Returning to the 100,000 Ounces Club with Troy Resources NL
Surely mining companies don’t come much better than those who go above and beyond expert, efficient and economical development of projects? That is, unless you also add superior local knowledge and long-term deliverance of shareholder return, like Troy Resources NL; the dual-listed Australian (ASX) and Toronto (TSX) junior gold producer working in Western Australia, Brazil and Argentina. Put simply, Troy has delivered 10 consecutive fully franked cash dividends to its shareholders, has more than halved the previous owners capital estimate on its flagship project, and is very much looking forward to returning to “the 100,000 ounce producers club next year where we intend to stay for a significant period of time,” according to Troy CEO, Paul Benson.
“At a corporate level, Troy has a great track record of building mines quickly and at low cost,” he says. But it looks like this track record is only the beginning.
Troy’s portfolio overview
Before we get on to the nitty gritty that is Troy’s flagship project Casposo, in Argentina, it is important to look at exactly how the company has grown and built its portfolio to be what it is today. Essentially, Troy’s journey begins with Sandstone; its multi-ore potential project in Western Australia, which Benson says has, “historically been the backbone of the company.”
When the gold price, speaking in Australian gold dollar terms, hiked, Troy decided it was time to re-examine the Resource models for a number of targets on this project.
“It’s one of those mines which has never had a forecast mine life longer than three years, but last year reached its tenth year in production so it’s managed to keep on giving Reserves,” Benson says.
“We’re at the end of its current mine life, it’s relatively high cost and we’ve just mined the last cut-back in a fairly deep open pit so we’re now treating some low grade stockpiles.”
Troy plans on mining a small pit due for processing around July/August, at which point Sandstone could go under care and maintenance.
“There’s still some option value there for Troy shareholders. There are two significant aspects,” Benson says.
“One is something we have called the Two Mile Hill discovery which is not far from Sandstone’s processing plant. It’s a deeper mineralised ore body and we’ve drilled some spectacular grades; the best intercept was 13.7 metres at over 25 grams per tonne.”
Further drilling identified a large low grade Resource. Troy is currently reviewing options on how to extract value from the discoveries.
“The other element at Sandstone is that we have a nickel exploration joint venture. The area was explored for nickel in the early 1970’s by Kennecott and they left when the nickel price fell,” Benson says.
The joint venture with Western Areas NL (“WSA”), which has the right to earn 51 per cent by spending up to A$4million dollars over four years, enjoyed great news on March 7, 2010, when diamond drilling intersected nickel sulphide mineralisation zone in its first drilling campaign. Western Areas also has the right to move to 70 per cent interest by taking the project to the completion of a Bankable Feasibility Study.
“They’ve been very proactive on that, they’re excited by the potential there,” Benson says. “It’s early days, not economic intersections yet, but the fact they’ve run into nickel is very encouraging.”
Over in Brazil, Troy’s time in the country began back in 2002 when it purchased a 70 per cent interest in the Goiás Velho Project, run under a joint venture with Amazonia Mineração Ltda, operated by Sertão Mineração Ltda (“SML”), and reaching production in March 2003. This venture allowed Troy to gain great experience working in the country before moving onto its current project there; Andorinhas.
“We had already opened, operated, closed and rehabilitated a mine so we know how to do business there,” Benson explains.
“When Sertão closed we picked up that processing plant and moved it 1,000 kilometres to our new project, Andorinhas, which is in the Para State of north central Brazil. We initially started mining with a small open cut while we developed the underground mine.”
Troy has been mining underground at Andorinhas for over one year now. Production for the 2010 financial year is expected be approximately 30,000 ounces of gold, which is likely to rise as grade and ore body thickness increases with depth.
Benson says that despite its relatively short mine life, Andorinhas is an attractive piece of the company’s portfolio, but by no means as key as its flagship, Casposo.
Getting to Casposo
Troy acquired Casposo, a gold/silver deposit located in the San Juan Province in Western Argentina, in May 2009.
“We acquired it for US$20 million upfront and a further US$2 million dollars payable on the sixth month anniversary of first production,” Benson says.
“After we acquired it we were able to upgrade the Resource by 32 per cent for the contained gold equivalent. In August last year we announced a 47 per cent reduction in the pre-capital costs of the project.”
Casposo’s previous owner had placed it at US$86.5 million. Troy’s first estimate was at US$45 million; a lucrative adjustment which Benson says the company was able to do for a number of reasons.
“One, we do our own in-house project management so we don’t employ an EPCM contractor. The other, we had a processing plant in Australia which we picked up and transported across to Argentina. Once we had that on site, it de-risked the project to a certain degree, so we were able to reduce the CAPEX further,” he says.
“The mine will change in character. For the first two years it was very much a gold mine with a small silver by-product but will then move to a point where silver is a co-product representing nearly half of the revenues. Similarly the mine starts as an open cut before transitioning to underground in year four.”
“The peak production year is the second year, 2012. It’ll be about 90,000 ounces of gold and about 20,000 ounces of silver/gold equivalent, so in all about 110,000 ounces of gold equivalent,” Benson says.
“We started construction in August last year and are already well-established. We’re on schedule for our first gold pour in the September quarter of this year, just 12 months from when we first started.”
Casposo also boasts a payback of just one year, making it a good financial return. In terms of further exploration potential, Benson says that the promise doesn’t end within Casposo’s leases.
“We have a joint venture on a neighbouring project called Castaño Nuevo,” Benson says, of the company’s earn-in option agreement with the owners of the Castaño Nuevo property, under which Troy can earn 100 per cent interest over four years.
If the company succeeds in proving up any ore at Castaño Nuevo, Casposo’s existing infrastructure, particularly the mill, is ready and waiting for ore to be trucked over and processed.
Continuing Troy’s track record
In short, Troy is an unhedged, multi-asset, well-partnered junior with a stellar track record for rewarding investors and an all-round great track record. With only 87 million shares out—a conservative amount for an Australian junior—the company remains disciplined with its funding and focused on growing the company through value creation. Troy will make a superb contribution to “the 100,000 ounces club,” for many years to come.
try.com.au
