QUARTERLY REPORT IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII PERIOD ENDING 30 SEPTEMBER 2017

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1 QUARTERLY REPORT IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII PERIOD ENDING 30 SEPTEMBER 2017 Hillgrove Resources Limited (ASX: HGO) reports for the quarter ended 30 September 2017 HIGHLIGHTS Operations - the majority of the Giant Pit cutback waste stripping was completed in the quarter and the cutback is now effectively complete and through the worst of the ground conditions. During the quarter prolonged wet and windy conditions, poor primary excavator availability and preventative and remedial geotechnical measures have meant mining rates were lower than planned. This has deferred the step up in copper production to later in the December quarter and increased the C1 Cost for the current quarter and the year. Normal production levels are now being achieved as a result of a number of remedial actions which were implemented to correct these operational issues combined with improved weather conditions (expected to remain for the next six months). For the quarter ore mined was 811k tonnes at an improved head grade and which kept the mill at its target 3.3Mtpa annualised throughput, and resulted in production of 3,548 tonnes of copper and 1,900 oz of gold. Fixed pricing - despite the improved copper price outlook, the Company felt it prudent to lock in revenue until February 2018 by fixing the price for 6,000 tonnes of copper at prices of $7,934 to $8,725, after margins. Options - during the quarter, 174m options were exercised raising $5.2m. Cash on hand at 30 September 2017 was $3.9m. Redeeming Notes - on 11 October 2017 the Company announced its intention to redeem its listed convertible notes on 22 December EGM - on 13 October 2017, the Company announced it would convene a shareholders meeting following a request from Ariadne Capital Pty Ltd. LOOKING FORWARD Growth - there are significant opportunities for organic growth, which will continue to utilise the Kanmantoo copper processing facility and which include: A potential underground mining operation at Kanmantoo where Hillgrove has approximated a significant Exploration Target 1. Preliminary economic scoping studies to develop the Nugent underground target have commenced. A regional exploration project, where Hillgrove has identified a 4.8km long, 600m wide, copper-gold zone at its wholly owned Kanappa Project, which is 44kms from the Kanmantoo processing plant, and; Other regional exploration projects including Mt Rhine, with previously reported gold zones of 15.9g/t Au in channel sampling of surface outcrops, and a separate copper-gold zone over 1.7kms in length with peak rock chips of 13.1% Cu and 49.8g/t Au 2. 1 ASX Release Kanmantoo Underground Copper Mine Growth Opportunity 25/05/ ASX Release High grade copper gold results at Mt Rhine 25/10/2017 IIIIIIIIIIIIIIIIIIIIIIIII HILLGROVE RESOURCES LIMITED ACN

2 MANAGING DIRECTOR S STATEMENT The third quarter saw lower than anticipated copper production due to low mining movements. The lower movements were associated with prolonged wet and windy weather conditions, poor primary excavator availability and preventative and remedial geotechnical measures predominantly associated with the east wall slippage and projects to enhance the pit wall integrity above long term ramps. The impact of lower movements within the quarter is that it defers copper production, and adds fixed mining costs to later periods. The lower copper production increases the C1 Cost for the current quarter and the year. While copper production was lower than planned, this production is deferred to the future, not lost. Since quarter end, the weather conditions have significantly improved, measures to prevent tailings storage dust lift have been implemented and been proven successful, geotechnical measures are well progressed and the primary excavators are running at full capability. This has enabled the Giant Pit Cutback to be effectively completed, one month later than previously predicted. Despite the mining setbacks the mill was kept at full capacity (treating low grade stockpiles) and the orebody continues to deliver the predicted grade based on the 2016 Mineral Resource Estimate. The key focus in the coming months is to sustain mining rates that enable a step up in copper production by the end of this year, to significantly lift revenue throughout With the cutback complete and the option funds received, we are undertaking low cost studies to progress the following growth projects: The underground conceptual design is underway with a focus on the high grade area under the Nugent pit and then central Kavanagh, Following the recent release of the Kanappa and Mount Rhine soil sampling results, activities will proceed to geochemistry and geophysical analysis to determine drilling targets and to obtain the necessary permits to enable physical drilling in the first quarter of 2018, and The Pumped Hydro Concept at Kanmantoo has further progressed with the Company submitting a proposal to the SA Government s Bulk Energy Storage request. GUIDANCE As a result of the delayed completion of the cutback and subsequent ramp up of copper production the Company has revised its 2017 annual guidance for copper production from 16,000-18,000 tonnes to 14,800-15,800 tonnes, and C1 Cost from US$1.75 to US$2.05/lb to US$2.25 to US$2.35/lb. With the cutback completed the outlook for 2018 is very positive, with 2018 copper production expected to be well above 20,000t. Hillgrove will confirm full details of its 2018 guidance in its Activity Report for the Quarter Ended 31 December 2017 to be released in January KANMANTOO COPPER MINE, SOUTH AUSTRALIA Mining Lease 6345 (Hillgrove 100%) Safety and Community The Total Recordable Injury Frequency Rate (TRIFR) reduced to 18.8 during the quarter. The reported incidents were predominately soft tissue injuries sustained from jarring events or from stepping onto uneven ground. 2.

