Geopacific Resources (ASX:GPR): Interview with CEO Tim Richards

November 17, 2021

Geopacific Resources, Gold, GPR, video

Summary

Geopacific Resources (ASX:GPR): We spoke with CEO Tim Richards about the recent delays to commissioning at its forthcoming Woodlark Gold Mine in Papua New Guinea and how the first gold pour for this project is still expected in early 2023.

In particular we looked at the issues that have emerged regarding the wharf on Woodlark Island This is now being fixed.

See full transcript below.

 

Read our most recent research on GPR here

 

Transcript

 

Stuart: Hello, and welcome to “Stocks Down Under”. My name is Stuart Roberts and I’m one of the co-founders of our publication. And joining me this morning on the 15th of November from Hastings Point, New South Wales is Tim Richards, who’s the CEO of Geopacific Resources (ASX-GPR). Tim, good morning?

Tim: Morning, Stuart. How are you?

Stuart: You’re a very fortunate person. You’ve just come back from Papua New Guinea, and because of the way the state of New South Wales works, you’ve been able to quarantine at home. Whereas if you’d come through Brisbane, you’d be quarantining in some godforsaken hotel in Brisbane.

Tim: I have done a number of hotel quarantines in Brisbane now, and I must admit yes, finally the New South Wales is a lot more enjoyable.

Stuart: Now. You’re in a very interesting position right now with Geopacific Resources. We’ve got 1.6 million ounces of gold in 2012 on Woodlark Island. The project is now fully funded with a funding package from Sprott, plus a big 140 million equity raise at 42 cents a share that was completed last year. So we’re in the stage where we’re building out the project right now. But last week you had to announce some delays. Talk us through briefly what’s happened on Woodlark Island just in the last few months.

Tim: Certainly. So look, the release last week, flagged due to weather and COVID. The construction activities on the island weren’t advancing as quickly as we’d initially envisaged in the schedule. Primarily, the weather impacts affected the box cut for the CIL. Due to the material type we’ve got on Woodlark island corners, there’s quite a risk of cavity. So the Geotechs, when they looked at the plant footings, made the call that we needed to box out to five meters and fill that back in with engineered fill to ensure the structural integrity of the plant. So the box cut was dug without any issue. But the higher than anticipated rainfall over that period meant that it was a bit challenging to get the engineered fill back in with the moisture and the compaction characteristics that the Geotechs wanted.

We are starting to see the weather improve now, and we’re starting to make good progress, but nonetheless, there has been some delays attributable to that. And then the other impact, obviously, COVID. Although we’ve been very fortunate on the island that the cases of COVID have been minimal in the context of, I guess, the broader PNG and the rest of the world, it still has impacted us in terms of our ability to move expatriates in and out of Australia to Papua New Guinea. And also, domestically, moving our fly-in fly-out staff within PNG. We’ve always had very tight protocols governing the movement of our fly-in fly-out staff from Port Moresby to the Island, with the primary aim of not introducing COVID to the island. But that’s meant that often while the guys are doing their quarantine period in Port Moresby, if they test positive, they obviously can’t come to the island.

So our fly-in fly-out staff are primarily our, you know, mid-level to senior-level supervisors. And the absence of those guys certainly has an impact on your ability to undertake the works on the island. We are starting to adjust our protocols now to reflect the fact that we are seeing cases unrelated to the mine within the broader Woodlark community. So the mine’s approach to COVID is transitioning, you know, similar to the Australian economy’s approach transitioning from a zero COVID focus to living with it.

Stuart: To living with it, basically.

Tim: Living with COVID. We provide vaccinations on the island. We’ve got a full clinic. We, you know, are very well supported by the PNG Health Service in terms of having access to the Johnson&Johnson vaccines and AstraZeneca.

Stuart: Compliment in part, the Australian taxpayers have been sending a lot of vaccines up there.

Tim: Yeah. Between the Australian government and the EU, PNG’s issues with vaccinations aren’t due to a lack of availability of vaccinations. Unfortunately, social media has not done PNG any favors in that regard. There’s still a lot of half-truths and, you know, unfounded stories floating around the internet. But I guess that’s not unique to PNG by any means. So we’re pushing hard to try and get vaccinations rolled out on the island but it’s a challenge.

Stuart: Sure. Okay. So basically as soon as it stops raining on Woodlark, we get the box cut for the CIL completed in reasonably short order? COVID is what COVID is. You also talked in the release about some issues with the pricing of your wharf. And, of course, Woodlark is about 500 kilometers by sea from Port Moresby, so all of your equipment is going to have to be barged in and out, so this wharf is important. Talk to us about what happened there.

