PHOENIX GOLD LTD Annual Financial Report
30 June 2015
Corporate directory 3
Directors' report 4
Financial statements 25
Notes to the financial statements 30
Directors' declaration 58
Independent auditor's report to the members 59
Directors Dale Clark Rogers
(Executive Chairman)
Stuart John Hall
(Non-executive Director)
Ian Edward Gregory
(Non-executive Director)
Company Secretary Ian Edward Gregory
Registered & Head Office Unit 2 / 53 Great Eastern Highway Kalgoorlie WA 6430
Share register Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace
Perth WA 6000
Auditor PKF Mack
Level 4, 35 Havelock Street West Perth WA 6005
Tel: (08) 9322 2798
Fax: (08) 9481 2019
Solicitors Allion Legal
Level 9
863 Hay Street
Perth WA 6000
Tel: (08) 9216 7100
Fax: (08) 9324 1075
Bankers Westpac Banking Corporation 230 - 236 Hannan St
Kalgoorlie WA 6430
Corporate directory
30 June 2015
Stock exchange Phoenix Gold Limited shares are listed on the Australian Securities Exchange (ASX).
Website www.phoenixgold.com.au
Your directors present their report on the consolidated entity consisting of Phoenix Gold Limited ('the company') and the entities it controlled ('Phoenix') at the end of, or during, the year ended 30 June 2015. Throughout the report, the consolidated entity is referred to as the group.
The following persons held office as directors of Phoenix Gold Limited during the whole of the year and up to the date of this report:
Dale Clark Rogers Stuart John Hall
Ian Edward Gregory was appointed as a non-executive director on 8 May 2015. Jonathon Paul Price resigned as managing director on 8 May 2015.
The principal activity of the group during the financial year was mineral exploration and gold mining. There were no significant changes in the nature of the group's principal activity during the financial year.
The directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the date of this report.
Financial
The group made a net loss after tax of $20.3 million (2014: $9.2 million). The net loss included impairment charges on the Kintore West operation and Toll Milling Agreement of $4.6 million and the write off of previously capitalised exploration and evaluation costs of $1.0 million which related to areas of interest which have been relinquished or are planned to be relinquished. These areas of interest do not form part of the core assets of the group.
The total cash outflow of the group for the year was $5.4 million (2014: $6.5 million) which included operational cash outflows of $12.5 million, exploration and development cash outflows of $4.0 million. These outflows were offset by the issue of 136,455,000 new shares which raised $13.0 million after transaction costs.
As at 30 June 2015 cash on hand was $3.9 million (2014: $9.3 million). Overview
As of June 2015 the Company had an interest in 279 tenements (269 live and 10 pending) covering an area of 689 square kilometres. All tenements are located in the Eastern Goldfields of Western Australia and are within a 60 kilometre radius northwest of Kalgoorlie in the historic mining centres of Ora Banda, Grants Patch, Carbine-Zuleika and Kunanalling. All exploration activities conducted by the Company focussed on these tenement holdings (Figure 1).
The Company's aim for the year was to continue to increase its Mineral Resources and Ore Reserves through diligent exploration across its prospective tenement holdings and progress a staged development plan, including commencing mine development and production in the near term.
To this aim Phoenix successfully increased its total JORC Mineral Resources beyond the Company's goal of 4 million ounces, to 4.02 million ounces of gold, with Ore Reserves at 1.16 million ounces of gold (Table 1). Phoenix also undertook development and mining operations at its Kintore West open cut mine, progressed work on a joint venture with Norton Gold Fields Limited ('Norton') for development of Castle Hill Stage 1 and advanced a heap leach strategy to treat lower grade ore from its Castle Hill project.
Figure 1: Regional project locations
During the year Phoenix completed infill and extension drilling at its advanced mining projects to improve geological confidence and to test strike and depth extensions beyond the current mining envelope. This work was undertaken at the Kintore, Burgundy, Zinfandel and Red Dam projects on the highly prospective Kunanalling and Zuleika shear zones in the heart of the Western Australian Goldfields.
