Mupane: Tau supports a higher-grade, lower-cost mine
The Mupane mine is located in north-eastern Botswana, 30km south-east of Francistown. The mine has been in production continuously since 2004. When Galane took over Mupane from Iamgold in late 2011, production was from multiple open pits at grades averaging 1.8–2.2g/t (supplemented by the processing of lower-grade stockpiles).
However, in early 2013 production hiccups relating to a change of mining contractor and the mining of higher cost ounces from Golden Eagle saw operating cash costs spike above US$1,500/oz. Coupled with a sharply falling gold price, this triggered a comprehensive review of the mine plan, and Galane suspended production at the low-grade Golden Eagle pit and began development of higher-grade Tau Underground (measured and indicated resource grade of 2.9g/t; company annual information form, December 2017).
First development ore was mined from Tau Underground in May 2014 and stoping began in Q315. The chart below shows the impact that the ramp-up of Tau underground has had on average mined grades at Mupane. With mining at the small Tekwane pit completed n H118, Mupane is now mining at Tau underground only, supplemented by processing of historic stockpiles.
Exhibit 1: Mupane tonnes mined and grade (excluding mining from stockpiles)
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Source: Extracted from quarterly MD&A reports, Q112 to Q218. Excludes mining from stockpiles
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Exhibit 2 below shows the impact the transition to Tau Underground has had on the cost profile of the Mupane mine. Given the variability in quarterly figures, we consider rolling 12-month cash costs to be a better measure of cost performance; from a peak of US$1,438/oz in Q313, Mupane’s rolling 12 month average operating cash costs (before royalties) have fallen to just US$871/oz in Q218. After taking into account Botswana government royalties (at 5% rate) and sustaining capital of US$1.6m in H118, Mupane’s H118 all-in site sustaining costs ran at US$1,077/oz.
Exhibit 2: Mupane operating cash cost per ounce (before royalties)
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Source: Company quarterly MD&A reports, Q413 to Q218. Note: Rolling 12-month average calculated by Edison on a production weighted basis.
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In 2017, Galane Gold updated the mine plan for Tau Underground, extending the previous (2014) mine plan by 20 months and 44koz. Based on the December 2017 Tau resource and assuming a further 1.1Mt of low-grade stockpile and/or other resources are available for processing over the next three years, we estimate that Mupane could continue to produce at a rate of at least 28koz per year until at least 2020, with cash costs of between US$950/oz and US$980/oz and all-in sustaining site costs below US$1,100/oz. Based on Edison’s standard gold price deck, Mupane could generate more than US$4m in pre-tax cash flow a year in 2018e and 2019e to help fund the restart of the Galaxy mine, corporate overheads, interest and debt repayments.
Exhibit 3: Mupane historic and forecast key metrics (before life extensions)
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2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
Tau tonnes |
93,617 |
206,591 |
365,425 |
400,000 |
335,000 |
335,000 |
Tau grade (g/t) |
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2.74 |
3.06 |
2.71 |
2.87 |
2.94 |
2.94 |
Stockpiles and other tonnes |
183,620 |
704,065 |
351,188 |
400,000 |
380,000 |
380,000 |
Stockpiles and other grade |
1.20 |
0.77 |
0.96 |
0.98 |
0.90 |
0.80 |
Tonnes processed (kt) |
810 |
908 |
740 |
797 |
715 |
715 |
Mill grade (g/t) |
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1.29 |
1.29 |
1.75 |
1.87 |
1.80 |
1.84 |
Recovery (%) |
|
72% |
71% |
70% |
66% |
67% |
67% |
Gold production (koz) |
24 |
27 |
29 |
32 |
28 |
28 |
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Realised gold price (US$/oz) |
1,084 |
1,247 |
1,248 |
1,271 |
1,263 |
1,482 |
Revenue (US$m) |
26.2 |
32.7 |
37.3 |
40.3 |
35.5 |
41.1 |
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Cash cost (US$/oz) |
1039 |
965 |
933 |
950 |
965 |
980 |
Cash cost (US$m) |
25 |
26 |
27 |
30 |
27 |
27 |
Royalties (US$m) |
1 |
2 |
2 |
2 |
2 |
2 |
Capex (US$m) |
7.9 |
2.4 |
1.5 |
2.2 |
2.2 |
1.0 |
All-in site sustaining cost (US$/oz) |
1,417 |
1,112 |
1,048 |
1,081 |
1,106 |
1,090 |
Mupane mine pre-tax cash flow (US$m)* |
- 8.2 |
2.2 |
6.5 |
6.0 |
4.4 |
10.9 |
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Source: Historic figures based on company quarterly MD&A reports and financial statements, Q415 to Q218. Forecasts Edison estimates. Note: *Mine pre-tax cash flow is calculated as revenue less cash operating costs, royalties and site sustaining capex. Stated before movement in working capital, corporate overheads, interest and tax.
