Name and Location
Cannon gold project, Australia.

Client
Southern Gold and joint venture (JV) partner Metal X.

Project Description
The prefeasibility study (PFS) completed on the project has demonstrated that development of the Cannon gold resource as a toll treatment operation, located south-east of Kalgoorlie, in Western Australia, will deliver positive economic returns with a low capital-cost structure.

The PFS outlines an openpit and underground development strategy.

The study demonstrates that the most effective way of extracting about 70% of the currently defined resource is through the development of an openpit and underground operation.

The interface between oxidised- and transition-zone weathered rocks and fresh rock occurs about 40 m below surface. The openpit design extends to sufficient depth into the fresh rock to ensure that the underground portal is established in competent material.

Underground development is proposed to start through a portal and decline at a 1 in 7 gradient from the footwall of the Cannon openpit, with a series of flat crosscuts developed to access the ore zones.

Once each ore zone is intersected, strike drives will be established for standard Avoca-style stoping. The proposed stoping method is fully mechanised and offers increased productivity and reduced mining costs, compared with using hand-held methods.

The base case underground mine schedule will start 12 months after mining in the openpit has started and will continue for 19 months. Including start-up site works and closure rehabilitation, the total mine life, based on the current study, is expected to be three years.

The PFS openpit and underground mine is designed to extract 484 000 t at a grade of 4.4g/t for 68 200 oz gold.

The Stage 1 openpit operation is expected to mine an estimated 152 000 t of ore at a fully diluted run-of-mine grade of 3.1 g/t gold, containing about 15 000 oz of gold, with 13 500 oz of gold recovered, at a C1 operating cost of A$1 053/oz.

Net Present Value/Internal Rate of Return
Not stated.

Value
Initial site works and infrastructure costs are estimated at A$1.7-million and the underground decline development cost is estimated at A$11.6-million. Decline expenses will be incurred during decline development, which will start in Year 2 of the operation.

Duration
First gold pour is expected in December this year.

Latest Developments
The expanded Cannon gold mine, in Western Australia, has been cleared for development, with the project partners having reached agreement on the commercial and legal terms for the openpit development.

Southern Gold flagged the possibility of an expanded Stage 1 pit in July this year, which would result in the Cannon and Georges Reward deposits being exploited in a single pit using common infrastructure.

It was estimated that this "big pit" scenario would extend the mine life of Stage 1 from the current nine-month operation to several years and could make Stage 2 underground options more viable.

Mine operations at Cannon started in August, with project partner Metals X contracted to conduct all mining, haulage and processing activities associated with the development of the Stage 1 openpit mine.

Southern Gold and Metal X have now agreed to the "big pit" development.

The original 50% profit share arrangement will remain in place for the larger Cannon openpit mine, with Metals X providing the entire project funding and expertise to execute the larger development.

Metals X will retain ownership of the Georges Reward deposit and exploit this as part of the combined openpit, at its cost.

Cost recovery at Cannon will remain unchanged, but because of the longer cost recovery period, cash flow to Southern Gold will be delayed by about six months to the fourth quarter of 2016. In recognition of this, Metals X will provide an additional A$2-million in loan facilities for Southern Gold.

Metals X has also undertaken to provide its project partner with a quasi put-option whereby a guaranteed price on the first 30 000 oz of gold production has been fixed at a A$25/oz discount to the spot price.

Meanwhile, processing of the first ore from the Stage 1 Cannon pit started on November 2 at Metals X’s Jubilee plant.

About 39 000 t of ore was on the run-of-mine pad with a further 30 000 t awaiting transportation to the pad. The first gold pour is expected on November 10.

Key Contracts and Suppliers
None stated.

On Budget and on Time?
Not stated.

Contact Details for Project Information
Southern Gold, tel +61 8 8368 8888, fax +61 8 8431 5619