In total 357 RC percussion holes were completed for 23,919m at the four project areas; 11,125m completed at Kintore, 8,420m completed at Burgundy, 1,248m at Zinfandel and 3,126m at Red Dam.
The results of these drilling programs enabled the Company to achieve Mineral Resources growth beyond 4 million ounces with Resource updates for the Castle Hill Stage 3, Kintore, Red Dam and Burgundy gold projects announced during the year.
Project (Mill Feed) | Measured Mineral Resource | Indicated Mineral Resource | Inferred Mineral Resource | Total Mineral Resource | ||||||||
Mt | Au (g/t) | Au Oz | Mt | Au(g/t) | Au oz | Mt | Au (g/t) | Au Oz | Mt | Au (g/t) | Au Oz | |
Mick Adams/Wadi Kintore Castle Hill Stage 3 Red Dam Broads Dam Burgundy Kunanalling Ora Banda Carbine Zuleika North Stockpiles | 0.49 | 2.0 | 31,000 | 18.09 3.03 2.38 2.05 0.13 0.40 0.46 2.36 1.70 0.08 | 1.5 1.6 1.4 2.1 2.9 2.3 2.4 2.0 1.6 1.4 | 894,000 160,000 109,000 140,000 12,000 29,000 35,000 149,000 86,000 4,000 | 6.39 4.21 1.36 1.04 2.16 0.09 4.12 2.79 0.21 0.62 | 1.3 1.8 1.3 2.2 2.3 1.5 1.7 1.8 2.1 2.5 | 274,000 239,000 59,000 74,000 158,000 4,000 229,000 163,000 14,000 49,000 | 24.48 7.24 3.74 3.09 2.29 0.98 4.58 5.15 1.91 0.62 0.08 | 1.5 1.7 1.4 2.2 2.3 2.0 1.8 1.9 1.6 2.5 2.5 | 1,168,000 399,000 168,000 214,000 170,000 65,000 264,000 312,000 100,000 49,000 4,000 |
Total | 0.49 | 2.0 | 31,000 | 30.68 | 1.6 | 1,618,000 | 22.99 | 1.7 | 1,263,000 | 54.16 | 1.7 | 2,913,000 |
Project (Heap leach feed) | Measured Mineral Resource | Indicated Mineral Resource | Inferred Mineral Resource | Total Mineral Resource | ||||||||
Mt | Au (g/t) | Au Oz | Mt | Au(g/t) | Au oz | Mt | Au (g/t) | Au Oz | Mt | Au (g/t) | Au Oz | |
Mick Adams/Wadi | 1.04 | 0.6 | 22,000 | 21.54 | 0.6 | 400,000 | 10.98 | 0.6 | 198,000 | 32.52 | 0.6 | 598,000 |
Kintore | 6.68 | 0.6 | 131,000 | 7.87 | 0.6 | 156,000 | 14.55 | 0.6 | 287,000 | |||
Castle Hill Stage 3 | 3.80 | 0.6 | 68,000 | 2.01 | 0.6 | 36,000 | 5.81 | 0.6 | 104,000 | |||
Burgundy | 0.86 | 0.6 | 18,000 | 0.22 | 0.6 | 4,000 | 2.12 | 0.6 | 44,000 | |||
Red Dam | 1.89 | 0.7 | 44,000 | 0.97 | 0.7 | 23,000 | 2.86 | 0.7 | 67,000 | |||
Stockpiles | 0.48 | 0.6 | 9,000 | 0.48 | 0.6 | 9,000 | ||||||
Total | 35.25 | 0.6 | 670,000 | 22.05 | 0.6 | 417,000 | 58.34 | 0.6 | 1,109,000 | |||
Total Jan 2015 | 0.49 | 2.0 | 31,000 | 65.93 | 1.1 | 2,288,000 | 45.04 | 1.2 | 1,680,000 | 112.50 | 1.1 | 4,022,000 |
Project - Mill Feed | Proven Ore Reserve | Probable Ore Reserve | Total Ore Reserve | Cut off | ||||||
Mt | Au (g/t) | Au Oz | Mt | Au(g/t) | Au oz | Mt | Au (g/t) | Au Oz | g/t | |
Castle Hill (Stage 1) Kintore (Castle Hill Stage 2) Red Dam Kunanalling Ora Banda Carbine | 0.35 | 2.09 | 24,000 | 10.68 2.00 1.60 0.02 0.58 0.40 | 1.71 1.33 2.19 1.63 2.33 1.70 | 588,380 86,100 110,900 1,000 44,000 23,800 | 10.68 2.00 1.60 0.37 0.58 0.40 | 1.71 1.33 2.19 2.07 2.33 1.70 | 588,380 86,100 110,900 25,000 44,000 23,800 | 0.8 0.8 1.0 0.9 0.8 1.0 |
