Monywa bolsters Indochina Goldfields — Copper producer could expand to 35,000 tonnes per year

Cash flow from the Monywa copper project in west-central Myanmar is enabling Indochina Goldfields (ING-T) to claw its way toward profitability.

For the first nine months of 1998, IG reported a loss of US$8.7 million, compared with a loss of US$20.5 million in the corresponding period last year.

Production at the Sabetaung-Kyisintaung (S&K) deposits at the Monywa copper project in Myanmar started in early November. Construction is complete and commercial shipping is expected to start this month. Full capacity of 25,000 tonnes a year is scheduled for the first quarter of 1999. IG has a 50% interest in the mine, with the remainder held by a state-owned company.

The operation consists of an open-pit mine and a solvent extraction-electrowinning plant. Ore is being placed on the leach pads at an average rate of 12,000 tonnes per day; since March, about 2 million tonnes have been placed, the average grade of which is 0.97% copper — significantly higher than the average grade of S&K’s minable reserve (155 million tonnes at 0.47% copper). The Sabetaung pit has required minimal stripping, with only about 8,000 tonnes of waste moved so far.

The owners are now looking at the economics of expanding the operation to 35,000 tonnes of copper cathode annually, from the current 25,000 tonnes. The expansion, which is estimated to cost US$7.5 million, would entail developing the Letpadaung copper deposit, which has a resource of 1.1 billion tonnes grading 0.4% copper. The total S&K resource is estimated at 560 million tonnes grading 0.32% copper, including the present 155-million-tonne minable reserve.

Meanwhile, IG is hoping to attract potential joint-venture partners to the Bakyrchik gold project in Kazakstan, and ongoing negotiations with the Kazakstani government are aimed at reducing the original purchase price of US$115 million, which includes US$50 million in capital investment.

Poor gold recoveries have hampered progress at Bakyrchik since Western interests began work there in the early 1990s. However, metallurgical research is under way in an attempt to upgrade the mill.

In Kalimantan, Indonesia, exploration at the company’s Sekatak polymetallic deposit is outlining zones of zinc-lead mineralization with typical grades ranging from 2% to 10% combined lead-zinc, with silver credits.

At the nearby Jelai-Mewet gold prospect, IG has drilled a number of mineralized intersections on the Mewet vein. A 3.3-metre interval graded 7.4 grams gold per tonne and, in another hole, 1.7 metres ran 11 grams. One intersection at depth graded 6.4 grams per tonne over 4.5 metres, possibly indicating wider zones of mineralization at depth.

To conserve cash, IG is looking for possible joint-venture partners at Jelai-Mewet.

Indochina’s neighbor across the hall, First Dynasty Mines (FDM-T), reported a third-quarter loss of US$7.2 million on revenue of US$1.3 million, generated entirely from the Zod gold mine in Armenia. The company’s total expenses of US$3.3 million included US$1.4 million in operating costs incurred at Zod, ownership of which is shared equally with the Armenian government.

The balance sheet has improved, at least in the short run, as Dynasty was able to replace its short-term debt with a 3-year note for US$5.8 million. The principal and interest on the note become payable only at maturity.

During the quarter, First Dynasty sold its interest in the Sembakung oil field in Indonesia for US$16.5 million in cash and assumed debt plus US$5 million in promissory notes. The company will also receive proceeds from the sale of equipment from the project, a sum currently estimated to be somewhere between US$1.4 million and $2.8 million.

Taken together, the replacement of debt and the sale of the Sembakung interest have brought First Dynasty’s working capital back into the black, at US$2 million. At the end of the second quarter, the company had a working capital deficit of US$23.7 million.

Another infusion of cash, one not reflected in the third-quarter results, came from Indian-based metal processor Sterlite Industries. Sterlite is acquiring 32.2 million units, each of which consists of one First Dynasty share and one purchase warrant, for US$7.5 million.

The warrants survive for three years and are exercisable at Canadian-dollar prices starting at 45 cents in the first 12 months, increasing to 54 cents in the next 12 and 65 cents in the last 12 months. Full exercise of the warrants would give Sterlite a 43% interest in the company.

The Zod mine produced 4,687 oz. gold in the quarter. Plant operations exceeded their designed capacity and, with mining moving into a higher-grade area, the company expects monthly production rates to exceed 2,000 oz. for the rest of the year.

Impact assessments have been filed with regulators for an expansion to produce 160,000 oz. gold annually. The estimated capital cost has fallen to US$35 million from an earlier US$41.6 million, reflecting a decision to lease the mining equipment fleet.