3 FIGURE 1. TOTAL RECORDABLE INJURY FREQUENCY RATE Operations The cutback is now effectively complete leaving a strip ratio going forward of only 1.3 tonnes of waste to every ore tonne (including Inferred Resource), which is well below the project average of 5.5:1. The increased ratio of copper ore to waste enabled the Company to flatten the pit and to make the work areas more efficient. Nevertheless, during the quarter there have been weather-related delays, unexpected equipment downtime and geotechnical issues which have hampered the ability of the mining fleet to achieve full mining rate capability as follows: The weather delays were largely allowed for in the mining schedule using historical rainfall information, but production stoppages to manage dust emissions contributed to a number of days lost during the period. The dust delays caused by strong northerly winds and the elevated height of the tailings storage facility (TSF) were arrested in September with a number of changes including additional water storage on the dam to reduce the surface area for dust generation, application of a dust suppressant polymer, and more regular spigot rotation in order to keep the TSF surface wet. Unplanned downtime on both primary excavators following the midlife rebuilds, coupled with unexpected truck failures (engines and wheel-ends) hampered production. In response, Emeco (our mining equipment contractor and a key supporter) responded with additional equipment including an additional Hitachi EX1900 to act as a back-up excavator and two additional trucks which will enable the truck midlife rebuild programme to commence without impacting operations. In addition, some productive time was lost while geotechnical engineering controls were undertaken including buttress formation to shore up the east wall stability and continued installation of catch fences in order to provide a safe work environment. The lower mining movements meant we were 400k BCM behind schedule which at a mining rate of 18k to 20k BCM / day meant approximately 20 days of lost production. This in turn delayed the completion of the cutback and the step-up in copper production. The mill continued to perform during the quarter at an average annualised throughput of 3.3Mtpa. This was achieved taking into account a 75 hour planned mill shutdown in August which was the largest since the plant started operating at Kanmantoo. During this shutdown, the mill motor was exchanged and significant works were completed on the secondary crusher. Notably, the mill subsequently ran at 100% availability for the month of September. 3.

4 TABLE 1. KANMANTOO COPPER MINE PRODUCTION STATISTICS FY16 MAR-17 QTR JUN-17 QTR SEP-17 QTR Ore to ROM from Pit kt 2,838 1, Mined Waste kt 12,332 4,413 3,821 2,679 Total Tonnes Mined kt 15,171 5,453 4,669 3,490 Closing Ore Stocks kt Mining Grade to ROM % Ore Milled kt 3, Milled Grade - Cu % Au g/t Recovery - Cu % Au % Cu Concentrate Produced Dry mt 59,842 16,223 15,203 16,170 Concentrate Grade - Cu % Au g/t Contained Metal in Con. - Cu t 13,624 3,727 3,392 3,548 - Au oz 11,518 1,060 1,100 1,900 - Ag oz 104,042 27,254 25,986 26,448 Total Concentrate Sold Dry mt 60,213 15,939 15,865 15,786 FIGURE 2. KANMANTOO COPPER MINE PEFORMANCE 4.

5 FIGURE 3. KANMANTOO QUARTERLY MILL TONNES, COPPER RECOVERY AND MILL RUN TIME FIGURE 4. KANMANTOO QUARTERLY MINING UNIT COSTS FIGURE 5. KANMANTOO QUARTERLY PROCESSING UNIT COSTS 5.