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Beyond 2020, the ability to sustain Mupane production at similar levels would be dependent on:
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The conversion of inferred to measured and indicated resources to extend the Tau underground life of mine. Measured and indicated resources currently support a three-year life of mine for Tau at current production levels.
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Potential extension of the Tau orebody at depth. As announced on 24 October 2016, Galane identified the potential for mineralisation at Tau to extend beyond the dyke that had previously been considered the limit of the orebody. Ore mineralisation characteristics of this ‘C-Reef’ are similar to those of the main Tau orebody. This area is not included in Tau resources; however, the company has recently completed 2,308m of drilling focused on the C-Reef, providing 31 intersections including one grading 24.85g/t over 3.0m.
Exhibit 4: Potential extension of Tau at depth
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Source: Galane Gold Investor Presentation, September 2018
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Development of other known resources at Mupane, such as the potential to exploit underground extensions of previously mined open pits. In addition to Tau, Mupane hosts a number of other significant deposits, with measured indicated and inferred resources totalling 318koz of contained gold at Jim’s Luck, Tholo, Golden Eagle and Kwena. Mupane reserves total 167koz at 2.04g/t overall (Galane Gold AIF 2017) including 97koz at Jim’s Luck, Golden Eagle and Kwena The company is exploring how some of these orebodies could be profitably developed in the current gold price environment.
Exhibit 5: Mupane resources
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Measured and indicated |
Inferred |
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kt |
g/t |
koz |
kt |
g/t |
koz |
Jim’s Luck |
2,518 |
1.15 |
93 |
1,337 |
1.08 |
46.4 |
Tholo |
228 |
1.49 |
11 |
54 |
1.58 |
2.7 |
Golden Eagle |
1,007 |
1.23 |
40 |
854 |
1.45 |
39.8 |
Kwena |
736 |
1.12 |
26 |
1,641 |
1.11 |
58.6 |
Tau |
1,056 |
2.87 |
98 |
627 |
3.06 |
61.7 |
Tekwane |
12 |
1.57 |
1 |
138 |
2.36 |
10.5 |
Stockpiles |
50 |
0.95 |
2 |
- |
- |
- |
Total Mupane |
5,607 |
1.50 |
270 |
4,651 |
1.47 |
220 |
Mupane Slimes |
11,287 |
0.40 |
145 |
- |
- |
- |
Mupane incl slimes |
16,894 |
0.76 |
414 |
4,651 |
1.47 |
220 |
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Source: Galane Gold AIF 2017
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Tati Greenstone Belt exploration potential. In addition to its mining leases and known Mupane resources, Galane holds prospecting licences over a significant portion of the broader Tati Greenstone Belt. However, funding constraints limit Galane’s ability to fully explore these prospective areas, so in March this year Galane granted an earn-in to B2Gold over 520km2 of its prospecting licences. Under the terms of the agreement B2Gold would be granted a 51% share in the exploration properties by spending US$2.5m within three years, and a further 19% by spending a further $1.5m within four years. However, if B2Gold does not meet its full spending commitments over that term, full ownership of the exploration properties reverts to Galane. The combination of funding and B2Gold’s exploration expertise has the potential to unlock value from this asset.