The half-year report, expected tomorrow or on Thursday, will reveal that Morobe, about 250km north of Port Moresby, has passed the 5 million ounce mark – with the potential for more as exploration continues.
Aurora, which has been hit hard by troubles at its Mt Muro project in Indonesia, is well advanced with feasibility studies at Morobe. Mine, plant and tailings disposal design is almost complete, though each step requires fine tuning – and then comes the job of convincing banks that a $250 million development in PNG is a good investment.
The mine, on top of a 2400m mountain, is being designed to produce 4-5 million tonnes of ore averaging about 3 grams per tonne of gold equivalent (gold plus silver) to produce more than 300,000oz of gold a year and a cash cost well below US$200/oz.
Processing will be in a plant about 2km from the mine with waste rock dumped in adjoining valleys, and tailings stored in PNG’s first conventional dam set on flat land in the Wau valley about 15km away (and 1400m below). A slurry pipeline will deliver the tailings, which remain the most sensitive environmental issue in PNG after problems at the Ok Tedi copper mine and controversial river and ocean dumping by other goldmines.
Retiring Aurora chief executive, Ian Burston, says Morobe is a robust project. He believes the sales pitch of 5Moz to support a 300,000oz a year project for a minimum of 10 years will win over a bank syndicate. However, he acknowledges that funding will probably be on a very tough 50/50 basis (half debt, half equity) to provide a comfort level to the banks. Most new mines in Australia are bankable to 70% debt and 30% equity.
Like all projects, Morobe is sensitive to the gold price though it is profitable at the current price of around US$275. Any lower, however, and the figures become less attractive.
By the time Aurora completes its bankable feasibility study early next year close to $110 million will have been spent on Morobe. The orebody was discovered by Rio Tinto’s predecessor, CRA Ltd, in 1983 and sold to the defunct Australian Gold Fields in 1997. Aurora bought it (plus the nearby Hamata gold project) in 1998 for $24 million.
The size of the resource at Morobe has never been in question. Aurora’s 5Moz is certain to be exceeded when nearby exploration targets are drilled out, and the Hamata project about 6km to the south-west is included. Back of the envelope calculations point to Morobe/Hamata already being close to 7Moz, with 10Moz an achievable target.
For Aurora, the immediate job is proving that it has a financially viable mine. Then comes another hard bit – convincing a possible new major shareholder that Morobe is worth developing. Aurora’s parent company, Ashton Mining, is under takeover threat from the South African diamond house, De Beers. There seems little doubt that should De Beers succeed it will only want to keep Ashton’s diamond interests (40% of Argyle, plus the Merlin project and other assets in Angola and Canada).
A 35% stake in Aurora is likely to be passed down the corridor (in a totally transparent way, naturally) to De Beers’ close associate, AngloGold. If that happens, Morobe gets its third owner and the development process could be slowed, yet again.
