsfield are compelling and included:
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An integrated processing flow sheet at Lorena which does not require a concentrate to be produced or stored;
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No costs for the transporting of concentrate to Beaconsfield which have a significant impact on operating cost;
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Reduced overall operating costs because only running one processing site;
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Less working capital required since there is no transport and processing of a concentrate;
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The ability to mine a lower cut-off grade because of the lower operating costs which results in more ounces processed and a six to nine month longer mine life;
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Less mining risk since lower grade material can be mined and processed rather than stockpiled on site as previously contemplated;
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Better economics of treating any additional resources delineated at Lorena and in particular from a potential underground operation; and
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The ability to treat other ores in the region, both sulphides and oxides.
Whilst transporting of concentrate to Beaconsfield remains a viable option, the Company believes that it is appropriate to consider other development options, particularly as the cost to build a CIL plant at Lorena is roughly the same as the anticipated transport costs and capital treatment charges to treat a concentrate at BCD's Beaconsfield plant. Malachite and OPS are currently in discussions to complete the concentrate plant at Lorena with OPS to build and supply a CIL plant on a wet hire basis to produce
gold dore on site at Lorena. It is proposed that the CIL plant will be mobile so that it can be constructed off-site and be transported to Lorena by truck in modules.
Malachite has carried out a review of the timing to construct and get approvals for a CIL plant and believes that it will only take some three to four months longer than it would take to finish off the concentrate plant, complete site works and carry out pre-stripping for the scenario of producing a concentrate for shipment to Beaconsfield. Malachite and OPS are advancing the engineering work for a CIL plant on site.
Malachite has determined that its minimum funding requirements (including project working capital) to have Lorena in development are around $8 million.
Malachite continues to be in discussions with a number of financiers who remain interested in funding the development of the project provided gold is produced on site.
Subject to financing and negotiations with BCD's Receivers and Managers in relation to the partly constructed concentrate plant, it is now expected that an open cut operation at Lorena should commence in 2016.
As previously advised the Lorena gold project has potential for resource extensions at depth. Proving up these additional resources will require confirmation by drilling which Malachite proposes to undertake at the earliest opportunity subject to sufficient funding being available.
The Company believes that there are considerable regional opportunities which it will be able to pursue once the plant is operating at Lorena.
Exploration (EPM 18908)
During the quarter Malachite executed an agreement with the landowner to allow the Company to access and carry out exploration drilling on the Lady Mary prospect, which is some 5km east of the Lorena Gold Project. In October the Company carried out a cultural heritage survey and site clearance which enables the Company to drill test the Lady Mary prospect. Malachite has subsequently arranged for a drilling contractor to carry out a 500m RC drilling program on the Lady Mary prospect commencing mid-November. The program is expected to be completed by the end of November with assay results due for release in December.
The Lady Mary prospect has previously returned high grade rock chip samples and is an anomalous gold copper zone with a strike length of around 400m.
The Company regards the tenor, width and continuity of gold and copper values in the soils at its Lady Mary prospect as extremely positive. The soil program and previous rock chip sampling have outlined a robust gold-copper drill target. The discovery of a resource at Lady Mary could potentially supply additional ore to a mill at Lorena.
Lorena Gold project located 15km east of Cloncurry, Qld
Conrad Project
In May 2015, the Company entered into an agreement with Silver Mines Limited ('SVL'), an ASX listed company with code SVL, to sell the Conrad Silver Project (Conrad) for $450,000 in cash, $125,000 in SVL shares and a 1% net smelter return. Up to 30 September 2015, SVL has paid cash of $175,000 to the Company. In October, SVL completed its rights issue and SVL paid the Company the cash balance of
$275,000 owing to complete the cash component of the sale. Malachite and SVL are in the process of finalising the issue of SVL shares to the value of $125,000 and concluding documentation to effect the transfer of the Conrad tenements. Malachite will retain an ongoing interest in the Conrad project via a 1% net smelter return on all metals produced from the Conrad Project.
Corporate
Extension of Existing Convertible Notes
Malachite has on issue Convertible Notes (Notes) with a face value of $2,150,000 (including six Notes that, subject to shareholder approval at the upcoming annual general meeting of the Company, will be issued to Directors or their associates). The Company successfully negotiated with the Noteholders to extend the maturity date of these Notes by 7 months from 5 October 2015 to 5 May 2016. In October 2015, the Company paid each Convertible Noteholder a Rollover Fee of 1.75% of the Notes Issue Price. In order to preserve cash the Rollover Fee was paid by the issue of Ordinary Shares at a 20% discount to the 30 day VWAP to 5 October 2015.