Admittedly, that amount of money is small change for a company the size of Rio, which last month was in the midst of a $3 billion-plus takeover battle for fellow miner North Ltd. But the New Occidental green light proves that even multinational corporations are prepared to back smaller projects if they can demonstrate low operating costs and decent returns on capital.

New Occidental, in combination with ore from the New Cobar open cut, will extend the life of the Peak gold mine from 2001 to at least 2007. It suggests that Rio is now in for the long-term, following a period last year when the mine was up for grabs.

"The mine is not on the market," said Mark Anderson, general manager of Peak. "The
potential sale was discontinued and the mine was taken off the market in September 1999.

"Rio were quite serious about selling it and we put out a confidential information memorandum to different companies," he said. "They put in some initial bids, we picked the best four or five, and they did due diligence. However, we couldn't quite come to an agreement in terms of what we felt it was worth. So we decided to take it off the market and keep it ourselves."

Despite Peak's "minnow" status in global terms, it is not too difficult to see why Rio decided not to accept a low offer. The mine produced 122,000 ounces in 1999 and production this year is forecast at 126,000 oz. More importantly, they are low cost ounces.

Cash costs this year are predicted at "below A$200 per ounce", making Peak one of Australia's lowest cost underground gold mines. Costs are expected to creep upwards in the next couple of years as grades decline at Peak, but will then drift back down to the $200-250 range as the new deposit gets into full swing.

Key dates for New Occidental, which is roughly 3km north of the Peak mine, are:

* Development Consent approval October 2000.
* Access decline to be completed from Peak to New Occidental in January 2001.
* Development of the initial stoping block July 2001.
* Production from first New Occidental stope August 2001.
* Mill upgrade (ball mill plus additional leach tanks) complete July 2001 with commissioning August 2000
* New Occidental ore in feed from September 2001.

About $17.6 million has been allocated to develop the new deposit and upgrade the mill.

Anderson said PGM had received detailed costing proposals for the treatment plant modifications, and the company expected to announce a successful bidder in August.

The remainder of the capital cost is taken up by the underground access drive, budgeted to cost $6.6 million. Construction of the drive started in October 1999 and was 60% finished by July 1. The 3km-long decline will have a gradient of one-in-ten and is being driven from the end of the existing north exploration drive at Peak to the New Occidental orebody. It will provide access to the mineralisation at approximately 900m below surface (90 level).

The 90 level will be the main level for the mine, which will include magazines, fuel bay, service bay, store and crib room. Ore from the deposit will be trucked back to Peak and hoisted to the surface via the existing Peak shaft for treatment in an upgraded concentrator.

The close proximity of New Occidental to Peak allowed Rio some flexibility in development
options. The choices were a surface decline at New Occidental; sinking a new haulage shaft;
or to develop across from Peak.

"Given the depth of the New Occidental ore body [between 550m and 1000m below surface],
the potential for further discoveries in the zone between the Peak and New occidental, plus the need to maintain the existing shaft and mining infrastructure at Peak for ongoing production and near-mine exploration, it was decided to access New Occidental via an underground drive from Peak," Peak Gold Mines said.

Full story in August's Australia's Mining Monthly.