Tim: Certainly. So I think, again, the release probably paints a more negative picture than the reality on the island. We have an existing wharf facility at a location called Boiboi. And that’s primarily a roll-on roll-off facility at the moment, which for those people who aren’t familiar with PNG, the vast majority of the islands in PNG are supported through sort of landing barges that just pull up either on the beach or in a dedicated sort of roll-on roll-off facility and unload. That’s what supported the operations for many years.

Now, during the feasibility study, the decision was taken to build a new facility. Now, the geo-tech drilling, when we did that earlier this year, came back and indicated that the ground conditions there were much worse than what we’d envisaged. So when we priced up the design to address those conditions, it was obviously a hell of a lot more expensive than what we budgeted for. Over the last month, while I’ve been out on the island, we’ve reviewed upgrading the existing facility, which has a number of benefits. You know, primarily it can be built from shore. The water gets a lot deeper. So the proposed facility under the feasibility study was about 165 meters offshore due to the sort of tidal flats that were located close by. Whereas the Boiboi wharf is only about 10 meters offshore.

So it can be constructed from land. It’s substantially simpler to build. And we’re in the process of pricing that up now. And we think that that’s going to represent a substantial saving compared to the current sort of pricing we’ve got in our models. So we’re very confident that going to the Boiboi wharf solution will certainly pull a fair bit of money out of the current project budget.

Stuart: Sure. Now, of course, then you’ve got to go and communicate with everyone including your principal financiers in Canada, for example. But that’s more a communications issue. You flagged in the release that the folks, your primary financiers have been quite supportive to date and continue to be supportive.

Tim: Certainly. Look, I mean, we’ve talked to Sprott, you know, at the very least on a weekly basis. We’d flagged the cost implications of the new wharf with them some time ago. We’ve communicated to them what our plan of attack is to try and address that. And now it’s just a matter of getting the pricing back, you know, based on the detailed design work that the engineers have done. Sprott does remain supportive. And as I said, it’s a communication issue. We continue to talk to them, flag what we’re doing to address it. And, you know, they’re behind us, they’re still committed with the 85 million debt. Obviously, we’ve drawn down the 15 million stream at this point in time. But we still got, you know, plenty of equity, all of the debt sitting there. And, you know, the issues that we identified in the release last week, they reflect a delay. But, you know, given the current circumstances, we’re not talking a massive delay here. And you know, it’s probably not unusual for a project of this nature to have some delays associated with it.

Stuart: Cool. I mean, as I like to tell people, there are mines that come in on time and under budget every time, but that happen in a parallel universe to the one that we live in, basically.

Tim: Yeah. I mean, look, it’s not something we wanted. It is a very simple project. It is still a very simple build. Unfortunately, just, you know, the weather and COVID have introduced a few variables that are very difficult to model when you’re doing your baseline schedule. But we’re working through them, and we’re still very confident that the underlying project remains what it is. The metrics are great and they were done at 2200 Aussie gold let alone 2500, 2600 where we sit today. And it’s still a hell of an exploration story. We’ve got this…

Stuart: And this is the part that interests me. You’ve got Aussie rigs now being mobilized on the island. And part of that will be great control for the existing 1.6 million ounces, but it’s a fair bet there’s more where that came from. Some of that might show up with this program, right?

Tim: Certainly. And that’s what we’re targeting at the moment around Kulumadau. And we’ve also drilled a few holes at Busai. The primary focus is Kulumadau at the moment. You know, as we’d flagged to the market previously, we’re not interested in adding ounces at depth, we’re interested in the surface extent to the mineralization. So at the moment, we’re doing, sort of, 100-meter holes adjacent to the existing Kulumadau pit as the village relocation progresses and we get access to areas where previously we were unable to drill.

So we’re very confident that we’ll see some additions to the resource. And for us, you know, we really want to understand just how big this thing can be. I think there’s going to be RC rigs and probably diamond rigs on the island for some years to come. And the focus will evolve over time from surface mineralization, which impacts the first couple of years of production through to, you know, deeper drilling, which ultimately grows the project in size and mine life over the longer term.

Stuart: Right. Now, and of course, a lot of people are forgetting how straightforward this thing was on the flow sheet. Your ore is free-milling. Processing through that CIL plant, which you’ll have in place once the box cut gets done. And of course, once the box cut’s in place, the rain can’t hurt you at that point. And the processing plant will just go ahead. But you’ve got a really straightforward flow sheet that even a layman like me can get their head around without too much trouble.

