Gold Road Resources (ASX: GOR) says construction of the world-class Gruyere gold project in north-easter Western Australia is 61% complete. The update came along news of a revision of the capital cost for Gruyere, which is being developed in a 50-50 joint venture with operator Gold Fields, to $621 million. The increase, from the previous capital estimate of $532 million, includes $30 million in scope changes and rainfall-related force majeure costs.
- First gold remains scheduled for the June quarter 2019
- Revised Project Final Forecast Capital cost estimate of $621 million (level of accuracy range ‐2% / +2%)
- Gold Road’s estimated share to date of agreed scope changes and force majeure costs is $15 million (50% basis)
- As at 27 July 2018, overall Project engineering and construction was 94% and 61% complete respectively with EPC construction (process plant and associated infrastructure) 39% complete
- Construction workforce currently 440, planning to peak during the September 2018 quarter at 600
- Yamarna Gas Pipeline and Gruyere Power Station completed ahead of schedule, with commissioning anticipated in the September 2018 quarter
- Primary Bulk Earthworks Contract carried out by MACA has been extended with the award of final TSF work and ROM pad earthworks
Gold Road Resources Limited (Gold Road) and Gruyere Mining Company Pty Ltd, a member of the Gold Fields Limited group (Gold Fields), reports the independent third party review of the Definitive Estimate (DE) for the Gruyere Gold Project (the Project) including the Final Forecast Capital (FFC) cost estimate has now been completed. The Joint Venture partners also provide an update on construction activities at the Gruyere site located approximately 200 kilometres east of Laverton in Western Australia.
Review of Definitive Estimate, and completion of Final Forecast Capital Cost
The independent third party review of the DE cost and schedule has now been completed. The review process with an independent third party confirmed forecast first gold remains scheduled for the June 2019 quarter which is in line with the guidance issued in the April 2018 Project Update[1]. The review highlighted areas in the cost estimate requiring further assessment which were also identified and updated by the Owners’ Team.
The Owners’ Team reviewed the DE in parallel to the independent third party review (Review), and have now completed the FFC estimate, taking account of the Review recommendations and further Project enhancements. It is now estimated the FFC will be $621 million (level of accuracy range ‐2% / +2%) which includes:
- scope changes and force majeure costs of $30 million; and
- contingency of $30 million.
The FFC represents an increase of 10% (including contingency) to the $532 million capital cost estimate issued in June 2017[2], after adding the $30 million in agreed scope changes and force majeure costs (i.e. $562 million).
Key contributors to the FFC increase (before contingency) include:
- Agreed Project scope changes. Since the last approved budget, in June 2017, the Owners have agreed to a range of scope changes that:
- improve operability and maintainability of the process plant and infrastructure
- bring forward operating and capital expenditure,’ including the purchase of additional equipment previously intended to be hired.
- Force majeure costs as result of the extreme 2018 rainfall events.
- TSF design change and increase in Schedule of Rates.
- Increased provisional costs of certain equipment, which are for the Project’s account, due to price inflation (eg steel, copper, oil) with original costs estimated on mid‐2016 vendor quotes.
- Changes in Project Owners’ Team and roster changes to improve retention in an increasingly tight labour market, resulting in higher labour costs.
- Increases in camp and certain logistical costs.
Gold Road’s estimated share of scope changes and force majeure costs to date is $15 million (50% basis). Accordingly, Gold Road anticipates funding a total share of the FFC of $284 million[3] representing a 8% increase on budget[2], and which is expected to be funded from Gold Road’s existing cash and working capital facilities. The remainder of the increased capital cost is to be funded by Gold Fields under the terms of the Joint Venture Agreement[4], which was negotiated as part of Gold Fields’ acquisition of a 50% interest in the Gruyere Gold Project in 2016[5].
[1] Refer Gold Road ASX announcement dated 23 April 2018
[2] Refer Gold Road ASX announcement dated 21 June 2017
[3] If the capital cost exceeds $614 million (based on the current agreed $30 million of agreed scope changes and force majeure costs), Gold Road will need to share any excess cost as the cost overrun facility would be fully utilised
[4] Gold Fields will fund the costs associated with Cyanide Code compliance and up to $50.7 million of costs overruns, excluding scope changes and force majeure costs
[5] Refer to Gold Road ASX announcement dated 7 November 2016
