Amid the doom and gloom of a depressed gold market, Excelsior Gold managing director David Hamlyn still has reason to be cheerful. His company's Kalgoorlie North gold project, with its resource base of 1.37 million ounces of gold, sits just 45km north of Kalgoorlie, alongside bitumen roads, powerlines and the all-important Paddington mill, which will soon be treating Excelsior's prized ore.

Excelsior's recent execution of an ore treatment agreement with Norton Gold Fields will see Norton process a minimum 500,000 tonnes of ore per annum over a period of five years at the Paddington mill, with the option to extend the annual allocation on a yearly basis for a further five years, providing a cumulative allocation of up to five million tonnes.

Excelsior may receive higher annual throughput rates of up to 650,000 tonnes per annum, dependent on favourable metallurgical characteristics of the Kalgoorlie North gold project ore and there being availability in the Paddington milling schedule.

In return, Excelsior will contribute capital to assist with an upgrade and refurbishment of the Paddington mill, capped at $12.5 million.

"The deal that we've negotiated with Norton Gold Fields, whereby we contribute capital to upgrade their mill, essentially means we're buying capacity in their mill. The advantages for both companies are plentiful. Excelsior is buying a 500,000 tpa mill for $12.5 million, but with the treatment cost structure of a much larger treatment plant," Hamlyn said.

"Not only do we get cheaper treatment costs, but Norton's treatment costs come down as well because there are more tonnes going through the mill; it's a win-win for both companies."

Hamlyn is quick to point out that the milling agreement with Norton is categorically not a toll treatment arrangement.

"This is a cooperative milling agreement where both parties stand to get benefits. A toll treatment is where you have a parcel of ore and you take it to the mill and you argue about the grade," he said.

"The way we calculate costs is an open-book arrangement. We get to see what the costs are each month, and it's in both of our interests to actually reduce that cost as much as possible."

With the Paddington mill agreement in place, Excelsior can now look to move quickly towards production at its Zoroastrian deposit, which has existing resources of 581,200 ounces (6.69Mt at 2.70gpt gold) and remains open at depth and to the south.

Aberfoyle Gold mined Zoroastrian between 1987 and 1991, although the company failed to identify the main orebody.

"We discovered new zones of mineralisation on the western margin of the pit area which hadn't been recognised before," Hamlyn explained.

"It was a very significant find. We were looking at the narrow, high-grade vein structures for a potential underground mine, but as we stepped back and drilled deeper, we started to intersect broad zones of good-grade mineralisation on the western contact of the dolerite."

Upon closer examination, Excelsior discovered that the Zoroastrian gold mineralisation is hosted in quartz veins and stockwork zones within the differentiated Zoroastrian dolerite. The quartz veining has been defined over a strike length of 1.4km and to a maximum vertical depth of 380m.

"The Zoroastrian deposit is quite a special find for us because it is a very robust-grade deposit. It's an open-pit orebody that also has very good mechanised underground mining potential. It's very similar to the Paddington mine further to the south, which produced over two million ounces," Hamlyn said.

"We actually think Zoroastrian is going to be in excess of a one-million-ounce deposit. We have been fortunate enough to find a deposit that is a good, robust grade, of oxide dirt, within 20km of a mill. The reality is that we probably have more resources close to the Paddington mill than Norton Gold Fields does."

Under the terms of the milling agreement, Excelsior will start delivering ore to the Paddington Mill by January 1, 2016, however Hamlyn is optimistic that production can be brought forward to June or July 2015. He also expects the mine's capital costs to be significantly less than the $A76.7 million estimated in the pre-feasibility study.

"The timeframe is shortening up. Currently we're in the process of refining our mine designs. It has been pleasing to see that in this fairly difficult environment the mining contractors' costs are very competitive," he said.

"Compared to the mining costs that we were applying to our pre-feasibility study at the beginning of this year, we're seeing a 10-20% reduction, which are very significant to the project.

"At the moment we are applying those reduced mining costs to our pit studies and we'll be bringing revised pit designs and a new mining schedule. So, although it's a tough market, we're in a very, very good position."

According to Hamlyn, the old Bardoc Mining Centre, on the central part of the Kalgoorlie North project area, has the potential to develop into a new, multi-million-ounce, gold camp-scale area in the wider Kalgoorlie region of the Eastern Goldfields.

"We want to focus on developing and exploring this area. We have been offered a lot of ground to build up our tenement holding, which is only 113sq.km, but the thing is, that 113sq.km is right over the greenstone belt and at the intersection of two really big mineralising systems in the Goldfields. It is quality over quantity," Hamlyn said.

"We've had over 90 gold occurrences in our tenements and everything is so close together that it makes it a lot easier to mine. It's very intense mineralisation. It's quite complex structurally, but as we've been exploring we've been getting a very good understanding of the structures that we need to be chasing."

After focusing on better defining the Zoroastrian and Excelsior deposits, the company is now moving its attention to the Bulletin South deposit. The Bulletin area lies in the south-west of the Kalgoorlie North tenements, and has a resource figure of 729,700t at 1.98gpt gold for 46,500oz at 0.6gpt gold lower cut-off.

"We've had some very good results from Bulletin South and it's looking like it's developing into another fairly substantial open pit for us with underground potential as well," he said.

The Paddington agreement allows Excelsior to focus on what it does best, gold exploration. It also means the company can be a lot more selective, concentrating on reserve definition and finding better deposits.

*A version of this report, first published in the November/December 2014 edition of RESOURCESTOCKS magazine, was commissioned by Excelsior Gold.