Zheng Guang-Update on Capital and Operating Costs
July 23 2008 - 2:00AM
UK Regulatory
RNS Number : 6701Z
Leyshon Resources Limited
23 July 2008
23 July 2008
Zheng Guang Gold Project
Update on Capital and Operating Costs
Leyshon Resources Limited ("Leyshon") (AIM & ASX: LRL) is pleased to advise updated estimates of capital and operating costs for its 70%
owned Zheng Guang gold zinc project which has recently commenced construction in the northeast province of Heilongjiang in China.
Highlights
* Capital cost estimate has increased by 14% in line with inflation in the mining sector but remains comparably lower than the global
average.
* Forecast net operating costs are less than US$250 per ounce of gold produced benefitting from the low unit operating costs and zinc
and silver revenues.
* Project is extremely robust in first five years as low strip ratio starter pit with no pre strip generates strong cash flows from the
outset at current metal prices.
* Directors have committed to a high dividend payout policy.
* 30,000 metre step out drill programme to increase gold resources and test two large porphyry copper targets is well underway.
* Project development has commenced with access road near completion, crushing circuit fabrication complete and first ball mill
fabrication well advanced.
* Key professional appointments made to oversee construction and development of the mine and associated infrastructure.
The capital costs have been updated from those provided by the Changchun Design Institute in January 2008 following a detailed review of
individual supply contracts by Leyshon's Zheng Guang Project Team in light of the strong cost pressures currently being experienced within
the global mining sector.
The operating costs have also been reviewed and are now estimated at US$238 per ounce of gold produced after silver and zinc credits
over the first five years of operations. This equates to a unit operating cost of $21.60 per tonne of ore mined and milled which is
achieved by the combination of a low strip ratio open cut mine, low power and labour inputs and a large scale highly productive processing
plant. Final engineering studies are being undertaken this year and final operating cost estimates will be available after these have been
completed.
The project benefits from the excellent metallurgical response of the ore which permits whole of ore to be treated through a single
circuit allowing an additional 20% of revenue to be generated from silver metal and zinc concentrate.
A summary of the updated project operating parameters over the first five years of the operation is provided below:
100% 2009 2010 2011 2012 2014 2015
tonnes mined andprocessed Commissioning 1,500,000 1,750,000 2,250,000 2,250,000 2,250,000
gold ounces produced 76,000 88,000 114,000 114,000 114,000
silver ounces produced 214,000 280,000 360,000 360,000 360,000
zinc tonnes metal in n/a 5,800 7,500 7,500 7,500
concentrate produced
revenue (US$ millions) 68 92 118 118 118
operating cost (US$ millions) 29 39 48.5 48.5 48.5
cost per ounce gold equivalent 330 255 238 238 238
US$/oz
operating cashflow (EBITDA) 39.5 52.7 69.7 69.7 69.7
(US$ millions)
capex (US$ millions) 59.1 15.3 6.0 5.9 4.4 4.1
exploration (US$ millions) 3.0 5.0 5.0 5.0 5.0 5.0
Revenue is based on metal prices of US$850/ounce gold, US$18/ounce silver and US$2,000/tonne zinc. Cost per ounce of gold is the total
cost of production net of silver and zinc revenues divided by the ounces of gold produced.
At current metal prices the project is expected to generate very strong cash flows from the starter pit over the first five years of the
project's life. Current studies indicate there are up to 15 years mine life from the Main Ore Zone alone.
During the first five years, over US$25 million will be spent on exploration to delineate additional resources on the 130 km2 of highly
prospective tenement holdings. These will be mined separately and blended with ore from the Main Ore Zone and are expected to result in a
long mine life project with sustainable low operating costs.
The 2008 exploration programme is well underway and has recently commenced drilling at the previously discovered Zheng Guang North
prospect located approximately 1 kilometre north of the Main Ore Zone and which is the first prospect expected to be converted to
resources.
The Directors are of the view that these early cash flows should be applied to sustaining capital of the project, US$3-5 million per
year in exploration and the balance distributed to shareholders by way of a high dividend payout policy as soon as positive cash flow and
profitability has been established.
Project development has commenced with access road near completion, crushing circuit fabrication complete and first ball mill
fabrication well advanced. It is anticipated that there will not be any delay resulting from long time items not being delivered on time.