Sub total - mill feed | 0.35 | 2.09 | 24,000 | 15.28 | 1.74 | 854,180 | 15.63 | 1.75 | 878,180 | |
Project - Heap leach feed | 12.16 2.60 0.20 | 0.58 0.54 1.10 | 227,450 46,000 7,000 | 12.16 2.6 0.20 | 0.58 0.54 1.10 | 227,450 46,000 7,000 | 0.4-0.8 0.4-0.8 | |||
Castle Hill Kintore (Castle Hill Stage 2) Stockpiles | ||||||||||
Sub total - Heap leach feed | 14.96 | 0.58 | 280,450 | 14.96 | 0.58 | 280,450 | ||||
Total | 0.35 | 2.09 | 24,000 | 30.24 | 1.17 | 1,134,630 | 30.59 | 1.18 | 1,158,630 | |
Table 1: Mineral Resources and Ore Reserves
Note: Resource estimates are stated inclusive of ore reserve estimates.
The information in this report that relates to Ore Reserves relating to Castle Hill Stages 1, 2 and 3, Red Dam and Carbine are based on information compiled by Mr Glenn Turnbull who is a Fellow of the Institute of Material, Minerals and Mining. As at the relevant date, Mr Glenn Turnbull was a full time employee of Golder Associates Ltd with sufficient experience relevant to the engineering and economics of the types of deposits which are covered in this Target's Statement and to the activity which he is undertaking to qualify as a Competent Person as defined in the JORC Code 2012.
The information in this report that relates to Ore Reserves other than Castle Hill Stages 1, 2 and 3, Red Dam and Carbine are based on information compiled by Mr William Nene who is a member of The Australian Institute of Mining and Metallurgy. As at the relevant date, Mr Nene is a former full time employee of Goldfields Mining Services Pty Ltd with sufficient experience relevant to the engineering and economics of the types of deposits which are covered in this report and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 JORC Code.
The information in this report that relates to a Mineral Resource estimation for the Castle Hill Project Stage 1 and 3 is based on information compiled by Mr Brian Fitzpatrick who is a member of the Australasian Institute of Mining and Metallurgy and is also an accredited Chartered Professional Geologist. As at the relevant date, Mr Fitzpatrick was a Senior Consulting Geologist for Cube Consulting with sufficient experience relevant to the style of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the 2012 JORC Code.
The information in this report that relates to a Mineral Resource estimation for the Red Dam and Burgundy projects is based on information compiled by Dr Sia Khosrowshahi who is a member of the Australasian Institute of Mining and Metallurgy. As at the relevant date, Dr Khosrowshahi was a Principal Consulting Geologist for Golder Associates Pty Ltd with sufficient experience relevant to the style of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the 2012 JORC Code.
