Establishing operational efficiency has become a key priority for Millennium Minerals since the company poured first gold at its Nullagine mine late last year.

The Perth-based company became Western Australia's newest gold producer from its East Pilbara operation in September.

Ahead of schedule, Millennium reached optimum throughput from its 1.5 million tonnes per annum capacity mill in six weeks as it delivered output of more than 14,000 ounces in the December quarter.

Chief executive Brian Rear said it was a satisfying achievement for the company to be producing on schedule and budget, and without any major operational concerns.

Rear told RESOURCESTOCKS that to be in production on budget can be a rarity.

"The fact that we didn't experience any fundamental design issues was also great for the company - that's a very positive sign - so we couldn't be more pleased with our progress to this point," Rear added.

The Nullagine operation has a 1.33 million ounce resource and 741,000oz ore reserve within seven deposits on granted mining leases.

Its largest deposit is Golden Eagle, which contains about 62% of the company's total mineral resource inventory and is located about 10km south of the Nullagine township.

At a forecasted head grade of 1.7 grams per tonne gold, the company's gold processing plant can produce at least 73,000oz annually.

Now fully operational, the next step for Millennium is to move Nullagine into commercial production, which at the time of print was on target to be achieved during the first quarter of 2013.

Rear said the company was setting its sights on maximising returns from the mine by working to lower costs and by preparing to lift gold production during 2013.

Mindful of the rising costs hampering the resources industry in Australia, Rear believes the company needs to focus its efforts on controlling these growing pressures at Nullagine to provide long-term cash flow that will aid future expansion.

"The way we are going to tackle these growing costs is to optimise our operations by lifting our current production profile through the assets we have already invested in," Rear said.

"We are looking to achieve greater output from these assets through this strategy; the early signs are we will achieve that."

Millennium, which operates on a December-end 12-month fiscal period, has set guidance from Nullagine of between 78,000-83,000oz for the calendar year.

If the company reaches production of 78,000oz it has forecasted cash costs for 2013 of $829/oz and after royalties of $881/oz.

At the higher production guidance of 83,000oz the company reported that cash costs would drop to $785/oz and $833/oz after royalties.

Millennium is currently completing exercises that will assist management in understanding what applications will achieve lower costs on a sustainable basis, Rear said.

A key objective for the company is to find the combination of throughput and head grade that yields the highest return and best profit margin from its existing production assets.

Rear said the mill was currently operating effectively at 1.5Mtpa, but had the potential to be upgraded to at least 1.7Mtpa, and perhaps as high as 1.9Mtpa.

The company is targeting a stage one expansion from the design throughput to 1.7Mtpa this year.

This would require an increase in throughput from 189t per hour to about 200t per hour. The company's average rate in December 2012 was 198t per hour, almost matching that objective already.

"This is part of our plan to utilise our existing assets as much as possible," Rear said.

"The trick will be to push up our outputs, but at the same time not bring on any extra fixed charges.

"The marginal increase in production will only incur minimal extra costs, but the added revenue generated from optimising our operations this way will significantly improve our margins."

The company's rapid rise to full production led it to undertake an equity raising in November 2012 to provide a working capital buffer.

Reducing the ramp-up period to six weeks from the budgeted 12-14 weeks required a more rapid build-up in pit material movement, reagent stocks, fuel stocks, maintenance spares and consumables under the extended phase originally planned.

The company raised $8.1 million through the issue of 300 million shares at 2.7c per share, with about $6 million of the funds raised dedicated to the working capital buffer.

"The short-term increase in working capital requirement was ultimately off-set by the higher revenue generated by achieving full production earlier and established a sound basis for 2013," Rear said.

The remainder of the funds was allocated to exploration and development, providing Millennium with the foundation to make an early start on the exploration program mapped out for 2013.

Despite now producing at its desired rate, Millennium's focus on exploration remains another key priority this year.

The company has already started an aggressive program designed to increase the mineral resource and ore reserve base across the company's tenements.

A program of RC drilling commenced at Golden Eagle late last year and is targeting previously identified hanging wall mineralisation currently considered as inferred resource under the JORC code.

The company's exploration will focus on existing deposits at Nullagine that show potential for further resources, but also on new targets that have been identified and not yet drilled.

Millennium plans to drill a minimum of 56,000m in 2013, targeting strike and depth extensions to known deposits such as Golden Eagle, as well as a large number of geochemical anomalies previously untested.

The company has set a target spend on exploration of around $10 million for the year as it works to further prove up the potential of its properties to strengthen the eight-year life of mine it has slated at Nullagine.

"We have a lot of exploration potential already there to expand on our existing resources and reserves," Rear said.

"We plan to be very active with our exploration program from about March when we move out of the wet season, and that will continue right through to the end of the year."

Possible acquisitions could add a final element to the company's exploration program, with Rear saying Millennium intends to continue growing its land holding in the region through acquisitions.

"Growing our acreage around our major land holding in the East Pilbara is the third element of an exploration plan we have in place," Rear said.

"We have already completed a few deals as part of that and intend to continue to pursue more to grow on what we already own in the region's goldfields."

Millennium also has a farm-out agreement at its

Beatons Creek tenements north of Nullagine with Novo Resources, which has an option to earn a 70% interest in the properties.

Novo completed phase two of its RC drilling at Beatons Creek during the December quarter, with the work designed to expand the area of gold-bearing conglomerates at the Grants Hill deposit, as well as infill areas drilled during phase one.

Despite market conditions being poor for much of the past year, Rear was positive in his outlook for the gold sector, saying there were signs of improvement that could assist companies such as Millennium looking to contain costs.

"There is far greater competition for jobs and more competition for services, which is a positive for companies out there," he said.

"It seems the pressures for wage rises, services and goods costs have flattened and we will continue to see them level out."

*A version of this report, first published in the March 2013 edition of RESOURCESTOCKS magazine, was commissioned by Millennium Minerals