PERTH (miningweekly.com) – Despite warning of a full-year impairment of between A$60-million and A$90-million, gold miner Aurelia Metals on Tuesday announced plans to expand production at its Hera gold/lead/zinc mine, in New South Wales.

The Hera project poured its first gold in September last year, but the project was yet to reach its design performance. The underperformance of the project to date has had negative impacts on Aurelia’s financial performance, cash flow and liquidity.

Along with the reduced revenues, processing costs have been high, primarily owing to increased reagent consumption and crusher maintenance costs.

At the end of June, Aurelia only had about A$4.85-million cash in the bank, along with gold concentrates worth about A$3.5-million and a concentrate receivable of A$3.7-million.

In response to Hera’s underperformance, Aurelia undertook a detailed cost and technical review of the project, finalising a scoping study which included process plant rectification, as well as a project expansion from the current 350 000 t/y mining and process rate to 450 000 t/y.

Aurelia reported that the expansion study provided a clear and compelling investment case, and showed that the Hera project was capable of delivering 40 000 oz/y, at an average all-in sustaining cost of A$700/oz over the life of the mine.

The increased production profile also significantly increased the average base metal production profile to 14 000 t/y of zinc and 12 500 t/y of lead.

Some A$16.8-million in capital would be needed to realise the initial process improvements and to deliver the expansion, Aurelia said, paying for the installation of a ball mill and a tertiary cone crusher to replace the underperforming crushers, and to upgrade the cleaner flotation circuit.

Aurelia said that considering the company’s current financial position, additional funding would be sourced, with the optimal solution considered to be a combination of equity funding along with a restructure of its outstanding debts and convertible note obligations with mining major Glencore.

Glencore recently issued Aurelia with a default notice, which the ASX-listed company had rejected, saying that no amounts were currently due under its finance facility until September 13.

Under the convertible note deed poll, executed in 2013, covering some A$78.9-million in financing, Aurelia had the right to convert these facilities into ordinary shares on certain specified terms.

Aurelia said it was in discussions with Glencore regarding the expansion of the Hera project, and had appointed financial advisers to help with the restructuring of the financing arrangements.