6 Costs Gross mining costs were lower than previous quarters, but the lower bcm movement during this quarter meant mining unit costs increased to $15.45/bcm. This mainly reflects the lower than planned mining production. Processing unit costs increased to $7.73/tonne, mainly associated with the larger than normal planned preventative maintenance shutdown in August. C1 unit cost for the September quarter was adversely impacted by the higher mining and processing unit costs and lower than planned material being delivered to ore stockpiles. This led to a C1 unit cost of US$2.47/lb, slightly up on the previous quarter. Lower copper production means a higher C1 unit cost for both the quarter and the full year compared to previous expectations. US cents per lb TABLE 2. KANMANTOO COPPER MINE COSTS (USC/lb) CY16 MAR-17 QTR JUN-17 QTR SEP-17 QTR 12 MTHS 3 MTHS 3 MTHS 3 MTHS Total Mining Cost Deferred Mining Pre-strip Ore Inventory Adjustment Mining Costs Processing Costs Other Direct Cash Costs Total Onsite Costs Transport & Shipping Treatment, Refining & Smelter Charges Total Offsite Costs Precious Metals Credits Total Direct Operating Costs (C1 Cash Costs) Royalties D&A TOTAL COSTS Revenue Revenue for the quarter (including precious metals credits and amortised hedge gains) was $29.3 million. The average realised price for copper metal sold was A$7,558 per tonne or US$2.71 per lb. NOTES TO TABLE 2: Deferred Mining: Within each pit, the cost of higher waste benches, proportional to the copper contained in the ore, is normalised for the impact of strip ratios and copper grades over the life of specific pits. Pre-Strip: Upper levels of pits where the strip ratio is greater than 10:1 (waste:ore) are capitalised and amortised over the life of the mine based on metal. Ore Inventory Adjustment: Mining costs per tonne of ore added to (- ve) or processed from (+ ve) long term stockpiles. 6.

7 Exploration Results including Results subsequent to the Quarter Hillgrove has continued to evaluate its growth opportunities that utilise the existing Kanmantoo infrastructure and which have the potential to extend the mine life at Kanmantoo. During the Quarter, Hillgrove has advanced three of its higher priority targets, Commenced design of the first of its underground mining targets below the Nugent open pit at Kanmantoo. Continued geochemical and mapping activities at the copper-gold project at Kanappa Continued exploration at the Mt Rhine coppergold and gold-zinc exploration project Location of Hillgrove exploration projects Kanmantoo Underground Copper Mine Growth Opportunity The Company has previously announced an Exploration Target 3 at the Kanmantoo Copper Mine of between five and ten million tonnes with a target grade of between 1.7% and 2.2% Cu and 0.4g/t to 1.0g/t Au, containing approximately 80,000 tonnes to 160,000 tonnes of copper metal and 60,000 ozs to 120,000 ozs gold. The Exploration Target comprises nine different underground opportunities (see figure below) and the first of the targets able to be exploited is the Nugent Target, below the Nugent Open Pit mined by the Company in The Nugent Target is within 180m of the existing Giant Open Pit Haul Road, and provides an early opportunity to source additional higher grade copper-gold ore for processing whilst the open pit is in operation. To assess the economic feasibility of an underground operation at Nugent various studies are in progress including, preliminary resource estimate, geotechnical studies, conceptual underground mine design, drill plans and metallurgical test work studies. The results of these various studies will be presented as results are affirmed. 3 The Exploration Target is conceptual in nature as there has been insufficient exploration to define a Mineral Resource. It is uncertain if further exploration will result in the determination of a Mineral Resource under the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, the JORC Code (JORC 2012). 7.