The information in this report that relates to Exploration Results and other Resources are based on information compiled by Mr Ian Copeland who is member of the Australasian Institute of Mining and Metallurgy and the Australian Institute of Geoscientists. As at the relevant date, Mr Copeland was an employee of the Company with sufficient experience relevant to the styles of mineralization and the types of deposits under consideration, and the activities undertaken, to qualify as a Competent Person as defined in the 2012 JORC Code.
Figure 2: Project tenement locations
Exploration
Castle Hill
The Castle Hill project, located adjacent to the historic Kunanalling mining area, is approximately 50 kilometres northwest of Kalgoorlie. Castle Hill has emerged as a major exploration centre for the Company. Geology at Castle Hill is dominated by the Kunanalling Sheet, a northwest trending lineament akin to the prolific Zuleika Shear 10 kilometres to the east. Semi-continuous gold mineralisation hosted within granitic and basaltic rocks has been defined along the eastern shear for a strike length of over 9 kilometres.
Mineralisation is amenable to open pit mining being generally near surface, free milling and comprising both large tonnage, base-load style mineralisation adjacent to higher-grade, shear-hosted lodes.
During the 2014/15 financial year 102 RC holes totalling 11,125 metres were completed at the Kintore project (Castle Hill Stage 2) aiming to test further extensions to the mineralisation to the south, north and east of the resource defined by previous drilling. It also aimed to validate historic holes drilled in the 1980s and infill areas to improve geological confidence for conversion into Indicated and Inferred categories for estimation of Resources.
The aim of the drilling programme was to test lateral extensions to the mineralisation both proximal and between the historic deposits. The drilling was successful in delineating the extent of the mineralisation north along the tonalite contact and defining additional gold mineralisation west internal to the tonalite. The mineralisation remains open in this direction on several drill sections and to the east where drilling has failed to delineate any structural or lithological closure to the gold mineralisation.
Phoenix also released during the year the results of extension drilling completed in the 2014 financial year at Castle Hill Stage 3, further demonstrating the growth potential of the large Castle Hill gold system.
The aim of the drilling programme was to test lateral and depth extensions to the mineralisation both proximal and between the historic deposits. The drilling was successful in delineating the extent of the mineralisation north along the tonalite contact and defining additional gold mineralisation west internal to the tonalite. The mineralisation remains open in this direction on several drill sections.
Completion of the above drilling and work programmes and further evaluation of the historical exploration data base has led to an increase of the Mineral Resource at Castle Hill:
Mill feed of 35.5Mt at 1.5g/t Au for 1,735,000oz
Heap leach feed of 52.9Mt at 0.6g/t Au for 989,000oz
This represents an approximate 10% increase on the mill feed Resource reported last year of 1,569,000 ounces and 11% increase on the heap leach feed Resource reported last year of 889,000 ounces.
The mineralised system at Castle Hill (Figure 3) remains open along strike and at depth and the Company believes the Project has the potential to become a very large multi-stage gold camp.
Figure 3: Castle Hill Project
Red Dam
During the year, the Company continued exploration drilling and drill targeting work on its second major exploration centre at the Zuleika Shear projects. Drilling was focused on the Red Dam project, which is part of the Broads Dam project area (including the Broads Dam, Blue Funnel and Red Dam projects).
The project area, less than 15 kilometres from the Company's Castle Hill Project, is located on the Zuleika Shear, which is renowned for hosting multi-million ounce gold deposits. For example the +6 Million ounce Kundana camp is located 15 kilometres to the south of Phoenix's Broads Dam Project area.
During the year 29 RC holes totalling 3,126 metres were completed at the Red Dam project with the aim of testing short range continuity of the central high grade zone and to test for up-dip extensions of the gold mineralisation in the northern peripheries of the deposit. Positive results from the drilling demonstrated the potential for both open pit and underground development that is typical of the Kundana area.
