PERTH (miningweekly.com) – 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.

ASX-listed Southern Gold in July flagged the possibility of an expanded Stage 1 pit, which would see both the Cannon and Georges Reward deposits 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 were 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, which would see some 152 000 t of ore mined, at an average diluted grade of 3.1 g/t gold, containing some 15 000 oz of gold, with 13 500 oz of gold recovered.

Southern Gold reported on Monday that the two parties had now agreed to the "big pit" development.

The original 50% profit share arrangement would 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 would retain ownership of the Georges Reward deposit and exploit this as part of the combined openpit, at its cost.

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

Metals X had 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 had been fixed at a A$25/oz discount to the spot price.

“This is a cracker of a deal for Southern Gold,” said MD Simon Mitchell.

“Not only does the combined openpit unlock additional high-margin, high-grade gold ore, it does so under an extension of our current agreement with Metals X, at zero cost to Southern Gold and with special accommodation by Metals X to assist with working capital and risk management regime.”

Mitchell, meanwhile, pointed out that processing of the first ore from the Stage 1 Cannon pit started on November 2 at Metals X’s Jubilee plant.

Some 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 was anticipated on November 10.