8 High Grade Copper Gold Results at Kanappa The Kanappa copper-gold exploration project is within the Kanmantoo Trough and is hosted by similar geology as that at the Kanmantoo Copper-Gold Mine. The Kanappa project is located approximately 60kms by road from Kanmantoo. Further soil sampling and mapping was completed during the quarter and reported in early October. The entire zone of anomalous copper geochemistry is now a maximum of 600 metres wide and 4.8 kilometres long (ASX release 25 May 2017 and 20 October 2017). The geochemical zone is open both north and south, with copper mineralisation still outcropping at the northern and southern extremities of the gridded area. Rock chip sampling has confirmed the high grade tenor of the outcropping copper mineralisation with rock chips to 34.8% Cu. The soil sampling is expected to be followed by a programme of electrical and magnetic geophysical surveys to define drill targets. Hillgrove estimates that drill testing of the copper-gold exploration zone may be able to commence in the first quarter of 2018, depending on the required funding being available, and depending on the success of the geophysical work confirming quality drill targets. Contoured soil copper assays and rock chip results for Kanappa 8.

9 High Grade Gold Results at Mt Rhine The Mt Rhine copper-gold exploration project is also within the Kanmantoo Trough and within 70kms of the Kanmantoo copper mine. In 2006 Hillgrove completed and reported 4 preliminary rock chipping and mapping at Mt Rhine. In 2017 the Company re-commenced exploration activities at Mt Rhine and completed broad spaced soil sampling and mapping programmes. Results of these activities were reported on 25 October 2017 and shown in the attached figure. Geophysical exploration activities are planned for the next quarter. The 2006 and 2017 exploration activities have generated the following outstanding results; Peak rock chips at surface of: 13.1% Cu 49.8g/t Au Channel trenches of: 15.9g/t Au 15.4g/t Au 13.1g/t Au 5.4g/t Au Contoured soil copper assays and rock chip results for Mt Rhine 4 ASX Release High grade gold zones identified at Kanmantoo 14/12/2006. This information was prepared and first disclosed under the JORC Code The company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement. The company confirms that the form and context in which the Competent Person s findings are presented have not been materially modified from the original market announcement. 9.

10 PUMPED HYDRO POTENTIAL The Kanmantoo Pit presents a potential Pumped Hydro Energy Storage (PHES) opportunity due to the difference in elevation between base of the pit and upper reservoir (>400m), its proximity to the South Australian Electricity Interconnector, water availability, its land holding on surrounding properties and the South Australian electricity market requirements. PHES helps address the SA challenges emanating from reliance on renewable energy by adding system stability and storage, and also by providing opportunities for associated projects, such as solar. Hillgrove engaged a highly experienced engineering group to further investigate the potential viability of this option, culminating in a submission to the SA Government s Bulk Energy Storage request in September. Initial studies indicate the PHES project can operate in parallel with the proposed underground development opportunities. INDONESIAN GOLD AND GOLD/COPPER ASSETS The focus on its Kanmantoo operations means the Indonesian assets are no longer considered core assets. Hillgrove believes there is inherent value in Bird s Head Copper/Gold Project and the Sumba Gold Project. Post quarter end, Hillgrove has granted an exclusive option to a third party to conduct due diligence on the basis that, if exercised, the third party can acquire the assets on pre-agreed terms. HILLGROVE CORPORATE Exercise of Options As at 30 June 2017, 13.8m of the Company s 188.1m listed options (exercisable at $0.03) had been exercised. The options had an expiry date of 22 September 2017, and prior to that date, 174.0m of the remaining options were exercised raising $5.2m. Cash on hand at 30 September 2017 was $3.9m, with the remainder of the option proceeds being used for working capital purposes. Early Redemption of Convertible Notes On 11 October 2017, the Company announced its intention to redeem its listed convertible notes (Notes) on 22 December The Notes were issued on 20 December 2016 with a Maturity Date of 20 December Under the Note Terms, Hillgrove can redeem the Notes before the Maturity Date. The Board decided it was in the best interests of Hillgrove to use the proceeds raised from the recent exercise of its listed options to simplify its capital structure and reduce a layer of administration, by redeeming the Notes and, to the extent Noteholders elected to convert their Notes to shares, strengthen its balance sheet. Under the Note Terms, Hillgrove may redeem the Notes at their Face Value ($1.00) plus an early redemption premium (20% of the Face Value) or $1.20 per Note, together with any interest accrued. Prior to the early redemption date, Noteholders may elect to convert their Notes into shares in Hillgrove at a conversion price of $0.03, or approximately shares for each Note, which based on the (10 October 2017) closing share price of $0.082, valued the shares at $2.73. The shares will be fully paid and will in all respects rank pari passu with all other fully paid shares. The Board reserved the right to terminate the early redemption process if prior to the redemption date, the Company suffered a material adverse event, such as a severe unexpected operational constraint at the Kanmantoo Mine and the Board considers it imprudent to proceed. Extraordinary General Meeting On 13 October 2017, the Company announced it had received a request for a shareholders meeting from Ariadne Capital Pty Ltd ACN (Ariadne), which is the Company s largest shareholder and was the underwriter to the convertible note issue. Under the underwriting agreement, the Company agreed that, if requested by Ariadne, it would call an EGM to seek Hillgrove s shareholder approval to allow Ariadne to convert all of its Notes into shares, since this would take their ownership of Hillgrove above the current 22%. To allow shareholders to properly consider how to vote, the Board has commissioned an independent expert s opinion on whether the conversion of Ariadne s Notes is fair and reasonable to non participating shareholders. 10.

