Gold Road Resources (ASX: GOR) updated the market on the definitive estimate and construction activities at its Gruyere Gold Project east of Laverton. The provisional forecast from a schedule review shows that first gold is likely early in the June 2019 quarter, rather than at the end of the March 2019 quarter as previously forecast. In addition, the capital cost estimate has increased, with the provisional forecast cost now moving to the upper end of the forecast range of $506m-$585m.
Gold Road Resources Limited (Gold Road) and Gruyere Mining Company Pty Ltd, a member of the Gold Fields Limited group (Gold Fields), provides an update on the Definitive Estimate and construction activities at the Gruyere Gold Project (the Project), which is being developed as a 50:50 Joint Venture approximately 200 kilometres east of Laverton in Western Australia.
Highlights
- At the end of the March quarter, overall Project engineering and construction were 84% and 44% complete respectively, with EPC (process plant and associated infrastructure) construction 17% complete
- Previously flagged abnormal weather events in the March quarter have impacted schedule and costs
- Provisional estimate from the recently completed Definitive Estimate indicates some schedule delays and capital cost increases
- Downer commenced site mobilisation in preparation for mining activities
- Gas pipeline and power plant progressing well
- Project construction delivering employment opportunities for remote communities
Provisional Definitive Estimate – Cost and Schedule
Following completion of 80% of engineering work (which at end of March was 84% complete) and the award of all major contracts and packages, the Project team have recently completed the Definitive Estimate of the capital cost and schedule for the Project. The next stage is for an independent external party with relevant experience in this field to conduct a review of this Definitive Estimate, which is anticipated to be finalised in May 2018.
As previously reported[1], the Yamarna region in which Gruyere is located experienced abnormally high rainfall during the March quarter, leading to localised flooding and access constraints to certain parts of the Project area. The impact of the weather has been incorporated into the schedule, and an additional allowance has been factored in for possible further weather interruptions in the 2018/2019 summer.
The provisional forecast from the schedule review shows that first gold is likely early in the June 2019 quarter, rather than at the end of the March 2019 quarter as previously forecasted. In addition, the capital cost estimate has increased, with the provisional forecast cost now moving to the upper end of the forecast range of $506 ‐ $585 million ($532 million ‐5% / +10%)[2], which includes a contingency of approximately $30 million.
The Project team and our major contractors are working collaboratively on a number of initiatives to improve the schedule and capital cost from the Definitive Estimate.
Causes of potential cost increases are being reviewed for classification as either a scope change, force majeure due to weather issues, or cost overruns. Under the terms of the JV Agreement, Gold Fields is responsible for the first $50.7 million of Project cost overrun which excludes scope change or force majeure costs[3].
In addition to weather events and schedule extension related costs, a provisional review of the Definitive Estimate identified capital cost changes to the tailings storage facility design; increases for some equipment in the EPC contract (originally included as provisional costs); scope changes in final design of process plant and facilities; increased quantities in bulk earthworks; changes in Owners Team costs and logistics costs due to rosters and manning numbers; and increased spares and first fills.
The capital cost estimate for the Project is an estimate of costs to the end of Project commissioning. It excludes budgeted joint venture support costs for the Project. These costs include joint venture management fees, amortisation of gas and power station capital costs before project commissioning, native title and community relations costs. The project support costs are tracking to the budget of $35 ‐ $40 million from commencement of Project to the end of project commissioning.
At the end of the March quarter, overall Project engineering was 84% complete and overall construction was 44% complete, with the EPC (process plant and associated infrastructure) construction 17% complete.
[1] Refer to Gold Road ASX announcement dated 5 April 2018
[2] Refer to ASX announcement dated 21 June 2017
[3] Refer to Gold Road ASX announcement dated 7 November 2016