In an important step towards its objective of becoming a significant new low-cost, mid-tier gold producer in the Asia-Pacific region, Kingston Resources Limited (ASX: KSN) announced that it has completed a positive Pre-Feasibility Study (PFS) for its flagship Misima Gold Project in Papua New Guinea.
The company said that the PFS forecast gold production of ~130kozpa at AISC A$1,159/oz with compelling project economics, long life, low capital intensity, and outstanding growth potential.
KSN said that significant project upside is expected to be delivered through drilling campaigns currently underway to identify additional near-surface ounces for early years of ore production. The company said that work programs are now being planned for the next phase of studies.
The Misima Gold Project is located within EL1747 which was first granted on 21 March 2011 under and the PNG Mining Act 1992 to Gallipoli Exploration (PNG) Limited. EL1747 encompasses the eastern half of Misima Island.
The Misima Gold Project comprises two main deposits at Umuna and Ewatinona, and multiple reconnaissance exploration targets along and adjacent to the 10km strike length of the Umuna Fault Corridor that hosts the historical Umuna deposit, and Quartz Mountain area that hosts the Ewatinona deposit.
Misima was a very low-cost operation historically. Under Placer, Misima had delivered LOM average EBIT margins of 37% despite the weak prevailing gold price in its years of operation from 1989 to 2004.
The company had recently completed the Pre-Feasibility Study for its flagship 100%-owned Misima Gold Project in Papua New Guinea.
KSN said that the PFS confirms the potential to develop a technically robust, large-scale, long-life, low-cost operation delivering gold production of 130,000oz per annum at forecast life-of-mine (LOM) all-in sustaining costs (AISC) of A$1,159/oz over a forecast 17-year mine life.
Kingston said that the Misima operation will have a 130,000ozpa average annual gold production over a 17-year mine life. KSN said that this would be a conventional CIL plant fed by the main Umuna Open Pit and Ewatinona Starter Pit.
The PFS was based on the redevelopment of the brownfields site of the former Misima gold mine, which was operated previously as a successful 5.5Mtpa Carbon-in-Leach open pit operation by Placer Pacific, producing 230kozpa over a 15-year production history.
The company said that PFS forecasts a low capital expenditure of A$283 million including A$37m contingency.
Compelling project economics
Kingston said that the PFS predicts a Life-of-mine (LOM) average AISC of A$1,159/oz, LOM revenue of A$4.9 billion, LOM free cash-flow of A$1.5 billion, pre-tax Net Present Value (NPV8%) of A$822m and 33% IRR at US$1,600/oz gold price, pre-tax Net Present Value (NPV8%) of A$1.28b, and 48% IRR at spot US$1,900/oz gold price, and payback period of 4.7 years at US$1,600/oz gold price, reduced to 2.75 years at US$1,900/oz.
Large high-quality Mineral Resource and Ore Reserves
The company announced that the PFS predicts a 1.35Moz Ore Reserve for a 10-year mine life based on Reserve ounces only, and a 12.5% increase in global Mineral Resource from 3.2Moz to 3.6Moz Au. It may be noted that the robust economics based on Reserve ounces only – pre-tax NPV8% of A$481m, 30% IRR and 5.4-year payback.
New CIL treatment facility
Kingston announced that it plans to construct a new 5.5Mtpa CIL treatment facility and modern infrastructure on the footprint of the historic Misima gold mine, establishing a new standalone, long-life gold mining and processing operation underpinned by two major ore sources – a cut-back of the existing Umuna open pit and an expansion of the existing small pit at Ewatinona in the Quartz Mountain area.
Maiden JORC Probable Ore Reserve
Along with the PFS, the company has reported a maiden JORC Probable Ore Reserve of 48.3Mt @ 0.9g/t for 1.35Moz, which underpins the large scale, long-life Misima Gold Project, together with a further 12.5% increase in the global Resource to 144Mt at 0.78g/t for 3.6Moz.