Tim: That’s it. It’s a fully oxidized deposit. You know, you’re not dealing with concentrate, you’re producing dore. Single-stage crushing through the sag mill, through the bull mill. There’s a gravity circuit. And then there’s your CIL tanks, produce dore, throw it on a plane once a fortnight through to the Perth mint. Really simple from a metallurgical perspective, you’ve got, you know, recoveries in your low 90s. From a mining perspective, multiple open pits, plenty of stages. So you’re not really exposed to too much geo-tech risk. You’ve got multiple mining phases. Shallow mineralization. It’s a really simple project. And look, you know, the wharf’s getting a bit of attention at the moment, but this misconception that operating on an island is a lot more challenging than operating on the mainland, I… You know, my experience is in over six years in PNG, operating on an island is far superior to operating in the mainland. If you look…

Stuart: It’s flat, for a start. On Simberi, it’s flat as a pancake, right?

Tim: Well, Simberi is flat, but more from a logistics perspective. For example, you try and bring a mill into WA, you’ve got to break it all the way down to get it through Perth. Then you’ve got to trap it on road, trains, for hundreds if not thousands of kilometers to get it to your project. For us, the mill leaves China, sails directly into lay, trains, ships in lay, comes on a vessel straight to the island. We don’t have to worry about roads. We don’t have to worry about all of those challenges.

HBS’s mining fleet, for example, will all be preassembled in Brisbane. It’ll drive onto the boat in Brisbane, that boat will clear customs in Port Moresby, and then it’ll unload the gear fully assembled on site. And then the gear just drives to site. You know, if you’re trying to do that in Queensland and run a 775 up the highway, you’re probably gonna run into a few issues. But logistics on an island, it’s just so much simpler, because you don’t have to break things down for road transport. So, you know, once we get through this little challenge with the wharf now, life becomes really simple. So yeah, there are a lot of benefits to being able to get everything delivered by boat rather than having to deal with highways and bridges and overpasses.

Stuart: Certainly. Now, I mentioned Simberi a second ago. I like to joke that you’re the man who single-handedly saved St. Barbara several years ago. You were the general manager at Simberi when they had a few teething problems, to say the least, at the start of the project. Over your tenure, it’s fair to say most of those were sorted out, right?

Tim: We were able to get together a good team. And we had a good run from, sort of, 2014 through to 2019 with Bob Vassie running St. Barbara and the right team on Simberi. We had a really good run. You know, the similarities with the Woodlark project, uncanny in many respects in terms of the size of the process plant, the style of the mineralization, and obviously, you know, operating on an island environment. But, you know, I think what Simberi showed and in a much lower gold price environment than where we sit now, is that if you have a simple project and you run it with a close eye on the cost, you can make great margins. And at the end of the day, that’s what we’re interested in as a management team, and I certainly know the shareholders have a similar view.

You don’t need to be a mega project to generate really good returns. And that’s what our focus is at Woodlark. And I think, you know, if you look at what the team at K92 have done over the last few years in terms of really driving the share price on the back of exploration success. And that’s the benefit that Woodlark certainly got over what I had in my time at Simberi. You know, Simberi was a much more mature deposit in terms of the amount of exploration work that had been done. Woodlark, you know, we’ve got a 1.6 million ounce resource, over a million ounces in the reserve. But we haven’t touched the sides on the exploration. We’ve got a great little project that’ll be generating an excess of 100 million a year in free cash, but, you know, fundamentally, it’s still an exploration play.

Stuart: I mean, let me remind the viewers of the economics here. We’re talking an NPV of 347 million Aussie on an 8% discount rate. And all in sustaining cost is a mere 12 or 1,300 Australian dollars an ounce, which is not to be sneezed at, right?

Tim: It is. And, you know, when you look at that 1,239 an ounce, that also takes into account the latter years of stockpile rehandle, where obviously margin’s substantially lower than what it is in the early years. That’s really where we see the benefits of the exploration strategy, is when the mine’s producing at over 100,000 ounces a year in those early years, you’re making phenomenal margins. And that’s, you know… All of those metrics you just highlighted were at 2,200 Aussie gold. But we’re, you know, significantly higher than that at this point in time. And really the only thing that the higher gold price does to our cost is it’s a bit more royalty costs on top, the rest is pure margin. So, for us pushing hard on the exploration, getting this project into pour and gold, whether it’s in early 2023, nothing’s changed. It’s a delay, but fundamentally the project’s just as good if not better this week than it was, you know, a fortnight ago before we put out the release.

Stuart: Sure. Well, Tim Richards, keep up the good work. You’ve got your challenges, as anyone has in the development stage of a project as exciting as this. Good luck but keep up the good work. And here’s to the next few months while we ride the ship and get things moving forward.

Tim: Thanks, Stuart.