Chalice Gold Mines

Minesite, By Alastair Ford - “We’ve done a lot in the last year or so”, says Doug Jones, managing director of Australian-listed Chalice Gold Mines, which is one of the trailblazers in the new mining district of Eritrea. The company is working up the Zara gold project in the centre of the country, a few hundred kilometres north of the famous Bisha mine, which has just been brought into production by Nevsun. And Chalice has been developing Zara at a fair old lick, as Doug is keen to point out.

“In August of 2009 we’d just completed the merger with Sub-Sahara. Then we cleaned it up to get a 100 per cent interest in the project, subject to the government’s option to purchase 30 per cent. Then we got the drilling done, produced a maiden reserve, got all the water drilling and environmental studies done, and then completed a feasibility study in July. We got through a TSX listing and did a couple of capital raisings.”

At times it’s been hard to keep up, such has been the whirlwind of activity produced by the company. But then the Chalice boys are like that. On their frequent visits to London they barely have time to touch the ground and raise a beer glass to their lips before they’re off to their next meeting with existing, or potential investors.

In any case, those same investors must be well satisfied at the moment with progress on Zara. The results of the feasibility study were released in August and showed that at the Koka deposit, the company has a project capable of producing 100,000 ounces per year over a seven year mine life, based on the current resource of 840,000 ounces. The study used a US$900 gold price, and assumed cash costs of US$338 per ounce from a basic open pit. So far so good, and perhaps not surprising that the company’s shares have doubled in the last 12 months or so to the current A$0.70 from a 52-week low of A$032 hit early in 2010. But now’s the time to be moving established gold ounces towards production, especially with costs likely to be so low, and given the complexities and uncertainties in the Australian tax system, it’s perhaps not surprising that local Aussie investors have in recent months favoured African developers over their local home-grown types.

That’s a big turnaround, but it hasn’t done Chalice any harm. Indeed it’s allowed the company to build up enough momentum to get the shares listed on the Toronto exchange too, a development which was ongoing in the final quarter of last year, and which was finally completed in the latter part of November, just in time for the big Mines & Money conference in London, at which Chalice’s had a particularly high profile.

The interest stems not only from the track record of success that’s now building up, but also from the possibilities on the ground at Koka, and at Zara, that still remain. There’s never been much doubt in Doug’s mind, nor indeed that of Chalice’s chairman Tim Goyder, that resources at Koka will go over the million ounce mark in due course. Doug talks of “big exploration upside” without hesitation, and adds that in addition to its existing ground Chalice will pick up further acreage before too long.

It will be helped along the way by a government that is enthusiastic, to say the least, about the potential of Zara and Koka. The government now looks likely to exercise its option to buy into Koka, although at what price remains to be seen. Negotiations are likely to be tough, but Doug is quite clear. “The government want to see this go forward”, he says. “The biggest question is how much they’re going to pay, and when they’re going to pay it”. But both sides have already agreed that if a deal can’t be thrashed out then the matter will be settled by independent arbitration. Whatever happens, with the government on board, the political risk will be much reduced, in what is still seen as a volatile area.

After that it’ll be a question of completing the permitting process, and raising the necessary funding to get Koka into production. Initial costs have been put at around US$122 million, and all options are still on the table. Some nice drilling results from the ongoing programme at Zara would certainly help build up a bit of a tail wind as far as that fundraising is concerned. But first, the negotiators will have to come to an agreement as to the precise terms on which the government will be allowed to participate. It should be an interesting year.

Related posts:

1. Chalice Gold Mines: First Assays From Koka Drilling
2. Chalice Gold Raised $4.401.000 for Project in Eritrea
3. Chalice Gold Announces Further Results From Koka Drilling
4. Koka Gold Project - Feasibility Study Full Summary Report
5. Chalice Plans Share Placement to up Stake in Eritrea Gold Project
6. Chalice Acquires Full Ownership of Zara Gold Project, Eritrea
7. Chalice Gold Mines Quarterly Report
8. Eritrea: Strong Results Move Chalice Closer to Production at Zara Project
9. Chalice Gold Market Capitalisation 10 Times Greater Than Last Year