The price of copper has fallen by about seven per cent in the past 12 months and gold is sitting around pre boom levels.
Both are heading towards a price trough.
Copper is often seen as a leading indicator for the world economy because the base metal is used in so many different types of manufacturing activities.
And while there is plenty of copper supply coming online in the next couple of years; the majority is coming out of high sovereign risk countries like Africa and South America.
Copper producers enjoy some of the largest profit margins of all the base metals miners; currently Australian based KBL Mining produces copper at $2.70 to $2.90 per pound
KBL mining chief executive officer Trangie (Anthony) Johnston last month took Australian Mining on a tour of the company’s Mineral Hill mine located about 50 kilometres north-west of Condobolin in New South Wales’ Central West.
Since late 2010 KBL has been working to ramp up and upgrade the previously mothballed Mineral Hill gold and copper mine.
The site was closed in 2005 by former owners Triako because of falling copper and gold prices. Since bringing Mineral Hill back online, KBL has focused investement on exploration work and to the company’s benefit have discovered high grade gold mineralisations. But small cap mining companies like KBL, have struggled to find investor funding over the last 12 months, “the market has been incredibly volatile,” Johnston explained.
“There hasn’t been a lot of love. There remains a lot of unlocked value in our share price,” he said.
“The share price is disappointing, but that’s the market and we’re working to improve profitability.
“There isn’t a big risk appetite out there in the market…and we’re caught in a trading channel with explorers,” Johnston explained.
The processing mill and site infrastructure alone has an estimated replacement value $120 million and the company is expecting a significant spike in gold and silver production over the next 6 months, Johnston stated.
“There’s going to be a variation in our production profile in the next twelve months,” he said.
To date, KBL has been hit hard by bureaucratic red and green tape which has slowed the company’s search for increased profitability, forcing it to delay mining its open cut, shallow depth, high grade Pearce deposit.
“We would’ve liked to start Pearce first but permitting, red and green tape has slowed the process,” Johnston explained.
“Regulations forced us to start with a lower grade body.
“It [Pearce] contains about 65,000 ounces of gold and would’ve been a good cash injection.
“It will lift revenue.”
Last year the company’s financing was heavily affected by the move to mine lower quality, high density copper bodies like its almost depleted Parkes Hill copper deposit.
The decision to mine the lower grade Parkes Hill was made so the company didn’t lose its mining permits, but Parkes Hill operations wrapped up last year before moving into the Red Terror deposit. By the end of the year the transition towards mining Pearce will begin.
The Pearce pit will be 150 metres deep and 120 metres wide, “but the grades are ten fold,” Johnston said.
And while underground development is costly, estimated to cost around $6000 per metre, a lot of the infrastructure is already in place.
“We’re in the position to press the go button on this body in the next couple of months,” he said.
The beauty of the Mineral Hill site, Johnston explained, is that the majority of the resources are less than 300 metres below the surface and the full potential of the site “remains unrealised”.
“These ore bodies form in clusters, when you find one, you normally find more.”
The recently discovered Red Terror deposit is located between two ore bodies KBL was already mining and has a very shallow profile and looks promising.
The company has classified Red Terror as a primary ore source with a higher gold tenure of 1 gram per tonne, in comparison to Parkes Hill’s 0.4 grams per tonne.
After conducting extensive upgrades to the onsite mill to the tune of $12 million, KBL is again looking at ways to maximise production through increasing both throughput and recovery.
Currently 300,000 tonnes per annum is processed at the mill which runs at a rate of 90-95 per cent copper recovery.
Running two separate streams, two different ore sources can be processed at once, and KBL is able to shut down one stream and keep processing going on the other.
The copper concentrate that is produced at Mineral Hill is trucked to Dubbo in bulk bags, containerised and then shipped to China for processing.
KBL is currently looking at way to reduce handling costs, cutting out bulk bags and bulk loading straight into containers is one option currently being considered.
Tailings on any mine site are an operational and environmental exposure.
With the original tailings dam on site at capacity, KBL has recently completed Stage 1 of a new dam which will add another 8 to 10 years of capacity.
Mineral Hill works on a nil discharge policy, meaning no dirty water onsite is released.
Mineral Hill is a relatively small operation, with a total workforce of 85 people.
Primarily a residential mine, 85 per cent of employees live locally, and 25 per cent are indigenous Australians.
The underground mining operations are contracted out to Orange based company Pybar.
Johnston said the benefit of having a contractor is the access to equip in allows without huge outlays.
This year’s focus for KBL is to improve the site’s reserve position; the company will move to stretch reserves out in a bid to improve investor confidence.
The company has previously not been in a position to convert resources in a reserve because of start up costs.
“We’re a lot further ahead than surrounding counterparts, we’re now producing, and Pearce is going to come on line, we’ve got a rich resource base,” Johnston said.
KBL also has a 75 per cent stake in Sorby Hills, a lead and silver project located about 50 kilometres from Kununurra in Western Australia.