Lengthy road ahead for OZ mine

via CAAI

Monday, 14 February 2011 15:00 Steve Finch

OZ Minerals’ announcement last week that it has not added to a foundation gold resource about one-third the size necessary to start a viable mine means the firm is now entering a critical exploration phase to determine if and when Cambodia can begin large-scale gold mining.

Following confirmation of an initial resource of 605,000 ounces in March 2010, which makes OZ the most likely miner to start commercial production in Cambodia, the company said it would target a total resource of about two million ounces before production can begin.

But that depends largely on what happens over the next year or so.

Last year, Natalie Worley, the company’s head of investor and external relations, told The Post it would take until at least mid-2012 to get to the critical feasibility study stage at which point the company would assess whether a mine is viable.

“This depends on the exploration success or otherwise,” she said of drilling that has focused on the Okvau region in Mondulkiri province, where the foundation resource is located.

By the end of this year, it should therefore become much clearer whether or not the Australian-based company can feasibly develop a gold mine close to the scale of MMG LXML’s Sepon mine in Laos, a resource of 3.3 million ounces that has helped transform the country’s export economy.

OZ said last week it would dedicate about US$20 million towards exploration outside of Australia in 2011, up from $15.2 million last year, a sign the company is serious about developing new production sites overseas.

In recent years most OZ exploration spending outside of Australia has been poured into Cambodia.

Locating the necessary resource is just the start, however.

A subsequent feasibility study would require between 12 to 18 months to complete. That means it will take at least another three years before OZ makes a firm decision on whether it can commercially produce gold in Cambodia.

Once this has been made, construction of what would likely be Cambodia’s first large-scale gold mine would take at least another year, said Worley.

This is a long process.

OZ first started test drilling in Okvau, the area in which it discovered the foundation resource of 605,000 ounces, back in mid-2006.

That the company has continued exploration is based on a series of promising mineralisation results in Okvau and the surrounding area, the main target of continued drilling efforts, according to previous company statements.

Whether or not OZ can realise this potential is an outcome that will therefore have a major impact on the future of Cambodian mining and the extent to which the sector can become a major component of the domestic economy.