A number of key appointments have been made. Experienced operations manager Paul Rainbow - a mining engineer with 25 year's operating
experience in Australia, has been appointed Resident Manager. Peter Niu, previously with South China Morning Post, Kodak and Sino Gold, has
been appointed Financial Controller in the Beijing office. A number of other geological, technical and administrative positions have also
been filled.
The Board has introduced a comprehensive inflation cost management policy under which suppliers are being required to disaggregate and
mitigate any proposed cost increases. Fixed price contracts are being entered into where ever possible, and where price rises cannot be
avoided, quantity reductions, deferrals and productivity improvements are being sought to offset the increase in cost.
The joint venture has been successful in limiting diamond drilling costs to a 9% increase in 4 years by offsetting rising input costs
with productivity improvements. The joint venture has the advantage of available diamond drill rigs at rates that are substantially below
equivalent rates in Australia and elsewhere.
The 2008 exploration programme targeting strike extensions to the Main Ore Zone and identifying drill targets on the two large copper
gold anomalies is well under way with over 4,100 metres of diamond drilling and 5,400 metres of reverse circulation completed. First
drilling results are expected in August.
In addition, 1,400 soil samples have been taken over two very large copper gold anomalies which are located approximately 5 kilometres
from the proposed location for the Zheng Guang plant. Results from this programme are expected to generate large copper gold porphyry
targets for drill testing later in the season.
The Company has previously announced that it is considering a proposed secondary listing on the Main Board of the Stock Exchange of Hong
Kong Limited (the "SEHK") which the Directors believe is a natural choice of market for companies with substantial businesses and operations
in China seeking a listing on an internationally recognized market.
The Directors are of the view that the proposed listing of Leyshon on the SEHK, where it will join a very small number of listed gold
mining companies, will enable it to expand its shareholder base and fund-raising opportunities in the rapidly growing Asian market.
Managing Director Paul Atherley commented: "We have invested over US$25 million into Zheng Guang over the past 5 years and are delighted
to be bringing it into production in a very low operating cost environment at a time when metal prices are very strong. Our priority is to
establish a strong early cash flow and make distributions to shareholders.
Leyshon will join a very small group of Hong Kong listed mining companies with gold operations in China at a time when China has become
the world's largest gold producer."
For further information contact:
Leyshon Resources Limited
Paul Atherley - Managing Director
Tel: +86 137 1800 1914
Mob: +61 417 475 038
Pelham Public Relations
Charles Vivian
Tel: +44 (0)207 743 6672
Mob +44 (0)7977 297903
James MacFarlane
Tel: +44 (0)207 743 6672
Mob: +44 (0)7841 672831
Seymour Pierce
Jonathan Wright
Tel: +44 (0)207 107 8000
http://www.leyshonresources.com
Background Information
Leyshon is fully engaged in China with its main operating office in Beijing its Chairman, Managing Director and Chief Operating Officer all
based in China. Over 80% of employees are either native Chinese or Mandarin speaking.
Following recent approval from the Heilongjiang environmental Authorities development has commenced the Zheng Guang gold zinc project
and is aiming to become the first ever Sino Foreign owned mine in the mineral rich province of Heilongjiang when it comes into full
production in 2010.
The project benefits from exceptional infrastructure as it is located within a well established coal and copper mining community with
rail, power, water and mining contractor services immediately available.
The recently reviewed capital cost estimate for the 2.25 million tonne per annum combined carbon in leach and flotation circuit process
plant is RMB369 million (US$52.6 million).Orders have been placed for two 4.6 metre diameter ball mills at a cost of RMB15.2 million (USD
2.1 million) and a RMB12.1 million (USD 1.7 million) order has also been placed for the supply of a 700 tonne per hour Nordberg crushing
circuit.
Leyshon's partner, the Qiqiha'er Brigade of the Heilongjiang Bureau of Geology and Mineral Resources, one of the largest organizations
of its kind in China, is providing a range of services to the joint venture from its complement of 4,000 technical staff, drill rigs,
laboratory and other technical facilities. This valuable support is enabling the project to rapidly move ahead on an extremely
cost-effective basis.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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