Ferdi Dippenaar, CEO, Great Basin Gold
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Great Basin Gold buys a mill to cut costs
Allan Seccombe
Posted: Mon, 08 Dec 2008

[miningmx.com] -- GREAT Basin Gold (GBG) is buying its own mill in Nevada for $12m to treat ore from its Hollister mine far more cheaply rather than relying on expensive toll treatment options, which capped production at the project.

GBG CEO Ferdi Dippenaar said at the company’s maiden quarterly results presentation in August that when Hollister sent material to Newmont’s nearby Midas mill he did so “with tears in my eyes every time.”

The cost then to recover an ounce of gold was above $600, which drew strong reaction from analysts and shareholders. It fell to $535 in the September quarter, which was still too high.
tears in my eyes every time
Dippenaar has for a long time said if the economics made sense GBG would buy its own mill. That time has come.

Toronto and Johannesburg-listed GBG has struck an agreement with TSX-listed Metallic Ventures Gold to buy its Esmeralda processing plant, including a mine and related infrastructure, for $2m.

The mothballed 350 tonnes/day plant is 290 miles away from Hollister and GBG reckons the cost of contractors transporting ore will be $55 per tonne.

The total cash cost, without the full benefit of economies of scale, would be around $395/oz, based on a fuel price when oil was selling for $78/barrel, Dippenaar told Miningmx. The Brent crude price is currently just above $40.

“With these kinds of costs Hollister will look vastly different,” he said.

GBG will spend another $8m increasing capacity at the plant to 600 tonnes/day and re-commissioning it over 120 days.

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Hollister’s feasibility showed the mine producing 400 tonnes of ore a day, limited by the restraint on treatment capacity in the region, but this can now possibly be expanded to meet the increased size of the plant.

GBG will also examine mining and exploration data at Esmeralda, which was shut in 2004 due to low gold prices and what Dippenaar described as unsuitable opencast mining methods for the narrow-vein deposits.

He suggested GBG could look at replicating the Hollister underground mining method at Esmeralda, adding to the feedstock for the plant.

The deal is conditional on GBG receiving all the necessary permits to operate the mill and related facilities.

“We’ve taken legal advice and us getting the permits should not be a problem. The process is underway,” Dippenaar said.

There is also a $2m reclamation liability, which requires GBG to put a bond in place for that amount.

This gives a total cost of $12m, which is below the $50m Dippenaar at one point raised as a potential cost of securing a mill. One of the reasons is that GBG is not moving the mill to Hollister.

GBG, which has no debt on its balance sheet, is finalising a loan to pay for the acquisition.

The total cost per tonne of $95/tonne will be cheaper than the gold price-based 20% revenue royalty in toll treatment operations.

It will take between one and three years for GBG to receive a permit to start full-scale mining. It is currently trial mining.

The Bureau of Land Management has reviewed GBG’s submission on the Hollister Block project and said it required “further analysis by way of an environmental impact statement”. This process is underway.