Phoenix increased Mineral Resources at Red Dam to:
Mill feed (at a 0.8g/t Au cut off) of 3.1Mt at 2.2g/t Au for 214,000oz
Heap leach feed (at a 0.4g/t Au cut off) of 2.9Mt at 0.7g/t Au for 67,000oz
Burgundy / Zinfandel
A total of 17 RC holes totalling 1,248 metres were completed at the Zinfandel project (2kms immediately south of Burgundy) in the first quarter of the period. The aim of the programme was to test further extension to the mineralisation to the north and south of the deposit, validate historic holes, and convert Inferred material into
the Indicated category. A further 209 RC percussion holes for 8,420m were completed at the Burgundy deposit in the 3rd quarter. The aim of this drilling was to infill the previously defined resource to a 10m (N-S) by 7m (E-W) and 10m (N-S) by 14m (E-W) grid to obtain data on the short range continuity of the gold mineralisation. This data could be used for updating of the Burgundy resource estimate and extrapolated to
define infill drill spacing on other parts of the deposit.
Mineral Resources at Burgundy increased to 109,000oz, up 47% from the Resource published in February 2014:
Mill feed of 0.98Mt at 2.0g/t Au for 65,000oz
Heap leach feed of 2.12Mt at 0.60g/t Au for 44,000oz
Geological Targeting Study - Kunanalling and Zuleika Shear zones
In February the Company reported the results of a three year 4D mineral evolution research program that delivered over 30 high priority drill targets on the Kunanalling and Zuleika Shear Zones.
The PhD linked study, undertaken in conjunction with the University of Western Australia's Centre for Exploration Targeting led to an increased focus by the Company on the Zuleika Shear, where the tenure has had limited to no modern exploration.
In May the Company announced it had formed a strategic partnership with Evolution Mining Limited to accelerate exploration on its highly prospective Zuleika shear gold projects, covering the Broads Dam, Kundana North, Carbine and Zuleika north project areas.
Figure 4: Zuleika Shear zone priority target areas
Resource Estimates
The total resource estimate for Phoenix Gold Ltd increased by 27% in 2015 over the total estimated resources stated in January 2014. The largest increase (+24%) was in the Heap Leach category due to the inclusion of Castle Hill Stage 3 which had not been reported in January 2014. Mill Feed estimated resources increased by 3% due to an increase in the Castle Hill Stage 2 estimated resource and inclusion of Castle Hill Stage 3. The small increase in Mill Feed estimates resources was a function of Castle Hill Stage 2 and Burgundy being reported at a 1.0gAu/t cut-off grade to reflect that the majority of these deposits would be processed through a toll treatment facility as part of the Staged Development mine plan rather than the proposed Castle Hill stand-alone processing facility. Estimated resources for this facility have been reported at a 0.8gAu/t cut-off grade.
Mining Operations
Safety & environment
Safety and environment performance for the year was acceptable with no lost time injuries or reportable environmental incidents. There were a number of minor safety incidents reported that have been subsequently investigated and corrective actions put in place.
Kintore West
Mining at Kintore West was undertaken during the financial year commencing in August 2014 with first gold production in October 2014. Mining of the Kintore West pit continued throughout the December and March Quarters with the mine advancing through the transitional material to the fresh ore. However, the selective mining of high grade vein sets within a lower grade stockwork system proved more amendable to bulk mining and led to lower mined grades than anticipated. Mining was completed in April 2015 with the mill campaign completed in May 2015.
Total production to 30 June 2015 of high grade ROM ore was 367,000 tonnes at 1.3 g/t for 14,115 ounces of recovered gold at a process recovery of 95%. Cash Costs ('C1') for the year were $1,878 per recovered ounce and the All In Sustaining Costs ('AISC') were $2,359 per recovered ounce inclusive of all ore mining and waste removal costs, royalties, corporate overheads and exploration expenditure.