11 The independent expert s report along with a Notice of Meeting will be distributed to all shareholders, in early November Fixed Pricing Notwithstanding the improved outlook for copper and the rising copper price, the Company took the opportunity to lock in prices for future copper revenues to eliminate copper price and exchange rate risk on copper revenues. The Company felt it was prudent to do so given the operating conditions and problems encountered during the quarter (highlighted earlier in this report). As a result the Company has now locked in prices for 6,000 tonnes of copper (the next three shipments) until the end of February 2018, being 2,000 tonnes at $7,934, 2,000 tonnes at $8,205 and 2,000 tonnes at $8,725, with all prices after margins. The Company will continue to explore further opportunities to capitalise on favourable copper price movements. CORPORATE INFORMATION Issued Share Capital at 30 September 2017 Ordinary shares Employee Performance Rights Convertible Notes Options Share price activity for the Quarter High Low Last 30 September ,298,830 21,188,000 4,780,246 Nil SHARE REGISTRY Boardroom Limited GPO Box 3993 Sydney NSW 2001, Australia F: T: (within Australia) T: (outside Australia) REGISTERED OFFICE Hillgrove Resources Limited Ground Floor 5-7 King William Road Unley, South Australia, Australia E: info@hillgroveresources.com.au T: For more information contact: Steve McClare, Managing Director, Tel:

12 ABOUT HILLGROVE Hillgrove Resources Limited is an Australian mining company listed on the Australian Securities Exchange (ASX: HGO) focused on developing its flagship Kanmantoo Copper Mine and associated regional exploration targets, located less than 55km from Adelaide in South Australia. The Company has approximately 260 site based employees and contractors at Kanmantoo and at its small Adelaide corporate office. Presently the Company is mining at the rate of more than 20 million tonnes per annum and produces up to 20,000 tonnes of copper per annum. Annual export earnings are in a range of $140 to $170 million per annum. The Company's growth will come from the Kanmantoo Copper Mine operation in South Australia and exploration discoveries from its highly prospective near mine and greenfield exploration projects. Mineral Resource Estimate for All Deposits at 30 September 2016 Mine JORC 2012 Tonnage Cu Au Ag Cu Metal Kanmantoo Copper Mine, All Deposits Classification (Mt) (%) (g/t) (g/t) (kt) Measured Indicated Inferred Total Ore Reserve Estimate at 30 September 2016 Mine JORC 2012 Tonnage Cu Au Ag Cu Metal Kanmantoo Copper Mine Classification (Mt) (%) (g/t) (g/t) (kt) Proved Probable Total Competent Person's Statement The Ore Reserve and Mineral Resource estimates were prepared by Competent Persons in accordance with the JORC Code Further information on the Kanmantoo Mineral Resources and Ore Reserves is available in the Hillgrove Updated Mineral Resource and Ore Reserve Estimate released to the ASX on 18 October 2016, which is also available on the Hillgrove Resources website at Hillgrove Resources confirms that it is not aware of any new information or data that materially affects the information included in that market announcement and, in the case of estimates of Mineral Resources and Ore Reserves that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. Hillgrove Resources confirms that the form and context, in which the findings of the Competent Persons (Peter Rolley in relation to Exploration Results, Peter Rolley and Michaela Wright in relation to the Mineral Resource Estimates and Lachlan Wallace in relation to the Ore Reserve Estimates) are presented, have not been materially modified from the original market announcement. 12.