Leyshon gives update on Zheng Guang operating costs

Tag : zinc strip
Leyshon gives update on Zheng Guang operating costs Wednesday , 23 Jul 2008
Leyshon Resources Limited ("Leyshon") (AIM & ASX: LRL) ispleased to advise updated estimates of capital and operating costsfor its 70% owned Zheng Guang gold zinc project which has recentlycommenced construction in the northeast province of Heilongjiang inChina.
Highlights Capital cost estimate has increased by 14% in line with inflationin the mining sector but remains comparably lower than the globalaverage. Forecast net operating costs are less than US$250 per ounce of goldproduced benefitting from the low unit operating costs and zinc andsilver revenues. Project is extremely robust in first five years as low strip ratiostarter pit with no pre strip generates strong cash flows from theoutset at current metal prices. Directors have committed to a high dividend payout policy. 30,000 metre step out drill programme to increase gold resourcesand test two large porphyry copper targets is well underway. Project development has commenced with access road near completion,crushing circuit fabrication complete and first ball millfabrication well advanced. Key professional appointments made to oversee construction anddevelopment of the mine and associated infrastructure.
The capital costs have been updated from those provided by theChangchun Design Institute in January 2008 following a detailedreview of individual supply contracts by Leyshon's Zheng GuangProject Team in light of the strong cost pressures currently beingexperienced within the global mining sector.
The operating costs have also been reviewed and are now estimatedat US$238 per ounce of gold produced after silver and zinc creditsover the first five years of operations. This equates to a unitoperating cost of $21.60 per tonne of ore mined and milled which isachieved by the combination of a low strip ratio open cut mine, lowpower and labour inputs and a large scale highly productiveprocessing plant. Final engineering studies are being undertakenthis year and final operating cost estimates will be availableafter these have been completed.
The project benefits from the excellent metallurgical response ofthe ore which permits whole of ore to be treated through a singlecircuit allowing an additional 20% of revenue to be generated fromsilver metal and zinc concentrate.
A summary of the updated project operating parameters over thefirst five years of the operation is provided below:

Revenue is based on metal prices of US$850/ounce gold, US$18/ouncesilver and US$2,000/tonne zinc. Cost per ounce of gold is the totalcost of production net of silver and zinc revenues divided by theounces of gold produced.
At current metal prices the project is expected to generate verystrong cash flows from the starter pit over the first five years ofthe project's life. Current studies indicate there are up to 15years mine life from the Main Ore Zone alone.
During the first five years, over US$25 million will be spent onexploration to delineate additional resources on the 130 km2 ofhighly prospective tenement holdings. These will be minedseparately and blended with ore from the Main Ore Zone and areexpected to result in a long mine life project with sustainable lowoperating costs.
The 2008 exploration programme is well underway and has recentlycommenced drilling at the previously discovered Zheng Guang Northprospect located approximately 1 kilometre north of the Main OreZone and which is the first prospect expected to be converted toresources.
The Directors are of the view that these early cash flows should beapplied to sustaining capital of the project, US$3-5 million peryear in exploration and the balance distributed to shareholders byway of a high dividend payout policy as soon as positive cash flowand profitability has been established.
Project development has commenced with access road near completion,crushing circuit fabrication complete and first ball millfabrication well advanced. It is anticipated that there will not beany delay resulting from long time items not being delivered ontime.
A number of key appointments have been made. Experienced operationsmanager Paul Rainbow - a mining engineer with 25 year's operatingexperience in Australia, has been appointed Resident Manager. PeterNiu, previously with South China Morning Post, Kodak and Sino Gold,has been appointed Financial Controller in the Beijing office. Anumber of other geological, technical and administrative positionshave also been filled.
The Board has introduced a comprehensive inflation cost managementpolicy under which suppliers are being required to disaggregate andmitigate any proposed cost increases. Fixed price contracts arebeing entered into where ever possible, and where price risescannot be avoided, quantity reductions, deferrals and productivityimprovements are being sought to offset the increase in cost.
The joint venture has been successful in limiting diamond drillingcosts to a 9% increase in 4 years by offsetting rising input costswith productivity improvements. The joint venture has the advantageof available diamond drill rigs at rates that are substantiallybelow equivalent rates in Australia and elsewhere.
The 2008 exploration programme targeting strike extensions to theMain Ore Zone and identifying drill targets on the two large coppergold anomalies is well under way with over 4,100 metres of diamonddrilling and 5,400 metres of reverse circulation completed. Firstdrilling results are expected in August.
In addition, 1,400 soil samples have been taken over two very largecopper gold anomalies which are located approximately 5 kilometresfrom the proposed location for the Zheng Guang plant. Results fromthis programme are expected to generate large copper gold porphyrytargets for drill testing later in the season.
The Company has previously announced that it is considering aproposed secondary listing on the Main Board of the Stock Exchangeof Hong Kong Limited (the "SEHK") which the Directors believe is anatural choice of market for companies with substantial businessesand operations in China seeking a listing on an internationallyrecognized market.
The Directors are of the view that the proposed listing of Leyshonon the SEHK, where it will join a very small number of listed goldmining companies, will enable it to expand its shareholder base andfund-raising opportunities in the rapidly growing Asian market.
Managing Director Paul Atherley commented : "We have invested over US$25 million into Zheng Guang over the past5 years and are delighted to be bringing it into production in avery low operating cost environment at a time when metal prices arevery strong. Our priority is to establish a strong early cash flowand make distributions to shareholders.
Leyshon will join a very small group of Hong Kong listed miningcompanies with gold operations in China at a time when China hasbecome the world's largest gold producer."
For further information contact:
Leyshon Resources Limited
Paul Atherley - Managing Director
Tel: +86 137 1800 1914
Mob: +61 417 475 038
Leyshon Resources
www.leyshonresources.com
http://www.leyshonresources.com