In addition to the high grade ore, some low grade ore was added to the blend in the December and March quarters, and in June 2015 the Company commenced a supplementary milling campaign of 100% low grade ore at the Greenfields processing plant, which was completed on 2 July 2015. Low grade ore treated throughout the year was a total of 109,777 tonnes treated at a reconciled grade of 0.75 g/t for 2,352 ounces produced.
Plans to mine additional projects such as Burgundy, Red Dam and Nazaris remain under review pending the outcome of the Norton joint venture and associated cash flow from the Mick Adams and Wadi open pit developments. The primary focus for the Company remains the Norton joint venture at Castle Hill Stage 1 and the heap leach project.
Business Development
Norton Joint Venture Arrangements
In 2014 Phoenix delivered to Norton separate Feasibility Studies on the Mick Adams/Kiora and Wadi projects ('Castle Hill Stage 1') in accordance with an existing option to mine and treatment agreement.
Under the terms of the agreement:
Norton may exercise an option within a 6 month period after the Feasibility Study delivery, expiring mid-August 2014;
Upfront capital development is funded by Norton;
Mining, haulage, milling and rehabilitation is conducted by Norton;
Subject to fleet availability, mining is to commence within 3 months of execution of the formal agreement;
As the project becomes cash flow positive on a production cost basis, Phoenix receives 50% of the resultant cash surplus.
In August 2014 Norton notified Phoenix it had exercised its option to enter into a mine and ore sale agreement.
During the year a joint mining study was commissioned to re-optimise the Mick Adams/Kiora and Wadi projects using the agreed JORC 2012 geological models prepared by Cube Consulting, updated capital and operating costs, and updated mining fleet selection information provided by Norton. The study was released and announced to the ASX on 21 January 2015.
The study indicated the potential for a larger project, delivering 398,200 ounces from mining 8.7 million tonnes at a grade 1.51 g/t and a recovery of 94%. At a A$1,350 gold price the study showed the project could potentially deliver a $91 million cash surplus to be shared equally by Phoenix and Norton. The final mine design and ore schedule is yet to be finalised with Norton which may result in a different physical and financial outcome from that presented in the study.
The Company and Norton continued to work to complete and execute the final Licence to Mine and Ore Sale Agreement with respect to Castle Hill Stage 1. Development at the Mick Adams and Wadi open pit projects (Castle Hill Stage 1) is expected to commence once the Agreement is signed.
Heap Leach Strategy
During the year Phoenix entered into an agreement with St Ives Gold Mining Company Pty Limited to purchase a standalone 2.3Mtpa heap leach processing facility. The total consideration payable is $2.05 million with
$0.45 million paid during the financial year and further deferred payments of $1.1 million and $0.5 million due in September and December 2015 respectively.
In March 2015 results of a Definitive Feasibility Study (DFS) on the Heap Leach Facility estimated total net cash flow to the Company (after capex, before tax) of A$70 million over the project's current 7 year life. Based on an assumed gold price of A$1,500 per ounce, the DFS demonstrated robust financials with a pre-tax net present value of A$40.6 million (at an 8% discount rate) and strong IRR of 45%.
The heap leach ore will be sourced from the lower grade stockpiles mined from the Mick Adams-Kiora, Wadi, Kintore, Castle Hill Stage 3 and Burgundy open pits. The Mick Adams and Wadi projects are currently the subject of the License to Mine and Ore Sale Agreement with Norton. The lower grade material is stockpiled separately and is available for heap leaching by Phoenix.
The current Mineral Resource for the heap leach project stands at 58.34Mt at 0.60 g/t Au for 1,109,000 ounces. The current Ore Reserve for the heap leach project stands at 14.96Mt at 0.58 g/t Au for 280,450 ounces.
Relocation, refurbishment and recommissioning of the plant and construction of the heap leach pads will happen over a 12 to 15 month period at a capital cost estimated at A$34.4 million.
Project financing for development of the Company's heap leach project was progressing at year end with Phoenix continuing engagement with a number of domestic and international financiers.
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