KSN said that the Ore Reserve is based on a standalone mine plan and financial model excluding Inferred Resources. The company noted that the PFS is based on a Production Target mine plan and financial model including Inferred Resources which demonstrates the potential for the project to grow beyond the Ore Reserve if further work can upgrade confidence in the Inferred Resources to at least Indicated status.
Other targets identified
Kingston said that it has now identified a number of further target areas
Kulumalia – KSN is targeting conversion of near-surface ounces from Inferred to Indicated and potential Reserve status. The drilling is currently ongoing in this area.
Umuna East – The company said that further drilling at Umuna East will target the expansion and upgrade of the Inferred Resource in this area. As with Kulumalia, Umuna East is a possible target for adding higher grade feed to early years production.
Kobel/Maika – These are historical Placer starter pits located between Umuna and Ewatinona that have had little follow up exploration. Following the successful brownfield program at Ewatinona that resulted in its inclusion as a starter pit in the PFS, Kingston now intends to replicate this strategy at Kobel and Maika. Desktop work is underway assessing existing data ahead of developing a drill program at these targets; and
Abi – Kingston said that it will follow up on the Abi discovery hole, Abi’s proximity to Ewatinona and the proposed processing plant location make it an ideal, high grade, near surface exploration target.
Updates and next steps
KSN said that drilling activity is currently underway at Misima focused on identification of further near surface, higher grade ounces for early years mill feed. The first results from this program are expected to be reported in Q1 2021.
The company said that the existing environmental baseline work will now start to expand to incorporate further elements for input into the environmental approvals process.
Kingston said that the metallurgical and geotechnical test work programs required to confirm and expand data for input into the Definitive Feasibility Study (DFS) are now underway or due to commence shortly. The company said that it expects to commence the DFS by mid-2021.
The company said that the scale and quality of the Mineral Resource and Ore Reserve, together with the brownfields nature of the Misima Project, the extensive mining and processing history, the relative softness of the ore, and simplicity of the process flowsheet all give Kingston a high degree of confidence in the technical and commercial viability of the Project as the foundation for a long-term Asia-Pacific gold operation.
Kingston Resources Managing Director, Andrew Corbett said: “We are extremely excited to be able to report such strong results from the Pre-Feasibility Study, together with an impressive maiden 1.35Moz Ore Reserve and a further increase in our global Mineral Resource to 3.6Moz. This is a significant milestone for all stakeholders in the Misima Gold Project, and represents a meaningful step towards our goal of becoming a substantial new mid-tier Asia-Pacific gold producer.
The PFS confirms a robust, large-scale, long-life, low cost operation delivering annual average production of 130,000 ounces at an extremely attractive average all-in sustaining cost of below A$1,200/oz. The contained gold metal in the mine plan comprises 64 per cent Ore Reserves and Indicated Resources, with the balance of 36 per cent derived from Inferred Resources.
We also have confidence in our ability to convert these Inferred ounces to the Indicated category as drilling continues in parallel with the next stage of Feasibility work. Importantly, there was a high conversion of historic Resources to Reserves at Misima, which bodes well for the future performance of the operation.
Other key takeaways for investors include the relatively low capital intensity for a gold project of this scale and mine life, with forecast capital expenditure of A$283 million. The compelling economic parameters speak for themselves, with life-of-mine revenue of almost A$5 billion, free cash-flow of A$1.5 billion, a pre-tax NPV of A$822 million using an 8% real discount rate and conservative A$1,600/oz gold price, and an IRR of 33%. These numbers jump to an NPV of A$1.28 billion and an IRR of 48% at the current spot gold price of US$1,900/oz.
These are outstanding results that highlight Misima as one of the best undeveloped projects in the Asia- Pacific region. It is also a platform from which we will continue to unlock further value through the targeted drilling campaigns currently underway at Misima. We are now planning a number of additional work programs which will feed into the DFS, which is anticipated to commence during Q2 2021.”