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Harmony, Newcrest bang out better Wafi-Golpu design

Wafi-Golpu, a large undeveloped copper-gold deposit, gets a second and much more favourable look by Newcrest and Harmony Gold.

Now the Wafi-Golpu copper-gold project in Papua New Guinea begins to look achievable. Though risks still remain, a clunky, expensive and profitability-challenged PFS of the project has been right sized by Newcrest Mining and Harmony Gold.

Essentially the mine design – in terms of metal output and expense – has been cut in half, according to a revisit of the mine design Monday. Newcrest and Harmony homed in on the highest grade and metallurgically-simple parts of the Wafi-Golpu deposit and showed the mine design can yield, theoretically, strong copper and gold grades along with high metal recoveries that lead to good cash flows and payback for a mine of its size. “Eye watering” was how Harmony’s Graham Briggs liked to characterize it in a Monday conference call. Of course the question still remains if it will ultimately taste delicious.

Previously, in 2012, Wafi-Golpu was the subject of a cumbersome PFS that envisioned a massive mine that would gobble up most of Wafi-Golpu, a deep, fairly broad porphyry and porphyry-related pillar of ore. That led to weak economics, high initial costs; although it also made for a very long-lived mine with a decent chance of payback and ultimately lots of cash flow over the decades and decades. The mine as configured then was to cost around $4.8 billion. Now Harmony and Newcrest estimate initial capital costs around $2.3 billion, which pays for the start-up of Wafi-Golpu Stage 1. They forecast, tentatively, first production in 2020.

This Stage 1 focuses on what Harmony and Newcrest have identified – with greater confidence in the past two years – as the cream of Wafi-Golpu. This is true for copper and gold grades as well as the metal recoveries. Ultimately Stage 1, to be mined underground, will have a 27-year mine life and target reserves of146mt @ and 1.6% copper and 1.02 g/t gold. Therein, however, Harmony and Newcrest have scheduled mining of the deposit to get the best ore from two, sequential, block caves.

The first and much smaller block cave is to be the shallowest and will average 2.2% Cu and 1.66g/t Au in 12 million tonnes over a five-year mine life. The second block cave, to come online as the first wanes, will be much larger, extending the mine life to year 27. The grades, on average, will drop when it does. Total mining over near three decades is to be 134 million tonnes @ 1.01 g/t Au and 1.55% copper.

But the first 10 years of the second block’s mine life look a lot better. Grades are near identical to the first block cave and average 1.66 g/t Au and 2.3% copper. The block caves (called BC1 and BC2) will operate at 3 million tonnes per year and 6 million tonnes per year, respectively.

BETTER GRADES

Newcrest and Harmony’s two block caves in the new mine design within the much broader 1 billion tonne resource. (Credit: Harmony)

So, Harmony and Newcrest have been far more sensitive to developing the Wafi-Golpu with payback in mind. In part this was a matter of simply going back to the drawing board, rejigging what was already known. But, it was also the end result of new work on the ground, including 52,000 metres of more drilling and greater concentration on porphyry areas of the deposit with better metal recoveries than surrounding metasediments (Stage 1 = 94% for copper and 77% for gold, now)

That’s better than before and speaks to why this is not just the same old project, recycled.

The gold mining partners have benefitted from a more judicious second consideration and it has made for what Newcrest and Harmony estimate will be a 17% IRR. This is decent for a sizeable mine like this, one that would you might presume produce far beyond the 27 year life of mine.

But while this is smarter consideration of a world class deposit it’s no free-pass. There remain good reasons to be sceptical. Chief among issues at this point is showing ground conditions can support block caving in the porphyry deposit, which, generally speaking, can make for complex ore bodies.

Briggs knows this and highlighted it as a hurdle to overcome. In drilling the Wafi-Golpu porphyry, he said, “You go through zones that are quite poor and you go through zones that are quite competent.” The question of competence for block caving can only be fully addressed by going underground in an exploration development, which, by the way, could later be used as mine access. Financing is also an issue, but is probably second fiddle to mining risks. If Harmony and Newcrest can confidently show that the deposit can be mined, they could, if they have to, try to sell what would then be prospective, and quite attracitve, copper output – this at a time when costs ramp up.

Briggs is confident that the mining method can work. A year from now, we’ll have a better idea of that. Newcrest and Harmony approved a feasibility study of the project. They plan to get it out a year from now.

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