Armada Gold deems Taseevskoe minable

A feasibility study on the Taseevskoe gold deposit in southeastern Russia has recommended refurbishment and expansion of the existing facilities, and production from an open pit.

The study, by Kvaerner Metals Davy, was commissioned by Armada Gold (AAU-T), operator of the project. Taseevskoe was mined from 1949 and sold off in 1992, at the end of the Soviet era, by the new Russian government. In 1994, a shortage of capital closed the mine, after it had produced about 14 million tonnes of ore grading 16 grams gold per tonne. Considerable resources remained in an existing open pit and in the surrounding rocks.

A 1997 feasibility study by Australian-based Snowden Associates examined a lower-grade pit with a larger reserve, capable of producing 1.75 million tonnes a year. Even though this study, and a supplementary one by Kvaerner, concluded the project was feasible, financing proved difficult to raise.

Kvaerner’s new feasibility study says it would be economic to expand the pit and mine at an annual rate of 500,000 tonnes, yielding 98,000 oz. gold annually. The pit, as designed by Kvaerner, has proven and probable reserves of 3.1 million tonnes grading 7.1 grams gold per tonne, with a 1.9-gram cutoff grade. The mine life would be 6.3 years.

The reserve outlined in the earlier feasibility studies shrinks to 23.3 million tonnes grading 2.9 grams gold when the smaller, higher-grade reserve in the pit is excluded. The company is hoping a smaller-scale project will provide early cash flow and allow it to bring the larger open pit into production later on.

The estimated capital cost is US$43.5 million, including US$10.2 million worth of pit equipment, US$29.4 million spent on upgrades to the existing mill and site infrastructure, and US$3.9 million for pre-stripping.

Armada is also looking at leasing or contract mining, which would trade off lower capital costs for higher operating costs. Kvaerner estimates the cash production cost to be US$113 per oz., compared with its earlier estimate of US$166 for the larger pit. The project has an internal rate of return of 32% if the gold price holds around US$300 per oz.

The project is scheduled to take 15 months and will use the existing tailings impoundment. Expanding the present open pit allows the project to go ahead with a minimum of pre-stripping.

Armada’s Russian subsidiary, Balgold, acquired a nominal 100% interest in the project in March, but the interest will be diluted once it has finished negotiations with possible partners and with the Russian government. Armada has been in discussions with several companies that may have an interest in a merger.

Leader Mining (LMN-A) had announced it was in merger discussions with Armada, but has dropped out of the running. Leader, whose shares have been doing an imitation of the Russian ruble since the beginning of August, announced that “recent economic developments in Russia and the weakness in the company’s stock price” had forced it to call off its due-diligence investigation of Armada’s projects.