February 02, 2011

Vatukoula Gold Expands Its Horizons, As Production Looks Set To Hit 100,000 Ounces

By Chris Cann

Three years ago, former mining analyst Dave Paxton agreed to take on and manage the restart of Fiji’s historic Vatukoula underground gold mine as chief executive of Vatukoula Gold Mines. His initial objectives were to return the four million ounce operation to production, get it up to nameplate capacity and in turn into profitability. It wasn’t an easy proposition. The mining fleet comprised dated machines, there were power constraints, and technical mining challenges too. But now the power and equipment concerns have been addressed, and a gradually increasing and ever more consistent feedstock is being introduced to the processing plant, to the extent that, as 2011 gets underway, Paxton and his team have pretty much delivered on those initial objectives. The time has now come for them to lift their eyes and consider what else might be achievable at Vatukoula.

The numbers speak for themselves. In the first half of last year, Vatukoula registered an after tax profit of £4 million, on the production of almost 25,000 ounces. And in total, over the 12 months to the end of August the company produced 60,000 ounces. It recently reported that it is on track to reach the project’s nameplate capacity of 100,000 ounces per annum in the second quarter of this year. Meanwhile, costs have continued to come down as production has increased, and there’s every possibility that they will fall still further. Vatukoula has now moved closer to a decision on the construction of a biomass plant nearby. Fuel from such a plant would supplement diesel supplies and reduce costs further by between US$100 and US$150 per ounce.

All of which opens the up the possibility of further expansion. “We felt that once we got to a stable production rate, had a plan going forward, could see increases in tonnages, and were confident with cash flow streams, we’d look at the exploration”, explains finance director Kiran Morzaria. Vatukoula had planned to wait until this summer before it really got going with exploration, because that’s when the spare cash flow to fund it was likely to be available. But that wasn’t soon enough for some investors. “When we spoke to our shareholders mid-last year they told us to raise money and to do the exploration now so we kicked it off, did the research, did the reinterpretations and a lot has come out of it”, continues Kiran Morzaria.

Vatukoula recently released details of its planned drilling campaign, which has three specific goals. One is to extend the extent of known oxide zones. The second is to conduct underground exploration at the mine with a view to proving up new high grade zones. The third is to get to work on Special Prospecting Licences (SPLs) that sit on the other side of the caldera and could potentially host a look-alike to the multi-million ounce Vatukoula orebody. Altogether, 35,000 meters of reverse circulation and diamond drill holes will be drilled throughout 2011, some of which has already been completed. Eight holes had been drilled on surface oxide targets by mid-January, a total of 773 metres.

The oxide program is primarily designed to determine whether enough resources can be delineated to justify construction of a standalone oxide circuit. Currently, the processing plant can switch between oxide and sulphide, but, as production continues to rise, it will be used solely to process the higher grade sulphide material. Kiran Morzaria would not be drawn on how many ounces would be needed before a separate oxide circuit was considered viable, but he did say that it would be a “significant” number. There are two oxide targets at the mine and another on the SPLs.

The underground mine drilling aims to increase the resource, increase the grade and convert known resources to the reserve category. This program will also provide a better understanding of the Vatukoula ore body. Should this program improve the average grade from the 6.5 grams per tonne currently delivered to a figure more in line with the historic 7.5 grams per tonne average, it would mean an extra 30,000 ounces per annum from the same throughput.

But the real upside is the possibility that another deposit might lie on the SPLs, four kilometres to the north. Previous exploration in this area included hits of one meter grading 95.4 grams per tonne and 17 meters at more than 30 grams per tonne. The initial program will consist of 14 holes to drilled to depths of between 700 metres and 800 meters, and should get underway in a couple of weeks. Some big intersections could prove transformative for the company.
http://www.minesite.com/nc/minews/singlenews/article/vatukoula-gold-expands-its-horizons-as-production-looks-set-to-hit-100000-ounces/1160.html

Share Structure

As of 8th September 2010 the Company is aware of the following persons who hold, directly or indirectly, voting rights representing 3% or more of the issued share capital of the Company to which voting rights are attached.

Shareholder No. of Shares % of Issued Capital
Sprott Asset Management 14.926m 18.06%
Canadian Zinc Corporation 12.573m 15.21%
Black Rock Investment Management (UK) 4.996m 6.05%
Capital Research and Management 3.214m 3.89%

Percentage holdings not in public hands 28,107,623 34.01%

http://www.vgmplc.com/investors/mshareholders/